Thinking of expanding your organization globally? Aidan O’Neill, General Manager of NGO Services at TopSource Worldwide, an Independent Sector business associate member, shares what to consider before you expand, hire, and operate under another country’s jurisdiction. TopSource is the only employer-focused global expansion firm offering a great depth of services and breadth of geographic coverage.
Humanity’s issues are not confined by borders. The same should hold true for the world’s social impact organizations. Global problems and themes require global thinking and solutions. Local, community-focused charities across the US play important roles in specific neighborhoods, cities, and regions, but other organizations based in the U.S. must broaden the horizons of their mission and their hiring.
When your nonprofit or philanthropy expands to other countries, it creates questions for your human resources, legal, finance, and other back-office functions on how to operate in unfamiliar jurisdictions. For example, if you want an office of employees based in Lagos, you’ll need a legal entity, familiarity with Nigerian labor laws, local accounting, benefits plans, office space, and corporate bank accounts in Nigerian naira.
Though the options to expand, hire, and operate in other jurisdictions vary from country to country, they can be generalized into five categories:
1. Third Party Method (Contractors, Consultants, Vendors)
A US organization can directly hire a third party in another country to act as their “boots on the ground” without any further registrations necessary. Independent contractors, consultants, or other vendors abroad simply execute a service agreement and invoice the US organization on an hourly or project basis. These third parties abroad are responsible for paying the applicable withholding and sales taxes locally, leaving the US organization with no further responsibilities once the fees are paid.
2. Employer of Record (EOR) / Professional Employer Organization (PEO)
An Employer of Record provider, properly incorporated and registered in a foreign country, can hire employees under their name. The provider then executes a service agreement with the US organization looking to hire and operate abroad, which allows the US organization and the employees hired abroad to have a normal working relationship, as though the organization hired the employees directly. There is still no opportunity to fundraise or generate revenue, however, and some grantors or governments may see this method as insufficient investment. Foundations and governments sometimes view operations in-country without a local registration as being less “committed” to that country’s beneficiaries and stakeholders.
3. Payroll / Employer-Only (Non-Registered Entity)
A couple dozen countries — mostly in Europe — allow US organizations to simply register themselves as “employers” for the purposes of local hiring only, without the need to fully incorporate a separate entity in that country. Following a simple registration process (depending on the country, as always), the US organization can therefore hire and pay employees in another country compliantly.
4. Foreign-Dependent Entity (Business License, Registered Office, Branch)
Most foreign countries have one or more options for US organizations to register themselves for the “right to do business” locally, rather than creating a new, standalone entity from scratch. The options to register as a foreign-dependent entity include applying for permission to operate, such as a business license, or incorporating a branch, such as a registered office. These differ from the employer-only model above in that foreign-dependent entities have broader rights beyond hiring and employment.
Generally speaking, US organizations with this category of legal presence can conduct local projects, generate revenue, and usually hold local bank accounts in the foreign country where they are registered. One tell-tale distinction between foreign-dependent entities and the fifth type below — fully established local entity— is that official documentation will show the name of the US organization, sometimes with the local instance added as a suffix (e.g., TopSource Worldwide UK Ltd., or TopSource Worldwide Korea Branch).
5. Fully Established Local Entity (Foundation, Association, Nonprofit Organization, Company Limited by Guarantee)
When we think of an organization “having an office” in another country, a fully established local entity is the most traditional image. A fully established local entity is clearly defined by its legal independence from a US organization. This entity may be a subsidiary or have foreign directors/shareholders, but if it would be possible to incorporate this type of entity in-country as a purely local organization without naming an external, pre-existing entity, it firmly fits within this category.
There are many pros and cons to each of these methods depending on your goals, as well as your budget, bandwidth, and risk appetite. Consulting with an international expansion service provider is the best way to evaluate your options. You can learn more here.
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Aidan O’Neill is General Manager of NGO Services at Top Source Worldwide.
