Hiring staff in Africa without an established entity

As a business grows and ventures into new markets, there’s often remote employee management software a period where it needs people on the floor but there isn’t yet a local corporate entity. This might be because the company still wishes to try out the market before fully entering a country or the corporate registrations just are not completed yet. Before hiring however, an organization should determine how it wants to take care of its workforce. Each strategy will have different possible outcomes.


Below we have set out the key issues and risks to consider when hiring contractors without a registered entity.


Employing workers in Africa without a registered entity

Labour and Employment

Hiring a worker with no corporate existence can be illegal or may not be feasible practically. This is true in Brazil, for instance. Hiring someone as an independent contractor for what will afterwards probably become a regular full-time job will also not be compliant with all the labour and employment legislation of most states and dangers reclassification as a worker (and all the corresponding obligations as an employer). Using third-party agencies may offer an excellent short-term alternative since it can ensure compliance with tax and labour laws. However, these structures have faced increased scrutiny and regulation in several countries, and extensive hiring intervals should usually be avoided. Additionally, several countries, such as Belgium and Korea, place explicit and extensive limits on the hiring of employees through agencies. In these countries the agency employee version will normally not work for the first expansion phase.


Tax and Social Contributions

Employers in many jurisdictions are subject to a kind of income tax coverage, in addition to withholding requirements. In many jurisdictions, particularly in Europe and Latin America, companies are also subject to social participation payments. However, until a business has a neighborhood corporate existence, complying with these duties can be difficult or impossible, whilst non-compliance may cause penalties–generally a poor way to get started doing business in a new country. In some countries like Switzerland you might be able pass some of the tax obligations on the employee if you employ him as a manager worker of a non-Swiss entity. However, if a hire is wrongly classified as a builder, on that basis the government could reclassify the agreement and make the employer responsible for taxation and social contributions. The threat here is that the business could also be made accountable for all past unpaid taxes and social contributions, in addition to additional penalties, and at the worst-case scenario, the business might be seen as assisting in tax evasion. Where allowed, bringing on staff via a third party agency can avoid these dangers as the agency will serve as the employer, and so long as you’re working with a respectable third party, you can depend on them to comply and make the requisite payments to the applicable authorities.


Corporate Permanent Establishment Risk

Although this is mainly a corporate tax issue instead of an employment law issue, it’s necessary to flag the risk as you bring on employees beyond your present corporate footprint. Hiring somebody in a jurisdiction in which you’ve got no corporate presence has the potential to pull the hiring entity within that nation for corporate tax purposes. Before bringing on anybody in a jurisdiction in which you do not already have a corporate existence, the structure ought to be reviewed by corporate taxation experts to minimize the permanent establishment risk. By way of example, it could be best to avoid having the person or the agency enter into a relationship with the US headquarters company or any entity which generates substantial revenue.


Clare Louise

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