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Don't risk your business internationally with noncompliance
Companies need to ensure they take compliance seriously when expanding internationally. They need to make sure they are compliant in countries by understanding regulations.
Did you know noncompliance costs more than twice the cost of maintaining or meeting compliance requirements? Yet, companies continue to overlook proper compliance procedures, choosing to "wing it" or do it on a shoestring budget instead.
We get it -- today's business owners have a multitude of priorities to juggle, top of which is turning a profit and growing. When you're focusing on driving success, compliance can easily fall by the wayside. But success is of little consequence if a government entity dissolves your company because you failed to comply with certain legal requirements.
Keeping on top of regulations
In the corporate world, compliance involves adhering to a wide range of laws and standards designed to protect your employees, customers and other stakeholders -- and generally making sure you "do the right thing." No matter what industry or type of business you work in, compliance is a big deal. But when you're looking to expand your operations into markets all over the world, it's an entirely different ballgame.
As you grow and move into new jurisdictions, you'll encounter a host of new regulations -- from tax returns and statutory filing to international employment rules about payroll -- and face much higher compliance costs than operating solely in one location.
Many countries require that filings and contracts are made in the local language and change their regulations frequently. Without a contact on the ground, it can be difficult to keep up. Each country will also have its own authorities and governing bodies to deal with. For example, in the U.S., you have the Occupational Safety and Health Administration (OSHA) to contend with while companies operating in the U.K. will need to comply with the Health and Safety Executive's (HSE) standards.
Compliance across borders
The point is, no two countries are the same, and when you're trying to operate across multiple locations, things can get messy. Late filing in Denmark could lead to your company being dissolved within a few months. In Serbia, the tax regulations are so confusing that many companies have taken to paying extra tax where they have no liability just to ensure they don't get stung with any penalties.
If you're expanding into Spain, it's worth knowing that terminating employee contracts is notoriously tricky, and you'll have to budget for a severance fee (which equates to 33 days of salary per employment year). In Singapore, you'll be responsible for sending the monthly payment (including both yours and the employee's respective contributions) to the Central Provident Fund (CPF) -- a key pillar of the country's social security system. This payment has to be sent by the 14th of the following month.
A couple of notable points to bear in mind if you're expanding into Germany is that employees can only be leased for a maximum of 18 months. After this, you must hire them permanently or let them go. Chain leasing is also prohibited, meaning the company holding the license must contract directly with the party receiving the labor.
And if your global expansion journey is taking you down under to Australia, you'll need to pay a Fringe Benefit Tax if you're providing certain benefits to your employees -- even if a third party provides them. Without this knowledge of local regulations, you quickly (albeit unintentionally) run the risk of noncompliance and may find yourself on the wrong side of the law.
So, what could happen if you don't comply?
There's no way around it, if you fall afoul of compliance, you'll end up paying for it -- one way or another. Penalties come in multiple forms. The most common penalties for noncompliance are fines, which may be levied against the company or individual directors.
However, one of the most financially damaging events a company faces is having its products blocked at the border or being forced to destroy merchandise due to compliance issues. In some cases, noncompliance can even result in the mandatory closure of all operations within that country or imprisonment of the directors.
Even if your organization is not given an actual penalty, the inconvenience and costs of righting the mistake, damage to the company's reputation and possible loss of contracts could prove disastrous. But the highest cost of noncompliance is business disruption. When found to be noncompliant, you may be forced to implement changes before business can resume, which can have a knock-on effect on other areas of your organization.
About the author
Paul Sleath is the CEO at PEO Worldwide.