CXO

Lessons learned from setting up shop abroad

Setting up a consultancy abroad is exciting, but requires good research and diligence--from dealing with the taxman to insurance needs. One American consultant describes his experiences setting up a consultancy in Ireland.


A few years ago, following a layoff at my consulting firm, I was offered the opportunity to open a consulting office abroad for another U.S. firm. The office would be based in Ireland and, because the company had a very small budget, it was slated to start as a home office. I would serve as both a consultant and a recruiter since the firm wanted to initiate that line of business as well.

I quickly began learning many lessons about how business is approached and conducted in Ireland. While the specific issues I faced will be different in other countries, it’s valuable to understand how even the basics of doing business can greatly vary from country to country.

In this first part of a two-part series about how I got a consulting firm up and running in Ireland, I’ll provide advice, tips, and insight on how I solved the various dilemmas I faced—from unexpected costs to the taxation process.

Do your homework
First, I researched online how to go about setting up an office abroad. On the Irish Investment and Development site, I found quite a bit of information about the Irish economy and tips on setting up a business in the Republic of Ireland.

Ireland, at the time, was in dire need of programmers and workers in the technical field. Companies were eager for recruiter assistance. Research showed that the average commission on a placement averaged $5,000 to $10,000, so just one placement a month could support the office costs and pay my salary for the first few months.

Outline a budget
Before opening the home branch (which for confidentiality purposes I’ll call ABConsulting), and using my research information, I devised a three-month budget:
  • Office rental: $1,000 to $2,000 a month
  • Telephone: $150 to set up and $150 a month usage
  • Office furniture: $2,000
  • Computer: I had a laptop and a budgeted amount for an inexpensive desktop in the $1500 range
  • Miscellaneous office supplies: $500

With these target numbers in mind, I contacted the corporate office and told them that $10,000 would get a basic office in progress, and a few thousand a month would be needed to keep it going until we started making placements.

The contract I worked out with the corporate office included these startup costs and a roughly $5,000 monthly maintenance budget to keep the office running until I started making placements. The plan would be reviewed in six months, and we would adjust depending on business activity.

Unique business requirements
My pre-move research also uncovered several formalities that are required when you set up a business in Ireland:
  • Registering a legal business structure
  • Registering a legal business name
  • Opening a bank account
  • Setting up an accounting system
  • Ensuring that the business meets all codes and regulations
  • Getting insurance
  • Registering for taxation
  • Getting an office

These tasks are somewhat complex in Ireland.

In Ireland, four legal business structures can be adopted: sole trader, partnership, limited liability company, and a co-operation. The sole trader is like the U.S. sole proprietorship. The partnerships are similar to U.S. partnerships, with one big difference—you must have lived in Ireland and paid taxes for at least six months.

Because the U.S. firm providing financial backing was a corporation, a limited liability company was determined to be the appropriate entity. A co-operation required multiple owners and wasn’t appropriate to this scenario.

What I didn’t find out until I had begun the process was that I had to get a solicitor, or attorney, to set up the separate legal entity. This cost $3,000—a fee that wasn’t in my original budget. After some explanation, I was able to expense this cost.

Registering a business name
Because I was still working with a U.S. company, the lone requirement was to register the company name in Ireland. The problem was that the parent company wanted it to be a different legal entity for tax purposes and to account for the income in a different budget line. Therefore, we called the company ABConsulting, Ireland, LLC. This required the filing of a RBN1B form and $25. This helped us when we went to build a Web presence. In Ireland, companies can’t launch a corporate URL/Web site unless the company is registered.

Because we had www.abconsulting.com up and running in the United States, and had registered the company in Ireland, we were able to get the Ireland URL "ie" designation.

The banking end
A business in Ireland must have a separate bank account (in the United States, you can use a personal account for business purposes). The bank gives you a form that authorizes the bank to carry out the instructions of the directors regarding the account. You then have to decide who can sign checks and how the statements need to be sent. The bank then needs a signature card.

In this case, this required sending the card to the corporate office in the United States and having it signed and returned. The bank then needed what we would call a "company charter” or proof that we were incorporated in the United States. They keep this in the bank files. While it doesn’t sound like a big deal, getting the bank accounts did take a few weeks because we had to send documents back and forth between Dublin and the United States.

