We get many queries from potential clients wanting a routine payroll administration service for an employee they wish to hire or indeed have already employed.
In most countries in Europe, in Australia, Canada, Israel, Kenya, Malaysia, New Zealand, Zimbabwe and one or two others this poses no problem. The “Head Office” or one of the other branches of the company is registered with the social security and for employee tax withholding. The client is deemed to have effectively set up a Representative Office.
There are some restrictions on what can be done – for instance the employee cannot have any executive authority to conclude deals, contracts, prices and credit terms.
But in most countries in Africa, Asia, and South America – as well as a couple of countries in Europe, you will be advised that in order to employ staff a full legal taxable entity is required – for example a branch, or subsidiary.
In countries where this is the case our local Partners can usually offer an “Employment Services” solution where they would actually employ the employee on behalf of the client. But this is expensive: as well as a fee for the employment service, there will probably be VAT to pay on the whole cost -salary +employer social charges + fee.
It is a nuisance and a major employment killer.
The client has reasonably enough said “no thanks “!
Every day thousands of potential employers are putting off employing staff – mainly in developing countries because of this restriction.
But most just shelve the project and the much needed employment in the developing country never happens.
Oh STOP PRESS
I have just been advised that in MALI a legal entity isn’t required. Nice to see something going right for that country!
And here is an ACTUAL EXAMPLE of what I am talking about. (It is in French and concerns TOGO.)
QUESTION (e-mail – John Tinsley (Compandben) to ‘ABOTSI’ – 18 January 2013)
Subject: Plafond des charges sociales patronales
“En Europe – inclus la France c’est possible pour une societe etrangère etre inscrite avec le secu et pour paiement des impots pour les employés sans une entite legale. Ci joint meme une formulaire que le Secu en France a crée pour cet enregistrement – en Anglais…
De meme en presque tous les pays d’Europe, USA, Canada, Australie, …et Zimbabwe, et Kenya et meme Mali.
Mais ailleurs il faudra que la societe etrangère établisse une entité legale (une branche ou equivalent) afin d’ etre permis employer des employés. Qu’est ce que la situation au Togo?”
“Bonsoir. Au Togo, il faut une branche avant d’employer les employés car la sécurité sociale exige l’identité de l’employeur.”