Post-Entity Setup Compliance: 4 Ongoing Challenges To Manage

After establishing a foreign legal entity, CEOs often encounter complex regulatory, tax, employment, and data protection challenges. These challenges can hinder global expansion efforts. Many feel overwhelmed by local compliance issues, such as changing labor laws, financial reporting requirements, and strict data protection regulations.

At Deel, we understand these challenges well. Our extensive global expertise has led us to create a platform to simplify international expansion.

This article highlights the often-overlooked compliance challenges that arise after entity establishment. It also presents Deel as the all-in-one solution for overcoming these obstacles, streamlining international operations, and helping you avoid fines and penalties while accelerating your path to sustainable growth.

1. Ongoing legal and regulatory requirements

When opening an entity in a foreign market, you must adhere to local labor tax and corporate laws, business licensing requirements, and similar regulations within the applicable legal framework.

As laws and regulations frequently evolve, they require constant vigilance to ensure full compliance. For most companies, the main challenge is the lack of local expertise in all countries they operate, which exposes them to non-compliance risks.

For example, the government in the Netherlands recently made working from home a legal right. The UK government recently approved flexible working as a “day one right” through the Flexible Working Act. Minimum wages in Mexico increased by 20% as of January 2024.

Failing to inform yourself and follow local laws can lead to substantial fines, legal complications, damaged brand reputation, or even business closure and criminal liability in extreme cases.

The complexity and variability of employment and tax laws across different regions and countries can be overwhelming. You’ll likely need to hire legal and financial professionals to navigate new jurisdictions which can be financially burdensome for organizations.

How Deel helps

Deel specializes in navigating the legal complexities of establishing business operations in a new country. It provides expertise in local regulations, ensuring that your entity adheres to the correct legal requirements.

Deel has dedicated in-house legal teams that stay abreast of legal changes and can adjust your entity’s operations and documentation accordingly. This support reduces the burden of tracking evolving compliance.

Thousands of labor laws are changed or updated worldwide in a given year. According to Deel data, in 2022 alone, over 60,000 laws were updated across 190 countries. Fortunately, Deel’s always-on compliance monitor kept track, ensuring continuous compliance.

Discover how Cake saved +$3k per hire in compliance costs with Deel.

See also: The Key to Continuous Company Compliance in Today’s Global Landscape

2. Ongoing financial compliance

When operating in a foreign country, your organization must also ensure compliance with local tax laws, adhere to local accounting standards, and ensure accurate and timely financial reporting.

Understanding and meeting tax obligations, such as income tax, VAT, or payroll taxes, can be complex and vary based on business type and location. Maintaining ongoing payroll and tax compliance can even vary within one country, between different jurisdictions, like in the US.

For instance, all LLCs set up in the European Union (EU) must monitor their business health through financial statements, ensuring “a true and fair view of their financial performance and financial position” and consistent financial reports across the EU.

Setting up efficient tracking of income, expenses, and financial transactions while maintaining records compliant with local regulations requires hiring at least one local expert to ensure deadlines and requirements are always met.

How Deel helps

Deel has in-house experts with local tax know-how, ensuring accurate tax calculations, deductions, and filings and minimizing the risk of tax-related penalties.

Deel’s robust financial systems and processes track and maintain accurate records, streamlining financial reporting according to local accounting standards and reducing the risk of errors or non-compliance.

Deel also conducts regular compliance audits, reviewing financial records and processes to identify and rectify any discrepancies or potential non-compliance issues.

When you hire employees with Deel, we assume all responsibility for ensuring compliance with local laws.

• We make sure all the proper payroll taxes, social contributions, and other government fees are paid
• All mandatory local benefits, like health insurance and pensions, are handled for you
• We handle payroll, payslips, and all things HR admin so you can focus on your business

Discover how Mixtiles stays compliant globally and gets a clear view of all things payroll with Deel.

3. Evolving employment laws

When hiring local talent in a new country, you need to ensure that every employment contract you sign reflects applicable local laws regarding:

• Worker classification
• Minimum wages
• Working hours
• Statutory employee benefits (social security and health insurance)
• Termination
• Leave policies
• Intellectual property rights and more

Administering payroll, benefits, and contributions in compliance with local regulations can be intricate and time-consuming. You must follow specific guidelines regarding payroll schedules, deadlines, and more for each country you operate in.

Correct worker classification is one of the most complex questions in global employment. Definitions of employees and independent contractors vary by country. There are usually strict penalties for misclassifying employees as independent contractors, ranging from a few thousand dollars to even jail time if an audit proves the misclassification happened intentionally.

Many companies have paid hefty fines for breaking worker classification laws.

The US Department of Labor (DOL) investigated Holland Services in 2021. The company misclassified 700 employees, which led to around $43,277,000 owed in back wages and damages.

In 2023, the DOL investigated Arise Virtual Solutions and filed one of the most prominent misclassification cases in its history. The ongoing case alleges that the outsourced customer center service provider hired more than 22,000 workers as independent contractors but did not provide them full autonomy in their work.

Read more about California independent contractor laws.

Adopting the proper hiring practices and contracts is crucial for employment compliance and maintaining a positive working environment that protects and supports local workers.

How Deel helps

Through its Employer of Record (EOR) and Contractor of Record (COR) hiring models, Deel can assume legal responsibility as the official employer of your foreign employees and facilitate the legal and compliant engagement of independent contractors. This arrangement significantly reduces your exposure to risks related to misclassification and employment laws and ensures that your entity operates within legal boundaries.

Discover how Exnaton uses Deel EOR and Deel Contractor for its global team.

See also: How to Hire International Employees Anywhere (Without a Local Entity)

4. Data protection and privacy

Protecting company, employee, and customer data per all applicable laws can be a significant challenge when expanding overseas. Navigating diverse data protection laws across regions, each with its own requirements and compliance standards is no easy task.

One such example is the GDPR in Europe, which requires robust data protection measures, explicit consent, and strict data handling procedures. Not to mention keeping company, employee, and customer data safe from cyber threats and ensuring robust data security measures.

How Deel helps

Deel stays updated with local data protection regulations, ensuring that data handling practices, including storage, processing, and transfer, follow these laws.

Deel also establishes processes aligned with GDPR requirements, ensuring that personal data is collected and processed lawfully, transparently, and securely.

To protect your sensitive information, such as employee personal data, Deel implements robust cybersecurity measures, including encryption and regular security audits, to protect data from potential breaches.

Maintain compliance effortlessly with Deel

Managing entity compliance is an ongoing responsibility, requiring constant due diligence across tax laws, payroll regulations, labor policies, and data protection rules. If this article has made you doubt your decision to set up an entity, that’s completely understandable. But there’s no need for concern—Deel supports businesses at every stage of global expansion.

Whether you choose to establish an entity yourself, leverage Deel EOR to hire globally and build a local presence, or hire contractors, Deel is here to support your compliance efforts every step of the way.

Our global platform and in-house compliance team streamlines compliance management, global payroll, and employee and contractor hiring, and so much more, helping you expand your business in 150+ countries quickly and compliantly.

Learn why 20,000+ businesses trust us to support their global expansion. Book a demo to discover how Deel can work for your organization.