Many businesses dream of international expansion, but the reality of setting up shop in a new country is far from easy. Imagine months spent navigating complex legal and administrative hurdles, drowning in paperwork, and constantly worrying about missed deadlines.
This is the reality for many companies eager to expand. From registration fees and legal consultations to navigating complex local regulations, the expenses can quickly mount.
Let's consider a hypothetical scenario: a German marketing agency eyeing the French market. Setting up a French subsidiary might involve (just to name a few):
This is the reality for many companies eager to expand. From registration fees and legal consultations to navigating complex local regulations, the expenses can quickly mount.
Let's consider a hypothetical scenario: a German marketing agency eyeing the French market. Setting up a French subsidiary might involve (just to name a few):
Legal fees: Engaging local lawyers to guide the process, draft necessary documents, and ensure compliance with French law.
Registration fees: Paying government fees for company registration, tax registration, and other necessary permits.
Translation and localisation: Translating legal documents and adapting marketing materials to the French market.
Ongoing compliance costs: Meeting ongoing tax and legal obligations, such as filing annual reports and adhering to local employment laws.
Registration fees: Paying government fees for company registration, tax registration, and other necessary permits.
Translation and localisation: Translating legal documents and adapting marketing materials to the French market.
Ongoing compliance costs: Meeting ongoing tax and legal obligations, such as filing annual reports and adhering to local employment laws.
“Deciding on which external vendor you should work with is crucial. Based on our learnings, the experience varies a lot from country to country. If you go for a big vendor, you pay a hefty price. Or you can go for a local vendor but you need to evaluate them correctly. Looking at the costs and risks involved in entity setup and management, you end up spending upwards of €60,000 per year. ”
Jan Boeckstiegel
CFO and Managing Director
Entity management in the long run is also quite difficult because you need dedicated HR, finance and legal teams. So the question to ask here is: is it really worth it?
Let’s take a look at a step-by-step breakdown of the costs involved in setting up your own entity. A detailed breakdown of entity setup & management costs
Let’s take a look at a step-by-step breakdown of the costs involved in setting up your own entity. A detailed breakdown of entity setup & management costs
| Service | Cost | Timeline |
|---|---|---|
| Initial setup fees | ||
| Sourcing a law firm & initial legal consultation to set up a subsidiary in a foreign country | One-time fee ranging from from €2,500 (e.g. North Macedonia) to €5,000 (e.g. Mexico) | 1-2 months |
| Incorporation of a foreign subsidiary | One-time fee ranging from €1,200 (e.g. Finland) to €3,000 (e.g. Lithuania) | 2-6 months |
| Notarization of documents | One-time fee ranging from €400 to €2,000 | 1-2 months |
| Sourcing of tax/physical address & office costs | Office rent ranging from €50 to €1,300 per month | 1-4 months |
| Local directorship services | A monthly fee ranging from €250 (e.g. Ukraine) to €700 (e.g. Mexico) | 1-2 months |
| Bank account opening | A one-time fee ranging from €300 (e.g. Mexico) to €1,000 (e.g. Ukraine) | 3-10 months, depending on the KYC process |
| Recurring fees | ||
| Payroll setup fees | One-time fee ranging from €450 (e.g. Finland) to €1,000 (e.g. Spain) | 2-4 months |
| Recurring payroll services | Variable monthly fee eg. from €200 for 1 hires in Slovakia to €4,000 for 113 hires in Italy | |
| Recurring accounting fees | Monthly fee ranging from €250 (e.g. Ukraine) to €1000 (e.g. Italy) | |
| HR vendors (Health and Safety + Medical exams | Yearly fee from €700 per year (e.g. Greece) to €9,000 per year (e.g. Spain). | |
| Employment agreements drafting | One time fee ranging from €2,000 (e.g. Ukraine) to €4,000 (e.g. Mexico) | 1-4 months |
| Ah hoc legal, payroll and accounting support | Ranges from €2,000 to €20,000 per year | |
| Dedicated in-house project management | Ranges from €3,000 to €10,000 per month |
Total estimated cost: At best, you’ll spend €13,900 and at worst, €62,000.
“Something that’s underestimated is the effort it takes to run these entities. What happens if there are situations when things go wrong and you’re not familiar with the processes? How much will you have to pay if something is not part of a standard process? Sometimes you can have crazy cost spikes because you might run into unexpected situations.”
Jan Boeckstiegel
CFO and Managing Director
What are the risks of establishing your own entity?
There are some typical risks that companies don’t think about when setting up an entity in another country.
Compliance deadlines:: The first one is related to all the compliance deadlines you have to meet.
Outlier processes: These are usually processes that nobody is familiar with and are run differently in different countries.
Strict government authorities: People underestimate how complex government rules are and how little room for negotiation there is.
Outlier processes: These are usually processes that nobody is familiar with and are run differently in different countries.
Strict government authorities: People underestimate how complex government rules are and how little room for negotiation there is.
Every country has its tax deadlines, social contribution deadlines and they vary drastically throughout the month. You need to make sure your processes are speedy enough to deliver payments on time. Something else that’s overlooked is that as your company and headcount grows, different rules will start to apply and this will vary from country to country. You might have requirements to do training or security representations for employees. So you need to be aware of these thresholds and these dates.
“Something people tend to underestimate is how strict government authorities are in other countries with the enforcement of rules. This is where it becomes tricky because you have to deal with local authorities. Eg. in Spain, you not only deal with the national authority, but also with local authorities such as the Labour Inspector in Barcelona. That’s why your team and processes need to be super-efficient to deliver on time.”
Jan Boeckstiegel
CFO and Managing Director
At WorkMotion, we have built an in-house tool to deal with this complexity. This tool helps us manage everything automatically. Because nobody can manually keep track of all these dates and deadlines especially with all the different countries we manage.
Is there an easier way to hire abroad?
Absolutely. With WorkMotion, you can hire skilled talent in 160+ countries without setting up a local entity with our Employer of Record (EOR) services. An EOR is a service provider that manages the legal, HR, tax and local compliance responsibilities of your talent in any country where you don’t have your own legal entity. An EOR hires, onboards and pays your talent on your behalf. The EOR is the legal employer while you retain the role of managing employer, looking after the day-to-day management of the talent.
People underestimate how much of this process is still paper based, even though we live in a digital world. So setting up a bank, for example, takes much longer, sometimes several months to be set up.
People underestimate how much of this process is still paper based, even though we live in a digital world. So setting up a bank, for example, takes much longer, sometimes several months to be set up.
Want to find out how our EOR can help you circumvent all this effort and cost in the most compliant way possible? Let's talk
