Are you looking to open a business in a country where you are not a resident? Creating substance abroad is an important step to ensure that the company is being run from the host country.
In this blog article, we will provide an overview of what creating substance entails, and how to go about it in order to successfully open a business in a foreign country.
What is substance?
Substance is the physical presence of a company in a foreign country. It involves having a local office, employee(s), or engaging in regular business activities in that country. The concept of substance is vital for companies that want to establish themselves abroad. It provides a tangible connection between the company and the country, giving legitimacy to the company’s operations and activities.
Without substance, it can be challenging to establish trust with customers, suppliers, or government agencies in the foreign country. Therefore, it is essential to create substance for your business if you plan on expanding your operations abroad.
Why do I need it?
Creating substance is an essential step for any business that wants to operate abroad. There are several reasons why you need substance for your company. Firstly, it is a requirement for many countries’ legal systems to show that your company is being run from their jurisdiction. Without substance, your company may not be recognised, and you may face legal challenges.
Secondly, having substance shows your commitment to the local economy. It demonstrates that you are investing in the country and are willing to hire local talent and contribute to the growth of the economy. This, in turn, may result in tax benefits, grants, or other incentives from the government.
Moreover, creating substance provides a physical presence for your business. Having an office and an employee in the country can help you establish relationships with local suppliers, customers, and other businesses. It can also give you access to a new market and help you understand the local business culture and practices.
Finally, having substance can increase your business’s credibility and reputation. A company with substance is viewed as a legitimate entity and is more likely to be trusted by potential clients, investors, and partners.
In summary, creating substance is essential for expanding your business abroad. It is a legal requirement, demonstrates your commitment to the local economy, provides a physical presence, and can increase your business’s credibility and reputation.
How do I create it?
Creating substance for your business abroad can seem like a daunting task, but it is essential for establishing a credible presence in the country where you wish to operate. Here are some steps to help you create substance for your business abroad:
- Register your business. You will need to register your business in the country where you want to create substance. This will involve complying with the local laws and regulations.
- Establish a physical presence. Having a physical office in the country where you wish to operate is crucial to creating substance. It shows that your business has a genuine connection with that country.
- Hire local staff. Employing local staff is another important step towards creating substance. You will need to hire at least one employee to work at your office and carry out the daily operations of your business.
- Open a bank account. It is important to open a bank account in the country where you wish to operate. This will enable you to receive payments and make local transactions, which will help establish your business’s credibility.
- Pay local taxes. To show that your business is operating legitimately in the country, you will need to comply with the local tax laws and pay any required taxes.
By following these steps, you will be well on your way to creating substance for your business abroad. Once you have established substance, you can benefit from increased credibility, reduced risk, and improved access to local markets.
What are the benefits?
Creating substance abroad for your business has several advantages, including:
- Legal Compliance. When you have substance, you comply with the local laws and regulations of the country in which you are operating. This ensures that your business is not violating any laws and can operate smoothly without any legal complications.
- Building Trust. Having an office and an employee in a foreign country can build trust and credibility with your local clients and partners. It shows that you are committed to establishing a presence and investing in the local economy.
- Access to Local Markets. Creating substance allows you to access local markets and take advantage of the business opportunities that exist in that country. This can lead to increased revenue and growth for your company.
- Diversification. Expanding your business abroad and creating substance can help diversify your business and reduce risks associated with relying solely on one market.
Speak to an expert
Creating substance for your business abroad is not only necessary for legal purposes but also for ensuring your company’s success. By establishing an office and hiring an employee, you are showing a commitment to the country where you plan to expand your business. This not only helps you comply with local laws but also makes your business more trustworthy and reliable.
Having substance also allows you to take advantage of the local business environment, which can include access to funding, talent, and business opportunities. Moreover, it ensures that you are better equipped to understand the local culture and business practices, which are crucial for success in any new market.
Overall, creating substance abroad requires planning, dedication, and careful consideration. It is an essential step that will help you build a strong and sustainable business in a new country. With the right strategy and mindset, your business can flourish and reap the benefits of expanding into new markets.