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How to Manage Payroll if your Company has No Legal Entity in the Country

Managing payroll without a legal entity in the host country is a common challenge in global mobility when hiring your first employees in a new location.

Just so you are aware, many countries are cracking down on overuse of business visas and non-compliance with employment and payroll laws.  When deciding which option to choose, you will have to weigh in the factors of cost, complexity and the risk of non-compliance (which carries its own costs with penalties and fines).

Here are your four basic options for payroll:

1. Home/Remote Payroll

Obviously, this is your easiest option since you could just keep the employee on the home country payroll and find a way to remit their salary (along with any allowance for housing, transportation, etc.).  It’s good for your employee also, as it gives them complete continuity of compensation and benefits while on assignment.

A few countries do permit this, and some even have special provisions for paying employees remotely while in the country.  However, the majority of countries will not allow any kind of remote payroll, and will insist that you find another way to payroll long term employees on assignment using a local entity.

Pros: easy to implement, low cost, low commitment to destination

Cons: often not permitted, non-compliance penalties, salary remittance

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2. Employ through a third-party (vendor/supplier/client)

You could also consider employing your worker through a third party already set up in the destination.  If you have existing relationships with local vendors or suppliers who operate through a registered corporate entity, they might be willing to simply place your employee on their own payroll.

This is really more of a ‘work-around’ to the payroll rules, but can be a good solution for you in the short term or if you have minimal staffing needs in the host country.  Naturally, you will have to set up some way to funnel the salary amount to the third party who is paying it on your behalf.  It should be a trusted party, who you are confident is in compliance and can handle it for you legally.

Pros: avoid the need to incorporate, quick deployment, good for short term

Cons: hard to ensure compliance, arranging payment, finding a trusted party

3. Outsource payroll to a GEO

Your single best avenue for payroll abroad (without setting up a local company) is the use of a GEO solution.  When you use a GEO like Shield GEO, your employee is put on the payroll of our local employer of record, who is already in place and ready to legally hire your employee.

The GEO will set up payroll, calculate all salary and statutory contributions, and pay the employee directly.  This option will also work for you if you want to do some type of split or shadow payroll, and you can see more information about those methods in this article.

In addition, the GEO can assist you with immigration, sponsoring work permits and visas, as well as ensuring that your employee is paid according to local rules (i.e. payslip, bank account, social security, taxes).  You didn’t mention the size of your company, but some small or medium size firms will also use a GEO long term, and avoid the expense of local incorporation (along with learning all of the local employment laws).

Pros: fully legal and local payroll, accurate tax and contributions, easy and fast to implement

Cons: large companies may want their own entity or branch office in the host country

4. Incorporate and register a local entity

If your company has a commitment to a foreign market, it may be worth the time and expense to set up your own corporate entity.  This requires extensive registration, compliance and even capitalization steps, and you will need local legal and financial assistance.

This is your most expensive and complex option, and is really only practical if you have multiple employees assigned for a long period of time.  Even setting up a branch or representative office often carries the same compliance and registration requirements, and this is an overall strategic decision rather than just an HR issue.

Please contact us if you have follow up questions, or want to know more about how the Shield GEO employer of record service might work in your situation.  We are here to make international employment simple, and to help you at every stage of an assignment.

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Looking for a better way to employ someone in a new country? Get in touch.

The information in this article is subject to changes in local legislation.

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