Thank you to all who attended last week’s European Expansion Webinar presented by Global Upside and IBT Partners.
Although we tried to answer many questions during the live session, there were still some questions we couldn’t cover in time.
Q: Does having contractors in a country create Permanent Establishment (PE)?
One of the biggest concerns for multinational companies is the creation of Permanent Establishment (PE). PE is a fixed place of business where “business activity” results in locally generated revenue and creates a need to comply with local taxation requirements.
Employees with a sales related compensation, title, or job description can trigger a PE. Hiring an independent contractor is less likely to trigger a PE, however, it must be crystal clear that the position is a contractor and not an employee, which is generally very hard to do if the “contractor” behaves like an “employee”. Misunderstandings can lead to prompting a PE.
Q: Multi-country payroll is a big challenge – how do you handle it?
Lots of companies try to save costs by running their international payroll in-house but unless your payroll team has the knowledge and expertise in foreign HR, statutory and supplemental benefits, and their taxability and other payroll tax requirements – your company is at risk of non-compliance penalties.
Global Upside brings the expertise and understanding of local processes, systems, currencies, taxes, benefits and employment laws allowing us to manage and deliver to the local requirement – regardless if it is one country or multiple countries. We can take care of headquarter and local requirements at the same time.
Q: Do any countries require bilingual employment contracts?
Most European countries will require the employment contract to be written in the local language with English as the optional language (e.g., Germany, France, Italy, Serbia, and more). It is important to ensure that you are extending a compliant local contract in the local language – as the local version usually prevails before the court.
Q: What does it take to start payroll in a new country?
First and foremost, registration – both legal and payroll – must be established first. Then the steps that follow include drafting an employment contract and setting up a bank account.
Q: What countries are the most difficult from an HR perspective?
Most countries in the European Union are difficult from an HR perspective due to data collection and transmission privacy policies. France’s expensive social taxes, restrictive labor laws, Works Council, and tough disciplinary/dismissal laws makes it the most difficult from an HR standpoint. Next would be the Netherlands because terminating employee relationship requires involvement from the Tribunal Court.
Q: Can we avoid all Permanent Establishment employment issues by using contractors?
Yes, refer to the first question above. Using a valid contractor (meaning he doesn’t see himself as an employee) is less likely to trigger a PE.
Q: Do you have any recommendations on how to avoid setting up a legal entity in multiple countries but being able to be legal by setting up payroll withholding accounts and such?
First, you must register in the country. The safest, best answer is registering as a wholly-owned subsidiary, next is a branch, and last is a Representative Office. Be aware that all have their limitations – with subsidiary as the least risky.
The information shared in this Q&A provides general information only, and not advice. Should you need help or additional details about doing business internationally, please write to us at email@example.com or call +1-408-913-9130 to speak to our experts.
Global Upside supports global businesses with end-to-end Accounting, Tax, Legal, HR, Compliance and Staffing services when and where Clients need us. We provide services in 150+ countries with clients including both established multinationals and high growth companies like Zillow, Uber, Rhapsody, SGI, Real Networks, 8×8, A10 Networks, and Enphase Energy among others.
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