Mastering the legal issues when setting up global payroll Mastering the legal issues when setting up global payroll

Mastering the legal issues when setting up global payroll
19 Dec 2017

Global payroll managers need a wide range of skills. Overseas payroll can result in you being involved in issues that do not normally arise with domestic payroll, such as taxes and arranging payments. The same applies with legal matters.

When you set up a new payroll overseas, it helps to have an understanding of some of the basic legal issues that may have an impact on its roll-out. This kind of knowledge can be relevant even if you are just migrating from an existing to a new global payroll supplier.

In this article, the aim is to give you a brief overview of some key legal concepts and issues that you may encounter with global payroll. It will also explain why these matters are important and how you can address them. The goal is to give you a better understanding of:

- What a legal employer is overseas
- How to prepare legal documents that you may need for overseas payroll
- Why you may need a legal address overseas.

A legal employer overseas

For overseas payroll, it is vital to understand the concept and identity of the legal employer. The legal employer is the body legally responsible for setting up payroll registration in the country concerned. It is also the body that is required to declare and pay all relevant international payroll taxes. But it can be difficult to identify this body within a multi-national that has a complicated array of internal legal entities.

Why is this information important?

By identifying which legal entity is the correct employer, you can ensure that payroll registration is set up appropriately in your target country. Doing so will help ensure that your first payroll tax filings and social security payments run smoothly.

It is important to get this information right from the outset. If you need to amend the name of the legal employer after payroll is up-and-running, it can take substantial time and effort to reverse the original registration. You may also find yourself the subject of unwanted attention from local authorities asking questions about your reasons for making the change.

How should you tackle the situation?

The simplest way to identify the legal employer is usually to check the employment contract of your overseas employee. So find out which legal entity is making the offer of employment as it should be the legal employer.

But also note that legal employers do not have to come from the same country in which the new payroll is being set up. For example, a US-registered company can employ a staffer in Spain.

Legal address

When you register as an employer for tax and social security purposes, you will need to provide the overseas authorities concerned with an address to send correspondence. Often this will count as the registered address of your company overseas.

Some countries allow you to use your global HQ address, but many insist that you provide a local in-country address.

Why is this information important?

All official notifications relating to your registration will be sent to the address that you provide. Such correspondence can include notification of filing deadlines, fees to be paid and any changes in legislation. Importantly, this is also how you will receive advance warning of any local audits or inspections, which the authorities may want to carry out. If you fail to notice these documents, you can incur fines for late payment.

How should you tackle the situation?

Ensure the address you provide to overseas authorities is a permanent one that is unlikely to change. If, for example, you provide the domestic address of your employee, you could easily lose documents if they leave the company or change address. If there is no suitable fixed address overseas, for example if your company does not have an office, you can purchase an address at low cost from your accountant or lawyer.

TOP TIP: These documents will be written in the local language, so make sure you have a translation facility on hand. If the documents are opened by non-payroll employees such as local sales staff, make sure they are aware that they need to get a copy either to you or your local representative urgently as soon as they receive them.

Preparing legal documents

One of the most common reasons for delay in setting up overseas payroll relates to issues around legal documentation. It often takes companies much longer than they expect to review, prepare and sign the legal documents required. The types of legal tasks involved typically include:

- Creating legal directors for new legal entities
- Obtaining signatures, personal details and ID documents from directors
- Translating official documents
- Obtaining the signature of a legal notary
- Getting hold of an apostille (i.e. an official government certification of identity).

Why is this information important?

Any form of overseas registration will require proof of identification from your company. It will usually also require signed certification from official representatives such as directors. Many countries likewise have strict rules about translating such documents into their native language. Without signed official documents, the registration usually cannot take place.

How should you tackle the situation?

If you expect to need the help of your legal department, engage it in advance. Give prior warning and explain fully the issues involved.

Doing so will help ensure a swift response from the legal team once the documents arrive. They will also have the opportunity to undertake reviews of the legal process in advance.

It also makes sense to notify individuals within the company who will personally have to sign the documents too. If they have any questions about why they need to be involved, it is always better to explain the situation in advance when things are less pressured. Knowing where they are will also help if you require their signatures urgently.

 

John Galvin, CEO of Galvin International, provides expert, independent advice for clients setting up global payroll. He also finds clients excellent international payroll, accounting and tax partners worldwide. John heads a team of global finance experts and a worldwide network of independent payroll, accounting and tax suppliers. He has 20 years CFOlevel experience with multinational blue chips and SMEs and has successfully implemented global payroll, accounting and tax in over 40 countries. If you have any queries relating to legal issues or need help finding a local adviser, please contact us at +44 203 755 3706 or on john.galvin@galvininternational.com.

