Key considerations when choosing an EOR-partner

Choosing the right EOR involves evaluating track record, compliance, financial integrity, and legal knowledge to ensure success in new markets.

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Expanding your business or undertaking projects in new territories requires careful consideration when selecting an Employer-of-Record (EOR) partner. This decision can profoundly impact your operational success and compliance in international markets. Here, we delve into the crucial factors to consider for making an informed choice.

1. International Management

Many successful foreign companies have initiated operations in Sweden, and conversely, many prosperous Swedish companies have management living abroad. However, be wary, as this setup also attracts disreputable companies. The presence of an international board requires thorough vetting to ensure legitimacy and a strong operational foundation.

2. Auditor Comments

Auditor remarks range in severity, but serious concerns include the non-payment or late payment of withholding taxes, VAT, and employer contributions. Additionally, data management practices, such as processing company accounts on a foreign server without the appropriate permissions from tax authorities, should raise red flags. These issues indicate potential mismanagement or disregard for legal obligations that could endanger your business.

3. Overly Optimistic Financial Projections

Be cautious of EOR services offering overly optimistic financial calculations. All companies are subject to the same tax regulations, yet some provide “happy estimates” leading contractors into situations where they face unexpected tax debts or reassessments mid-project. While securing a project is important, the satisfaction and financial well-being of the contractor when faced with unexpected tax increases cannot be overlooked.

The EOR’s understanding of employment and tax law in the relevant market is critical. An alarming trend is the misapplication of the 183-day rule for determining tax liability in Sweden, which has largely been superseded in the consulting industry by the economic employer concept. Previously, a worker from a foreign company without a permanent establishment in Sweden and staying less than 183 days within a twelve-month period could be exempt from Swedish taxation. This contrasts with workers employed by a Swedish company. New regulations mean more foreign workers temporarily working in Sweden will be liable for report and paying taxes, necessitating EORs with up-to-date legal expertise.

Choosing the right EOR involves a careful evaluation of their track record, compliance with legal standards, financial integrity, and the ability to manage complex international employment scenarios. Ensuring they possess comprehensive legal knowledge and a commitment to ethical practices will safeguard your projects and contribute to their success in new markets.

If you can answer YES to these questions, you’re ready to proceed

1. Have you verified that the EOR company does not use subcontractors?

2. Is there a comprehensive insurance package covering all contractors?

3. Does the company engage a reputable auditing firm, and are there any significant remarks in their annual report?

4. Does the company prioritize compliance with labor laws and tax regulations in the country?

5. Does the company discuss the 183-day rule rather than the economic employer concept?

6. Is the take-home pay reasonable and not not too good to be true compared to alternatives?

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By partnering with Cool Company, companies can seamlessly navigate the intricate legal and tax landscapes of Sweden and Norway.