In “The Pit of Permanent Establishment – Part 4”, we look at the ultimate response to avoiding permanent establishment issues, which is to set up a local company in a new country.

(See also articles “The Pit of Permanent Establishment – Part 1, Part 2 and Part 3).

Setting up a local company in a new country is by far the most radical of the solutions we have considered so far in terms of avoiding permanent establishment issues, because it means that you need to incorporate a local legal entity or trading branch, get the correct commercial licences in place, file accounts and tax returns, and doing all the neat compliance stuff that you have to do with your business in your home country……with the added wrinkle that a material set of the relevant regulations are going to be different from what you are used to.

The advantage of setting up your own business in a new country rather than working through third parties is that you have greater control over how your business grows, and how it acquires and builds goodwill, but setting up a local company in a new country is not for the faint-hearted.

At Mirkwood Evans Vincent, we always say to clients to make a list of the reasons for and against setting up a local company in a new country.

The Right Support

Make sure that you have the right support to make it work. Someone in the new company needs to speak the local language fluently, and if the parent company is sending out technical or sales folks only, when setting up the new local company, then make sure that those folks know what they don’t know, in terms of appreciating that (for example) a fiscal, legal or tax compliance issue has arisen and they do not have the skills to resolve it without outside assistance.

Being the right support to the parent company back home means knowing when to pick up the phone to the Mother Ship to ask about engaging local accountancy, tax or legal support, and knowing that the person they contact at the Mother Ship understands when the business needs to pay for local professionals. Your new company will need good local legal, accountancy and tax people on hand. If you would like some practical commercial legal advice about setting up a business in a new country, please contact katherine@mirkwoodevansvincent.com

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