Setting up an offshore company is not as straightforward as it may seem. In fact, there are many factors that companies need to consider before taking the plunge in establishing their offshore presence.
The advantages and disadvantages for businesses when it comes to offshoring may involve a lengthy list. But we’ve done the hard work of researching the topic and list down the key takeaways.
Key advantages of offshoring
Lower labour costs: One of the key benefits is that businesses could reduce labour costs by hiring foreign workers to do the same work. This work can be done for less money in developing countries or emerging economies, for example, than it may cost in developed countries or economies.
Explore new markets: This may seem obvious, as setting up an offshore presence allows companies to broaden their customer base to other countries. The e-commerce markets, for example, have boomed in many countries around the world because of the COVID-19 pandemic. Having an offshore presence means that the companies can react quickly to take advantage of the economic growth and opportunities in specific markets or countries.
Gain knowledge of foreign markets: Local or regional presence is key for companies to better understand their markets. With the help and knowledge of local or regional employees, they can offer better insights on the regional market trends, business risks and cultural norms in their country. This may also give some competitive advantage to companies who have set up offshore businesses.
Enjoy tax and regulatory benefits: Difference jurisdictions will likely have different systems of tax and regulations for business entities. Some countries offer attractive tax breaks or financial incentives to entice foreign investments. This, in turn, will benefit companies who have an offshore presence.
Key disadvantages of offshoring
Regulatory differences: This can be a sticky issue for many offshore companies. Dealing with regulatory issues and frameworks may be a daunting task, as it involves a lot of groundwork in terms of understanding the basic rules and regulations relating to business entities. Companies also need to be aware of foreign laws and risks that may impede their business practices.
Varied time zones: Although many companies and employees alike have learned to adapt to new work arrangements, especially working remotely, due to the COVID-19 pandemic, coordinating work on different time zones may still present a challenge. The normal business hours differ in different time zones. Therefore, overseas employees may need to make or receive calls at inconvenient times for them to be reached during their normal work hours.
Fluctuating exchange rates: Foreign exchange is known for its tendency to fluctuate even in normal economic conditions. These fluctuations may worsen when countries are facing economic or financial difficulties. Overseas transactions are certainly affected by the highs and lows of currency valuation and may result in offsetting savings.
Despite the current challenges with rising inflation and interest rates, the global markets still present a lot of opportunities for companies who are expanding their presence in order to grow their businesses. Setting up an offshore company is one sure way of taking that important first steps in being a global or regional enterprise. At Healy Consultants, we are here to assist you in setting up offshore companies in multiple jurisdictions.