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Setting up a company in a foreign country

company plaque for blog copyPeople often ask my advice about setting up a company in different countries. The first thing I always ask is “what do you want it for?” It might sound obvious, but you shouldn’t just assume it will always best suit your needs.

In many cases I find that, instead of the more traditional sense of starting a business to trade in a particular region, the purpose is to create an umbrella vehicle for a variety of activities.

Alternative uses for a company

A legal entity can be useful in order to consolidate and formalise your affairs in a particular place, for example as an investment vehicle, to purchase and own assets, to act as a holding company for a business in another country, or for legitimate tax benefits. I have also often seen individuals set up a simple company in order to purchase a house or apartment in countries or regions where foreigners are prohibited from owning land or property. However, I don’t generally recommend this and the authorities try to deter such ‘shell companies.’

In my experience, holding assets in a personal name wherever possible is preferable and I would generally only advise setting up a company for the purpose of trading, attracting and holding investment or succession planning.

The process, cost and regulations are very different in each country; however, there are some general guidelines and implications to be aware of in bureaucratic countries.

Hidden costs and considerations

If you do decide to set up a company to manage your affairs without the intention of maintaining a constant presence, make sure you are aware of the hidden costs in doing so. An accountant isn’t the right person to initially ask as they will tell you it’s a great idea due to the set-up fees and monthly income you will provide for them, especially if you don’t intend trading as this makes it very low workload.

City skyline for blog copyIn more bureaucratic countries a physical presence of the executive director or legal representative will be required for on-going administrative procedures, and there will be a series of regular municipal and state taxes to pay that I assure you no-one will accurately forecast at the outset. All your affairs must be kept up to date as some Municipalities have the power to block your company bank account and commandeer its contents without going to court, and if this happens expect several months before you can get it operational again.

You might even find that the rules change significantly en-route. For example in Turkey a law was introduced necessitating that a Turkish registered company with foreign directors must appoint a Turkish citizen as director, and remember this kind of rule is usually applied retrospectively (i.e. to all businesses and not just those incorporated from that date on) so you could find yourself operating unlawfully through no fault of your own, and left with a rather difficult or undesirable remedy.

The annual accounting cost must be considered along with that of a registered office and in some cases it will, at least in appearance, need to be an active place of work. In some countries you will find plentiful companies offering this service, but in others it is much more difficult. Don’t assume you will be able to manage everything with online banking from your home country, most banks offer this service to varying extents, however, the regulations on banking procedure vary and you may need to personally present all original documents before a transaction can take place. In addition, be sure that you have someone you can trust to periodically look after your interests in your absence, and as I have covered in previous blogs, be careful what powers you entrust.

A final consideration is the potential cost of closing the company as it can be significant, and take up to 12 months. In some countries you need to appoint a liquidator and there is no provision to simply strike a dormant company off the register, as you can in the UK for example.

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