Breaking down borders

START-UPS:With many looking abroad for opportunities, Irish entrepreneurs need to be aware of the higher levels of regulation when starting up in foreign markets, writes FRANK DILLON

IRELAND IS ONE of the easiest countries in which to establish a company, with one of the lightest corporate regulatory frameworks and most tax advantageous regimes in the developed world.

So for those considering the emigration route, setting up abroad, either as entrepreneurs wishing to emigrate or corporations expanding their operations overseas, is a trickier affair with regulatory and social insurance conditions far more onerous in many foreign locations.

In Ireland, a company can be established within five days with no minimum capital requirement. The main stipulation is that there are two directors, neither of whom is disqualified from holding that office.

While it could be argued that a tighter regime would make for more robust enterprises, ones that are more capable of succeeding in international markets, the general consensus is that the light-touch regulatory environment that operates in terms of company formation in Ireland is a good thing.

“There is no appetite for making things more difficult in Ireland,” says Neil Hughes of accountants Hughes Blake, which specialises in corporate insolvency. “It’s seen as part of our pro-enterprise environment. Failure of companies, for whatever reason, is just a natural part of the process.”

Joe Tynan of PricewaterhouseCoopers agrees. “Ireland is one of the easiest places in the world to establish a business. Aside from company formation, one of the easiest aspects is dealing with the tax. There’s just one authority to deal with here, unlike many countries in the world where you may have to deal with a local as well as national authority and where there may be a wide range of tax and social insurance requirements to satisfy,” he says.

Moreover, business taxes are low here. If a business is profitable in Ireland and qualifies for the 12.5 per cent corporation tax rate, it gets to hang on to 87.5 cent of every €1 of profit it earns – a figure that makes us the envy of the rest of the EU. Moreover, because of generous tax credits on activities such as research and development (RD), many corporations are in effect paying even lower rates.

Though they may not shout it from the rooftops, some of Ireland’s most RD-intensive companies, including some well-known multinational, are paying effective corporate tax rates of as low as 2 per cent.

For those who do establish overseas operations, especially in parts of continental Europe, one of the most shocking realisations is the cost of employing people. France is the most expensive in this regard. The social security cost on an €80,000 salary in France works out at €57,000, around two thirds of which is paid by the employer. In Italy, the figure is €48,000 but with an even higher percentage paid by the employer. In Ireland, the social security cost on that same salary works out at about €15,000.

“Companies expanding overseas who wish to establish an operation on the ground would have done their homework and would be well aware of this,” says Giles O’Neill, European regional manager for Enterprise Ireland.

O’Neill says an increasing number of Enterprise Ireland client companies have set up subsidiary operations on the continent over the past three or four years, partly as a response to the relative weakness of sterling over that period. Many of these have established companies, and Enterprise Ireland has linked in with the equivalent of the IDA in countries such as France and Germany that are actively encouraging inward investment.

“Establishing a company in one of these countries shows commitment and sends out the message that you are in it for the long haul. There are clear differences in regulation and taxation and it requires professional input from lawyers and accountants in these territories, but there is a lot of help available for those who need it,” he adds.

A more traditional route for many, and one which avoids some of the complications of incorporation overseas, is to seek a close collaboration with a foreign distributor. O’Neill says companies wishing to establish relations or who wish to sell directly overseas need to be patient in any case.

“There’s a different business culture. The Germans and French, for example, will spend a lot of time getting to understand your product or service. Sales cycles in Ireland and the UK are much shorter. It can be frustrating at times and you might wonder when an order is going to be produced, but once you have got their confidence, the sales flow will come and you will generally find a lot of ongoing loyalty from the customer.”

A common pitfall for many going overseas, he adds, is to attempt to take on too much too soon. “A 50-person operation expanding the first time into Europe might be better off picking one major territory and doing it right rather than going after two or more markets at the same time.You might be better off establishing a strong foothold in France, for example, and getting bruised and battered there before taking on another market.”

Exhibition organiser Stephen McLarnon, who is behind the Working Abroad Exhibitions here, has ample experience of establishing operations overseas in both the UK and Australian markets. In both cases, this involved setting up companies. For McLarnon, expansion outside the comfort zone of Ireland was a necessity and setting up a new corporate structure was simply part of the process. “The Irish market is simply too small. This is a big reason a lot of UK exhibitions don’t come to Ireland – they’d be trading down while we’re now trading up. In our case, we also saw the opportunity to expand into Australia. I think once you’ve operated outside of Ireland you see how much potential there is and how tough a place Ireland can be to do business,” he says.

Setting up the UK company was relatively easy, but Australia required some additional work. “Setting up the company in Australia requires an Australian national as one of your directors and luckily my former operations manager in Ireland was Australian and was heading home after over three years in Dublin. She now heads up our Australian company. From a cost perspective, there isn’t much difference between the UK and Australian companies – the statutory filings are generally the same, where the price will differ is your advisers. In both cases, we used firms of accountants, which is an absolute must.”

Tynan says that, while Australia is relatively pro-enterprise, it is strict on the enforcement of regulation. “They tend to operate a zero tolerance approach so that if you make a mistake in filing the wrong tax documents, for example, they will hit you with an immediate penalty. We’re used to a more human approach in Ireland where the Revenue, for example, will tend to work with you within reason if you show you have the right intent,” he says.

He cautions also about the US. “It’s easy to establish a company there and they pride themselves on low regulation, but you do have a mass of regulation at a number of levels that can cover federal, state and city authorities, for example. It’s hard enough to figure out if you are not used to the culture, so you need a good lawyer and accountant, ” he says.

On the positive side, however, Tynan says that there are a lot of support services for Irish firms that wish to go overseas. The local Enterprise Ireland offices operate as an effective base camp for many in the early stages and there are plenty of networks of Irish professionals and businesses overseas that are generally very helpful, he adds.

With the economic climate at best uncertain in Ireland for the foreseeable future, entrepreneurs as well as established business may feel they will have better luck overseas. As well as the US and Australia, another attractive destination for emigrant entrepreneurs is Canada. It operates a “Business Immigration Program” to attract experienced business people to Canada who will support the development of a strong and prosperous Canadian economy. Business immigrants are expected to make a C$800,000 (€600,000) investment or to own and manage businesses in Canada, and must meet certain experience and/or net worth criteria.

New Zealand also has a reasonably open-door immigration policy, particularly for skilled migrants and for entrepreneurs with the resources and capital to contribute to the economy by setting up a business in the country. New Zealand is currently promoting itself as one of the most pro-enterprise economies in the world and the World Bank recently rated New Zealand as the easiest country to start a business and the second easiest in which to do business, in its Doing Business in 2010report.