We analyze the issue from a practical and orientative perspective. Without being exhaustive, as a guide with advice, only emphasizing those first questions that every entrepreneur should analyze beforehand if he wants to take the leap of internationalization, and does not want to die in the attempt.
A first issue to consider, fundamentally pragmatic, is to take into consideration and know the “establishment costs” when making the decision to go abroad and compete. To address this question, that is, to analyze “the costs of establishment” one must first ask the following question: under what legal formula I am going to establish myself in a certain country?
We start from the basis that the reasons for doing so in a particular country or another is because you already know and have analyzed the opportunity to establish yourself in that country, either because you have a friend, relative, partner or ally, or also because that market has been visited or known for various reasons.
Taking into account these antecedents before addressing the detail of the analysis of establishment costs, it is important that the entrepreneur or entrepreneur decides and reflects how he wants to establish and operate abroad; How do we want to implant ourselves? Some of the possible formulas can be the following:
- Joint Venture with a local company already established in the country.
- Representation or commercial agency.
- Constitute a mercantile society, among other possibilities.
Doing it in one way or another can have a great influence on the costs of implementation, as well as risk and control of the investment.
To finish analyzing which formula is more suitable or not, the following study should be carried out taking into account these issues:
That is to say, we must know the country’s situation, the market, its GDP, its regulations and type of government, language, currency, the formation of the country in general, security, economic and financial stability, banking system and, above all, the advantages or opportunities to invest in that country.
Constitution of the company
We refer to the introduction, that is, we can implement it in different ways, it is a cost decision, but also strategic, which should be studied.
We will do it under a partnership, a branch or permanent establishment, an agent or commercial representation or through an association / investment with a company already established in the country. In either case, the costs of the contract or bylaws, notary, official translations, registration of names and trademarks, patents or protection of intellectual property must be quantified.
System and fiscal cost
When a company or a Spanish entrepreneur has made the decision to go abroad, there are many doubts about where to set up and how to carry out its international implementation.
To the question of ‘where’ logically the business plan itself must respond, since strategic and logistical business reasons, location of customers or suppliers, etc., must prevail in this decision. In the international tax area it is important, first of all, to identify the importance of knowing the double taxation agreements that Spain has signed, and which countries are classified as tax havens.
AGREEMENTS TO AVOID DOUBLE TAXATION
Spain has signed double taxation agreements, that is, countries where economic relations can be standardized and secure in terms of investment, repatriation of dividends or interest. Agreements to avoid double taxation are bilateral international treaties signed between the different States to avoid as far as possible the double taxation of the income received by a resident of one of the States and produced in the other State.
As for the countries that have signed with Spain a double taxation agreement are the following:
- Europe: Germany, Austria, Belgium, Bulgaria, Czech Republic / Slovakia, Cyprus, Croatia, Slovenia, Estonia, Finland, France, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, United Kingdom United, Romania and Sweden.
- Rest of Europe: Albania, Andorra, Bosnia-Herzegovina, Croatia, Georgia, Iceland, Macedonia, Moldova, Norway, Russia, Serbia, Switzerland, United States of the Former USSR (Except Russia and others).
- America: Argentina, Barbados, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Cuba, Ecuador, El Salvador, United States, Jamaica, Mexico, Panama, Dominican Republic, Trinidad and Tobago, Uruguay, Venezuela.
- Africa: Algeria, Egypt, Morocco, Nigeria, Senegal, South Africa, Tunisia.
- Asia: Saudi Arabia, Armenia, Qatar, South Korea, China, UAE, Philippines, Hong Kong, India, Indonesia, Iran, Israel, Kazakhstan, Japan, Malaysia, Oman, Pakistan, Singapore.
- Oceania: Australia, New Zealand.
These are those countries where it would not be convenient to establish for fiscal and exchange control reasons. In Spain, the concept of tax haven was introduced by the General State Budget Law for 1991. Royal Decree 1080/1991, of July 5, determined the countries or territories that are considered tax haven for Spanish legislation.
There is no proof to the contrary. Any country or territory included in the list is subject to the penalizing tax treatment provided for in the different Spanish tax regulations.
The countries and territories considered by Spanish legislation as tax havens are the following:
- Europe: Liechtenstein and Monaco.
- America: Montserrat, Turks and Caicos Islands, British Virgin Islands, US Virgin Islands of America, Saint Vincent and the Grenadines, Saint Lucia.
- Africa: Liberia, Mauritius and Seychelles.
- Asia: Jordan, Lebanon and Macao.
- Oceania: Mariana Islands, Naurú, Salomón, Vanuatu.
WHAT FISCAL LEGAL FORMULA CAN WE USE?
To the question of ‘how’ to carry out the international implementation, it must be answered after having carefully analyzed the legal-fiscal form to be established.
Effectively, the performance abroad of a Spanish company can occur through the constitution of a company that operates as a subsidiary, as a branch or as a simple representation office of the Spanish company. The great legal difference between subsidiary and branch is the lack of legal personality of the latter, and the consequent direct and unlimited personal liability of the parent company for the acts of the branch, which does not exist in the case of action through of a subsidiary company.
Opening a branch abroad
Any non-resident company that wishes to carry out economic activities or business in any European State for a period exceeding one year, must necessarily proceed to the opening of a branch or permanent establishment and comply with a series of formal requirements.
First, and in general, the non-resident company must proceed with the appointment of a local representative, duly empowered to carry out the necessary procedures to open the branch.
Generally, the branches (or permanent establishment) of foreign companies are subject to the ordinary Corporate Tax of the country of residence and for the benefits obtained in that State that are attributable to said branch, in the same way as the national companies.
The branch may deduct from its tax base the expenses and costs incurred as a result of its operations (provided they are produced and accounted for in the State of residence), as well as the expenses agreed with the Spanish parent, provided that they are valued. and accounted for the prices that would be agreed between independent companies.
Creation of a subsidiary abroad
Normally, the most used corporate forms are the limited company and the limited liability company. However, each State has its different corporate types and must be analyzed in detail in each specific case which corporate figure will be adapted to the specific needs of the projected investment.
In general, the process of constituting one and the other can be summarized as follows:
- Obtaining the company name in the corresponding Registry.
- Drafting of the Bylaws.
- Disbursement of the share capital.
- Granting of the constitution deed before a foreign Notary.
- Registration of the deed in the Mercantile Registry.
- Publication in the Official Gazette.
In addition, the corresponding certificates of initiation of activities must be obtained from the different administrations involved, registered with the Social Security, merchant certificate, legalization of official books, authorization of office hours, etc.
The subsidiary, having legal personality, acts with its own legal responsibility subject to the common legal regime of the host State, responding to third parties up to the amount of its share capital.
Obviously, he can perform all kinds of acts and contracts against third parties with total autonomy and his activity revolves on behalf and on his own behalf. The subsidiary company taxes in the State of residence for its full benefits, at the general tax rate of the resident companies.
OTHER ASPECTS TO BE ANALYZED
Finally, other important issues that influence the establishment costs are:
- Labor costs and labor regulation in the country where we want to invest.
- Supply costs (electricity, water, internet, telephony …).
- Real estate costs (housing, rent, hotel …).
- The conditions of the expatriate staff with respect to the regulation in that country.