Example of Outsourcing your international HR
Let’s assume your company develop trading software for international banks and you secure a client in Poland. The development of the system for your Polish clients will largely be done by your team in your home country (say the USA). So far so good, the system is then rolled out, how do you go about servicing this client locally in Poland. We all know that you can’t provide the level of service that your clients require completely remotely. Invariably you need to place some of your team on the ground for at least a period of time, and if things go well with that client there is a strong possibility of you being referred to another client in the same country or region.
This situation then provides you with a couple of issues: do you set up your own company/entity in Poland to employ your local staff, payroll them and bill your clients? We recently counselled a company facing this exact situation. USA company, new Polish client. They needed to get 30 of their guys onsite immediately for at least an 18 month period. The same company has a contract with a leading Spanish bank where they have over 150 of their staff based, when they set up this operation they set up a local Spanish company and employed their staff, payrolled them and invoiced the Spanish client from this company. For a number of reasons they have gone on to regret this decision: running the local payroll and complying with the Spanish tax authorities proved a nightmare, it was seriously expensive and they exposed themselves to Spanish corporation tax and IVA (Impuesto sobre el valor añadido – equivalent of UK VAT).
Hence, when they secured this contract in Poland they decided to explore their options. They spoke with Contractor Tax, local tax experts, immigration consultants and colleagues that had experience working in the region and decided not to bother setting themselves up in Poland. Rather they decided to use an international company with a local entity in Poland to employ and payroll their local staff. They are going to invoice the client from the USA, avoiding value-added tax (22%) and corporation tax (19%) but probably more significantly avoid the hassle of dealing with local authorities on income tax, social costs, corporation tax returns etc.
Having spoken with a number of colleagues that deal with Global Mobility this appears to be a trend that is increasing enormously and we can see why.