Cost & time required to set up a foreign legal entity

Expanding overseas and setting up a foreign legal entity is a major decision for companies, especially as it involves investing a considerable amount of time and money. Unfortunately, procuring accurate information on how long the incorporation process takes and how much money is needed to establish a separate legal entity abroad proves to be incredibly difficult. According to what you can read online, entity set-up may take any amount of time between two and twelve months and will cost somewhere between USD 15,000 and USD 20,000 in most countries. 

Yet, it is vital for business owners and stakeholders to know what exactly they’re in for when they decide to launch new markets overseas. In this article, we will therefore take a closer look at the official and hidden costs of international expansion and discuss what establishing a legal entity abroad really entails as well as what other factors apart from time and money need to be considered. Finally, we will give you some country-specific data on costs and timelines for international incorporation.

Unless you decide to skip incorporation and go for an Employer of Record (EOR) solution, setting up a legal entity is necessary to be able to hire employees in a different country. In general terms, a legal entity is an organization or company which has both legal rights and duties - e.g. right to enter into a contract, obligation to pay tax etc.

Among the different types of legal entities that exist, three are particularly common in the field of international expansion: a representative office, a branch office and a foreign subsidiary company which is an entirely separate entity domestic companies set up to be fully operational in foreign markets. Although there might be slight differences depending on the country you choose for your expansion plans, the incorporation process generally includes the following steps: *

• Registering with the local authorities - company registration, tax registration, employer registration etc.

• Opening a local bank account - after having proven you fulfill the local capital requirements for business incorporation

• Appointing a local director - or several, depending on the country

• Building a team of HR, legal and tax advisors on the ground to ensure legal compliance

• Setting up payroll, navigating local tax system, drafting compliant employment contracts and keeping track of any legal changes regarding labour law and regulations

* Please note that the steps listed here refer to the general process of creating a foreign subsidiary which is also the type of legal entity we will focus on in the following paragraphs.

As mentioned above, what you usually read in blog posts talking about international business incorporation is that creating a foreign subsidiary will cost several thousands of dollars. Before looking at incorporation fees and timelines in detail, we should first define what costs we are actually talking about. Despite there being some differences between countries with regard to fees and registration processes, there are some cost factors which are universal. In most cases, the official costs of incorporation include:

• Registration fees - levied in most but not all countries, e.g. no registration fees in Slovenia or Rwanda

• Capital requirements - not in all countries, e.g. not in Australia

• Costs for necessary legal consultation and documents - tax registration, Articles of Incorporation, shareholder agreements, choice of entity type etc.

In addition to these costs which are directly linked to the incorporation process itself, the creation of a legal entity entails further hidden costs related to:

• Appointing resident director(s) - most countries require subsidiaries to have at least one local director

• Costs for ongoing legal consultation or HR efforts to ensure compliance

• Ongoing administrative costs such as payroll, tax filing, insurance, infrastructure, banking etc.

A quick word on how the data provided below has been sourced: Except for the registration fees and the estimated timeline for the whole incorporation process, all the information stems directly from the Worldbank’s Doing Business Database which publishes country-specific information on starting a business. The indicated registration fees - to be interpreted as fees levied by the respective government for company registration - have been calculated as the percentage of each country’s per capita income as indicated by the Worldbank. For detailed information on how data for the Doing Business Index is collected and selected, check out the Ease of Doing Business Methodology. 

As for the indicated time frame for completing the whole incorporation process: Timelines include estimates of the actual company incorporation period as well as pre and post registration processes such as procurement of necessary legal documents or tax registration. In no case should they be interpreted as accurate legal advice.

Setting up a legal entity in Canada

• Type of legal entity: Corporate subsidiary

• Number of registration procedures: 2

• Average time for registration: 1.5 days

• Estimated time for setting up a company (total): varies depending on whether you go for federal or provincial incorporation

• Registration fees: approx. USD 135

• Minimum capital requirement: none

Setting up a legal entity in China

• Type of legal entity: Limited Liability Company

• Number of registration procedures: 4

• Average time for registration: 9 days

• Estimated time for setting up a company (total): 5 months

• Registration fees: approx. USD 133

• Minimum capital requirement: none

Setting up a legal entity in Cyprus

• Type of legal entity: Private Limited Liability Company

• Number of registration procedures: 5

• Average time for registration: 6 days

• Estimated time for setting up a company (total): 9 weeks

• Registration fees: approx. USD 1,473

• Minimum capital requirement: none

Setting up a legal entity in Denmark

• Type of legal entity: Private Limited Company (Anpartsselskab)

• Number of registration procedures: 5

• Average time for registration: 3.5 days

• Estimated time for setting up a company (total): 8 weeks

• Registration fees: approx. USD 120

• Minimum capital requirement: DKK 40,000

Setting up a legal entity in Germany

• Type of legal entity: Limited Liability Company (GmbH)