Setting up an accounting system
Accounting was not very different from the United States because all businesses need a good accounting system to track cash flow and transactions.

But Ireland has the value added tax (VAT). Sales tax in the United States is added to the total amount of the bill, but VAT is accrued differently. In the United States, tax is a percentage of sales; VAT is a percentage added to the price of the item.

For example, if you're buying five computers and the VAT is 18 percent, the percentage is added to each individual item, not the total. VAT that is paid on purchases for the company is recoverable to the company, but must be accounted for to the country’s Revenue Commissioners. That means that if the amount paid for purchases includes VAT, you can reduce the cost to the business by the VAT amount. Similarly, you must deduct VAT from your sales before accounting for them in your business.

VAT must be tracked accurately. The government can drop in, literally, and look over your books at any time. The first time this happened to me, I nearly fainted. It isn’t like an audit, however. It's similar to having a consultant drop by to provide advice on how to account for certain parts of your business. When the VAT representative stopped in, he was very helpful and indicated that I was withholding too much tax in some instances. He even gave me his desk number and told me to call him if I had any questions.

Registering for taxation
I didn't register for taxation until the business had been running awhile and I regretted it later. There are various types of taxes in Ireland:
  • Corporate tax (12.5 percent)
  • Income tax
  • Value added tax—charged on all business with turnover greater than $51,000 in goods or $25,000 in services; we were in the latter group.
  • PAYE/PRSI—Think of this as social security and health insurance. Ireland has a social insurance system, so health insurance isn’t a large business expense like it is in the United States.

After the business is registered for taxes, the taxman will drop by and go over what must be withheld and paid. I waited until we had been running a few months and had to pay more than I would have liked. I could have avoided that if I had acted at the onset.

Unique codes and regulations
In our case, even though we called our entity a consulting company, we were legally classified as an employment agency. This required some rules and regulations that we don’t have in the United States.

The biggest was the safety of information regulation. We had to sign a form that any personal information obtained from individuals was constantly under lock and key and that any computer records had very strict security.

In my case, since I was the only employee for the first few months, I just had to show regulators that I had the office locked and that confidentiality was maintained. This isn’t a big problem in The Republic of Ireland, but in Northern Ireland, it is a serious issue and closely regulated. The current breakdown in the Northern Ireland peace accord is due to a disk containing personal information about government employees that was discovered on an IRA suspect.

Getting insurance
Insurance in Ireland is similar to that in the United States but has subtle differences. I'll go over the highlights here. The types of insurance are:
  • Public liability
  • Product liability
  • Burglary/theft
  • Fire
  • Employer’s liability
  • Motor insurance

Most companies offer these as a business policy or in some type of office policy. Areas covered separately are:
  • Legal fees protection
  • Credit insurance
  • Computer equipment and data
  • Travel
  • Patents
  • Business interruption

The biggest differences are in the area of computer coverage and similar items that would be covered in a policy in the United States; these might require separate coverage in Ireland. It is imperative to shop around because the prices vary quite a bit.

Home office may not be the best approach
While establishing a home office lowered initial startup costs and decreased the relocation effort because I didn’t have to find both a home and business location right away, I found that the home office wasn’t the best working environment for a recruiting or consulting firm; I needed a business place to meet with clients.

Once I handled all the administrative issues and began meeting with people, I realized I needed a separate office location—a place where people could drop in, chat, and discuss business and current events.

I had settled in Malahide in the northern part of Dublin. While I had a realtor helping me, I had trouble because I wasn’t a known entity in the area. Finally, I met a man who had office space above his business. It wasn’t completely fitted out for an office, but he was willing to cut the monthly rate if I would paint. He charged $900 a month, renewable yearly. This worked out great and the firm was in business.

Coming up next
In the second part of this series, I'll relate the perils and pitfalls in making my new office functional—from phone and Internet connectivity hurdles (for example, building construction in Ireland tends to be cement and not very conducive to easy wiring) to hiring an assistant and embarking on a marketing approach that takes a host country’s business philosophy into account.

 

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