Latin America is becoming an increasingly popular region in which to do business—and foreign company formation in Latin America is on the rise. The various Latin American jurisdictions are showing further signs of economic growth as commodity prices rise and infrastructure improves. Furthermore, the region is home to an abundance of natural resources, many of which have still not yet been exploited. The region has an abundance of potentially lucrative business opportunities available for those looking to invest or expand into Latin America. It is therefore unsurprising that a range of startups are entering Latin America, and governments across the region are also actively encouraging Foreign Direct Investment (FDI).
Making the Move into Latin America
When new businesses begin with the all-important process of hiring and recruitment, companies may wish to seek employee talent outside of the country where the business is incorporated. For example, a company based in the UK may wish to hire employees from Argentina, but, unfortunately, doing this is not as simple as it may sound. This is because of employment laws put in place to protect employees. Therefore, companies based in one country cannot simply hire employees from another country.
In order to hire individuals from different countries and thus access new markets, there are two popular options. Businesses can either form a partnership with a Professional Employer Organization (PEO), preventing the need to set up a legal entity in the desired country. On the other hand, businesses can incorporate a local legal entity in their country of choice to then give them the platform to hire local employees through their company. Businesses’ specific needs and requirements will determine which option best suits its decision.
Professional Employer Organization (PEO)
A Professional Employer Organization (PEO) is a B2B service company that enables newly formed businesses to focus on their growth and expansion rather than on the time-consuming HR tasks of employee recruitment and management. Your company and the organization will form a ‘co-employment’ relationship meaning that the PEO will undertake the essential administrative tasks of managing employees such as recruitment, payroll, taxes and payment of employee benefits.
By outsourcing HR tasks, it will enable your company to focus on the direct control of your employees and their development rather than on the burden of HR administration. If you are a company wanting to hire employees from a range of countries worldwide to reap the benefits of a multinational workforce, but do not wish to incorporate a local company in a new country, then an International PEO is a great solution. Choosing to work with a PEO is a viable solution for recruiting without the need to establish and maintain a local company.
Listed below are some key benefits of working with a PEO.
- Time-effective – Removes the need for you to undertake the time-consuming but fundamental tasks of processing employee payrolls and other HR administration.
- Cost-effective – Reduces administrative expenses involved in creating, maintaining and managing a local company.
- Recruitment – Assists you with global staffing, in finding the most suitable and qualified staff for your company.
- Local expertise – Ensure that your company complies with all local employment laws and regulations.
If you wish to take advantage of a diverse workforce, and access markets outside of where you operate then you can complete the required processes through the formation of a company in Latin America.
Setting up a legal entity in your desired country means having access to the local workforce and at the same time being able to maintain full control of all company operations in a new market. Furthermore, by deciding to undertake the administrative tasks of employee management, your company does not have to pay the additional expense of a service fee to a PEO provider. Additionally, incorporating and managing a local company as opposed to a PEO solution gives you greater control over your employees and overall operations.
There are four main types of companies that can be formed in Latin America and regardless of which entity you choose, all will give you access to the local workforce. Please note that the types of legal entities do vary slightly depending on the country:
- Corporation (Sociedad Anónima, S.A.)
- Simplified Shares Company (Sociedad por Acciones Simplificadas, S.A.S.)
- Limited Liability Company (Sociedad de Responsabilidad Limitada, SRL/ LTDA)
- Branch Office (Sucursal de Sociedad Extranjera)
To incorporate a company in Latin America, whichever legal entity you decide is most appropriate for your business needs, several key steps must be followed. The general steps are as follows:
- Complete a company name search
- Prepare the company bylaws
- Obtain the official company books
- Register the company with the local authorities
- Obtain the company tax ID
- Open a corporate bank account
There are also a few basic but fundamental statutory requirements when incorporating a company in Latin America:
- Designate a company legal representative
- Register a legal/fiscal address
- File regular tax declarations
Which Option Is Best for Your company?
On the one hand, if you do decide to incorporate a legal entity in Latin America, then you are able to have full control of business operations. On the other hand, if you decide that incorporating a legal entity in Latin America could prove to be too time-consuming or costly, and you would rather focus on global expansion elsewhere, then working with a PEO would be the most appropriate solution to hire employees worldwide. Whether you decide to use a PEO or independently form a company in Latin America, both have their benefits and drawbacks.
Neither option is better; it is simply a question of which best suits your business needs, budget, and time constraints. Regardless of the way in which you decide to hire a local workforce, if you are interested in entering this rapidly expanding region, reach out to Velocity Global. We can help your business establish a quick, compliant presence in Latin America with our International PEO solution—and we can assist in establishing a permanent presence in the region with our entity setup and support services. Ready to get started? Let’s chat.