• Number of registration procedures: 9

• Average time for registration: 8 days

• Estimated time for setting up a company (total): 14 weeks

• Registration fees: approx. USD 3,084

• Minimum capital requirement: EUR 25,000

Setting up a legal entity in Hong Kong

• Type of legal entity: Limited Private Company

• Number of registration procedures: 2

• Average time for registration: 1.5 days

• Estimated time for setting up a company (total): 8 weeks

• Registration fees: approx. USD 252

• Minimum capital requirement: none

Setting up a legal entity in India

• Type of legal entity: Private Limited Company

• Number of registration procedures: 10

• Average time for registration: 18 days

• Estimated time for setting up a company (total): 16 weeks

• Registration fees: approx. USD 188

• Minimum capital requirement: none (INR 100,000 optional)

Setting up a legal entity in Ireland

• Type of legal entity: Private company limited by shares (LTD)

• Number of registration procedures: 3

• Average time for registration: 11 days

• Estimated time for setting up a company (total): 10 weeks

• Registration fees: approx. USD 59 (electronic registration)

• Minimum capital requirement: none

Setting up a legal entity in Mexico

• Type of legal entity: Corporation (Sociedad Anónima)

• Number of registration procedures: 8

• Average time for registration: 8.5 days

• Estimated time for setting up a company (total): 22 weeks

• Registration fees: approx. USD 1,496

• Minimum capital requirement: none

Setting up a legal entity in the Netherlands

• Type of legal entity: Private Limited Company (Besloten Vennootschap)

• Number of registration procedures: 4

• Average time for registration: 3.5 days

• Estimated time for setting up a company (total): 10 weeks

• Registration fees: approx. USD 2,271

• Minimum capital requirement: none

Setting up a legal entity in New Zealand

• Type of legal entity: Limited Liability Company

• Number of registration procedures: 1

• Average time for registration: 0.5 days

• Estimated time for setting up a company (total): 8 weeks

• Registration fees: approx. USD 82

• Minimum capital requirement: none

Setting up a legal entity in Norway

• Type of legal entity: Private Limited Liability Company (Aksjeselskap)

• Number of registration procedures: 4

• Average time for registration: 4 days

• Estimated time for setting up a company (total): 15 weeks

• Registration fees: approx. USD 646

• Minimum capital requirement: NOK 30,000

Setting up a legal entity in Portugal

• Type of legal entity: Limited Liability Company (Sociedade por Quotas)

• Number of registration procedures: 6

• Average time for registration: 6.5 days

• Estimated time for setting up a company (total): 11 weeks

• Registration fees: approx. USD 412

• Minimum capital requirement: none

Setting up a legal entity in Singapore

• Type of legal entity: Limited Liability Company

• Number of registration procedures: 2

• Average time for registration: 1.5 days

• Estimated time for setting up a company (total): 9 weeks

• Registration fees: approx. USD 235

• Minimum capital requirement: none

Setting up a legal entity in Spain

• Type of legal entity: Limited Liability Company (Sociedad de responsabilidad limitada)

• Number of registration procedures: 7

• Average time for registration: 12.5 days

• Estimated time for setting up a company (total): 9 weeks

• Registration fees: approx. USD 1,149

• Minimum capital requirement: EUR 3,000

Setting up a legal entity in Sweden

• Type of legal entity: Limited Liability Company (Aktiebolag Privat)

• Number of registration procedures: 4

• Average time for registration: 7.5 days

• Estimated time for setting up a company (total): 12 weeks

• Registration fees: approx. USD 275

• Minimum capital requirement: SEK 50,000

Setting up a legal entity in the UK

• Type of legal entity: Private Limited Company (Ltd)

• Number of registration procedures: 4

• Average time for registration: 4.5 days

• Estimated time for setting up a company (total): 10 weeks

• Registration fees: approx. USD 29

• Minimum capital requirement: none

Registration fees, capital requirements and the number of procedures required until your business is officially registered in the new jurisdiction are, no doubt, some of the key factors in the process of choosing a country for your international expansion. However, there are many more aspects to take into consideration. For example, the Ease of Doing Business Index also accounts for:

• Dealing with construction permits

• Getting electricity

• Registering property

• Getting credit

• Protecting minority investors

• Paying taxes

• Trading across borders

• Enforcing contracts

• Resolving insolvency

Further aspects that can influence the success of your expansion plans include:

• Prohibitions on Foreign Ownership - e.g. in the U.A.E. foreign investors need to have a local sponsor

• Complicated Immigration Requirements - tricky when you want to send some of your staff abroad to assist in the set-up process of your new entity

• Economic factors such as GDP, Consumer Price Index or inflation

• Political stability and wealth of the population

• Free trade agreements

• Labor force and local employment regulations such as paid annual leave

Interested in knowing which destinations are particularly attractive for establishing a foreign legal entity? Then check out our list of top countries for international expansion.

No matter which country you choose for your international expansion project, with all the necessary registration and incorporation processes, it will always be a couple of months until your legal entity can finally start operating. Luckily, there’s an easier and faster way to hire top talent abroad and launch new markets. 

Lano’s Employer of Record solution allows you to skip incorporation and jump straight to hiring the best local talent to power your foreign operations. Hire and onboard your remote team within as little as two weeks and save time and money you otherwise would have spent on dealing with local laws and regulations. No need to worry about compliance. Our network of EOR partners has got you covered so that you can focus on your core business activities.