Business Incubation

Incubation services are designed to ensure that a new start-up business or a newly established overseas branch of a foreign company has the best possible chance of success. In the early stages of a company’s life it may be premature or overly costly to lease its own premises, staff and deal with the various other considerations relevant to a newly formed company. The following services are generally available where the company is formed or where the overseas branch is established.

Formation/Overseas Registration
The first stage is the formation of the operating vehicle or registration of the overseas branch. Company formation is dealt with in detail in our main article and there may be start-up packages available making this process simple and affordable, where such services are available they will be included in the country specific section. Such services typically include the use of space in the offices of the local service provider to allow ready access to accountants, lawyer and other advisors during the company’s early life.

Controlled Foreign Corporation (CFC) Rules
Most countries attempt to some degree to tax and regulate foreign companies which they feel are being used to avoid tax due to them or which they feel falls within their remit due to being operated within their borders. The principle basis for these rules is the location of the management; specifically where the directors spend the majority of their time. Therefore a company incorporated in country A may also be taxable in country B if the directors spend most of their time there. Where companies are taxable in more than one country there may be dual taxation arrangements in place however if one of the countries is a low or no tax area this is likely to defeat the tax planning reasons for which the company was established. Various methods have been used to attempt to avoid this situation with different degrees of success. The method of simply holding board meetings in the country of incorporation is, for example, likely to be ineffective in almost all cases. The method of appointing local directors may, if the company is operated properly, be effective in avoiding CFC rules based on management alone. More sophisticated anti-avoidance rules may seek to attack a foreign company by claiming it lacks substance and is wholly or mainly artificial and therefore should be ignored for tax purposes. All of the following products are designed to dismiss the suggestion that a company lacks substance in the country where it is incorporated.

Office Space
The taking up of premises adds a degree of substance to the operation of a company.

Dedicated Office
Many local providers will encourage the use of dedicated offices which may be in their building to allow easy access to the advisors during the early stage of the company’s life. Such offices are likely to be furnished and serviced and may include a name plaque on the outside of the building where the company is registered.

Use of Meeting Rooms
Aside from dedicated office space many service providers have facility to allow clients to hold meetings in their premises or for their staff to work from when they are in the country.

Receptionist/Call Answering/Local Numbers
Many providers encourage the use of dedicated receptionist or call answer service and local phone number to add substance to the operation of the company in the country where it is incorporated. Local providers may also assist with registration in the local business directories and some degree of local advertising.

Human Resource Management (HRM)
The hiring of local staff and/or relocation of staff to the country where a company is incorporated adds a great deal of credibility and substance to its operation and it is likely to be difficult for a company having staff to be attacked for lack of substance, though it will need to consider any transfer pricing rules which may be applicable.

The sourcing and interviewing of local staff can sometimes be handled by the local service provider though in many cases this is a role the client prefer to undertake themselves. In any case the local service provider will be able to assist with legal considerations and providing a good indication of market conditions.

Work Permits
Many service providers are able to assist with the obtaining of work permits for staff seeking to locate from a foreign country. Local law may also require a search for a similar resource from the local marketplace before the awarding of a work permit to a non-local applicant. In such cases the search and interviews can usually be handled by the local incubation partner.

Staff Relocation
Whether or not a work permit is required the relocation of staff from one country to another can benefit from a local partner who is familiar with such matters as accommodation, and local service and utility providers and who is generally available to assist and guide the employee whilst they become accustomed to their change of environment.

Staff Insourcing
Where full time staff are not required or where a temporary increase in workload necessitate the need for extra staff hours many local providers can provide staff on a hourly basis to support in administrative matters or in some cases in technical matters depending on the skill set required.

Corporate Branding
A lack of corporate identity may be a basis for an attack directed at lack of substance. The following products are intended to add some degree of substance to the local operation of a company but will not of themselves be effective.

Domain and Email Registration
A good starting point is the registration of a domain through which the company can send and receive emails. This domain may be a .com or a domain suffix specific to the country where the company is incorporated.

Website and Branding
Many local providers include the design and hosting of a simple branded website in their incubation package to add a degree of local substance.

Where the language of the country of operation is not the same as the language of the client it may be desirable to make at least some effort to translate corporate documents such as website content and email footers into the local language to add a degree of substance. For a description of translation and documentary services please see our main article.

Financial Incentives and Local Partnering
Application for local incentive for start-ups especially those involving recruiting of staff is a good way to associate the company with the local governmental framework and adds substance and credibility to its local operation. Similarly, working with local partner and involving them in the operation of the company to some extent will add substance to the local presence.

Umbrella Licensing
In situations where a licence is required but the company may be not large enough to justify bearing the whole cost of the application it may be possible to find local partners willing to allow umbrella licensing in some situations. This means that in exchange for some fee a local company may operate using a third-party licence until it is large enough to obtain its own licence.