Thanks Alberto, we appreciate you adding your advice!

Cody and Brent;

You both make excellent points. I have worked for small and medium size firms that find onerous to establish a subsidiary in a foreign country to hire one or two sales managers to maintain and grow the business there.

In such cases, the sure bet is to find the talent, then hire and manage through a labour management firm. Such firms will hire the individual(s) directly, pay wages, social security contributions, retain and submit income taxes, issue tax forms to the employee(s) and bill you the cost plus a fee for the service.

This limits your liability, eliminates your risk, brings transparency to your operations and provides peace of mind.

Excellent value add to the original topic Brent! And you have made some very interesting case studies in your comment yourself. Thank you very much for your thoughts.

Our experience is that the major cause of the problem are inexperienced North American managers who are ignorant of the local regulations, and who simply try to do it the same way they always have.

As you pointed out, it exposes the firm to significant risk. In some cases we have seen senior executive jailed when serious accidents occur with “contractors” not covered by social security. In another example, several “contractors” who ware denied benefits made a valid claim made against the firm. They collected full salary for 4 years, and all due to an inexperienced manager.

Incorporated service contractors like builders, construction firms, engineering consulting groups, drilling etc are simple to work with. They are able to sign a contract, execute the project in an independent manner, and issue a legal invoice.

However, when we find that when North American managers attempt to hire individuals as “contractors” simply to avoid hiring employees, then it invariably ends up being non compliant.

If the foreign firm has a local division, then it is relatively simple to either hire staff directly, or pay a labour management firm to do it on your behalf. Even in super difficult countries there is always a simple way (local firms found all the legal shortcuts – just copy them).

If the foreign firm does not have a local office, then their only option is to find a local labour management provider to supply the labour and ensure all taxes are paid. In many countries, we have found that local accounting offices can offer this service, and will provide an auditable set of books at the same time (double value).

A more common but related problem we run into is one where head office management or technical staff go to the offshore division and work there without
any visas. A current example of how to do everything wrong is Minera IRL in Peru, where the COO was caught working in country. Instead of resolving the issue he decided to flee, and now cannot re-enter the country under any circumstances. Under the Peru / Canada FTA he can still be persecuted for tax evasion (not very smart for a COO).

This case raises another interesting question: if the COO signed contracts, or notarized documents while in Peru, unless he has a Business Visa, those contracts and agreements and not valid. We have found many cases where large purchase contracts and joint venture agreements were not valid for this reason.

Overall, as Trade and Management Consultants, our greatest challenge is overcoming the ignorance (and often arrogance) of managers, and in all cases if we
find that the firm is playing loose with the rules on one issue, it is guaranteed to be offside on pretty much all of them.

Note: Minera IRL is a public company, and all reports and information are therefore
public. They started out doing everything right, but now have been doing an incredible job of getting it all wrong.

Makes for a very interesting trade case study (or soap opera).