Is business booming and you’re thinking about expanding your customer base? Have you considered establishing an entity in another region of the world? Maybe you’re wrestling with whether it’s worth the investment, and how to even make it happen. Don’t worry, you’re not alone. We are asked about this quite often.
The most common example is an EU business looking at setting up shop in America, seeking better access to U.S. dollars. Many U.S. merchants whose sales volumes are increasing in the EU wonder if they should invest in a local presence to better support and cultivate their European growth.
A local team can help you manage local regulations, while providing around the clock support.
How high should sales volumes be before it makes sense to set up a local entity? There are several factors to consider before setting up shop in another country. We’ve developed five steps to help you make the decision.
Step 1: Consider the cost, which includes creating new corporate documents.
Step 2: Visa and Mastercard rules require that you have a physical presence and can provide evidence, such as a signed lease agreement.
Step 3: Appoint a local director. If you’re setting up in the U.S., they will need a social security number and a U.S. bank account, along with supporting documents, such as a utility bill or bank statement, to prove they are local.
Step 4: You need to operate as an active corporation, so you’ll need a VAT number in the EU or a tax ID in the U.S.
Step 5: Evaluate your expansion plans with your accountant and/or internal audit team to ensure you’re setting things up efficiently and limiting your tax exposure.
There are great benefits to establishing a local presence. One is improved conversion rates on credit card transactions. EU traffic converts 3 to 5 percent higher when routed through an EU acquiring bank, and roughly the same rates apply for U.S. traffic through U.S. acquirers. You’ll find better pricing as well. For example, EU legislation regulates the rates that banks and processors can charge for intra-European traffic. Plus, it is easier to offer payments in local currency. A local team can help you manage local regulations, while providing around the clock support.
Certain internet content could face more restrictions in different regions of the world, and having your company perceived as local in a more restrictive region could help. A local presence also gives you easier access to local currency, reducing currency exposure when having to pay local vendors and suppliers, and enabling you to deploy hedging strategies to help limit the risk associated with this exposure.
EU businesses establishing a U.S. presence don’t have GDPR covering their interactions with U.S. consumers (although California enacted a similar data privacy law and nationwide U.S. regulation could come soon). U.S. acquiring banks typically approve merchant accounts faster than in the EU. At Segpay we have a lot of experience with this, having set up entities in Canada, the UK and the EU to comply with various card brand location rules and EU regulations. We most recently opened an Ireland location to ensure a smooth post-Brexit transition for our large base of EU merchants.
So, if you’ve gone through the five steps above and think an international entity makes sense for your business, congratulations! There will be challenges, but the benefits are many.
Cathy Beardsley is president and CEO of Segpay, a global leader in merchant services offering a wide range of custom financial solutions including payment facilitator, direct merchant accounts and secure gateway services. Under her direction, Segpay has become one of only four companies approved by Visa to operate as a high-risk internet payment services provider. Segpay offers secure turnkey solutions to accept online payments, with a guarantee that funds are always safe and protected with its proprietary Fraud Mitigation System and customer service and support. For any questions or help, contact sales@segpay.com or compliance@segpay.com.