Global payroll managers need a wide range of skills. Overseas payroll can result in you being involved in issues that do not normally arise with domestic payroll, such as taxes and arranging payments. The same applies with legal matters.

When you set up a new payroll overseas, it helps to have an understanding of some of the basic legal issues that may have an impact on its roll-out. This kind of knowledge can be relevant even if you are just migrating from an existing to a new global payroll supplier.

In this article, the aim is to give you a brief overview of some key legal concepts and issues that you may encounter with global payroll. It will also explain why these matters are important and how you can address them. The goal is to give you a better understanding of:

- What a legal employer is overseas
- How to prepare legal documents that you may need for overseas payroll
- Why you may need a legal address overseas.

A legal employer overseas

For overseas payroll, it is vital to understand the concept and identity of the legal employer. The legal employer is the body legally responsible for setting up payroll registration in the country concerned. It is also the body that is required to declare and pay all relevant international payroll taxes. But it can be difficult to identify this body within a multi-national that has a complicated array of internal legal entities.

Why is this information important?

By identifying which legal entity is the correct employer, you can ensure that payroll registration is set up appropriately in your target country. Doing so will help ensure that your first payroll tax filings and social security payments run smoothly.

It is important to get this information right from the outset. If you need to amend the name of the legal employer after payroll is up-and-running, it can take substantial time and effort to reverse the original registration. You may also find yourself the subject of unwanted attention from local authorities asking questions about your reasons for making the change.

How should you tackle the situation?

The simplest way to identify the legal employer is usually to check the employment contract of your overseas employee. So find out which legal entity is making the offer of employment as it should be the legal employer.

But also note that legal employers do not have to come from the same country in which the new payroll is being set up. For example, a US-registered company can employ a staffer in Spain.

Legal address

When you register as an employer for tax and social security purposes, you will need to provide the overseas authorities concerned with an address to send correspondence. Often this will count as the registered address of your company overseas.

Some countries allow you to use your global HQ address, but many insist that you provide a local in-country address.

Why is this information important?

All official notifications relating to your registration will be sent to the address that you provide. Such correspondence can include notification of filing deadlines, fees to be paid and any changes in legislation. Importantly, this is also how you will receive advance warning of any local audits or inspections, which the authorities may want to carry out. If you fail to notice these documents, you can incur fines for late payment.

How should you tackle the situation?

Ensure the address you provide to overseas authorities is a permanent one that is unlikely to change. If, for example, you provide the domestic address of your employee, you could easily lose documents if they leave the company or change address. If there is no suitable fixed address overseas, for example if your company does not have an office, you can purchase an address at low cost from your accountant or lawyer.

TOP TIP: These documents will be written in the local language, so make sure you have a translation facility on hand. If the documents are opened by non-payroll employees such as local sales staff, make sure they are aware that they need to get a copy either to you or your local representative urgently as soon as they receive them.

Preparing legal documents

One of the most common reasons for delay in setting up overseas payroll relates to issues around legal documentation. It often takes companies much longer than they expect to review, prepare and sign the legal documents required. The types of legal tasks involved typically include:

- Creating legal directors for new legal entities
- Obtaining signatures, personal details and ID documents from directors
- Translating official documents
- Obtaining the signature of a legal notary
- Getting hold of an apostille (i.e. an official government certification of identity).

Why is this information important?

Any form of overseas registration will require proof of identification from your company. It will usually also require signed certification from official representatives such as directors. Many countries likewise have strict rules about translating such documents into their native language. Without signed official documents, the registration usually cannot take place.

How should you tackle the situation?

If you expect to need the help of your legal department, engage it in advance. Give prior warning and explain fully the issues involved.

Doing so will help ensure a swift response from the legal team once the documents arrive. They will also have the opportunity to undertake reviews of the legal process in advance.

It also makes sense to notify individuals within the company who will personally have to sign the documents too. If they have any questions about why they need to be involved, it is always better to explain the situation in advance when things are less pressured. Knowing where they are will also help if you require their signatures urgently.

 

John Galvin, CEO of Galvin International, provides expert, independent advice for clients setting up global payroll. He also finds clients excellent international payroll, accounting and tax partners worldwide. John heads a team of global finance experts and a worldwide network of independent payroll, accounting and tax suppliers. He has 20 years CFOlevel experience with multinational blue chips and SMEs and has successfully implemented global payroll, accounting and tax in over 40 countries. If you have any queries relating to legal issues or need help finding a local adviser, please contact us at +44 203 755 3706 or on john.galvin@galvininternational.com.

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