FOREIGN AFFILIATE: OFFSHORE DIVISION OF YOUR COMPANY
A Foreign Affiliate is a business incorporated in a non-Canadian jurisdiction, and where ownership percentage can vary. It is however, strongly recommended that the Canadian parent maintain irrevocably control of the Foreign Affiliate as they then qualify for Canadian Government resources such as EDC assistance, Go Global grants, BDC funding, and Trade Commissioners Service and other Consular assistance.
As a domestic firm in the offshore market, Foreign Affiliates may participate in local procurement and supply chain agreements, and provided their registered capital is sufficient, may bid on government and other services and supply contracts: opportunities that are normally closed to exporters from Canada.
Services exporters invariably require Foreign Affiliates as they need to operate in country where they hire staff, pay taxes, open bank accounts, borrow money, import/export and undertake any other normal business activity.
A Foreign Affiliate conveys distinct advantages through access to low cost production by offshoring tasks and functions, and may qualify for tax incentives and credits, for example tax free holidays, duty free importation, or subsidized power that can help boost the bottom line by over 20%. Productivity increases and related competitive advantage may be available, as it is often significantly less expensive to create a highly efficient state-of-the-art facility offshore, than upgrade an existing operation in Canada.
International commercial conflict resolution mechanisms are expensive, slow and often ineffective, however with a Foreign Affiliate, the firm enjoys the same commercial legal rights as a domestic firm, sharply reducing the risks and costs related to dispute resolution.
Prior registry and approval of IP is a prerequisite in many countries for professional services contracts, or where a subscription type sales model is utilized. For patent protection, IP must usually be registered independently in each country, and particularly in countries with weak IP or patent enforcement, a Foreign Affiliate offers a much faster and more reliable response than attempting to work through cumbersome, and slow international trade agreements.
Foreign Affiliates allow participation on large infrastructure, capital and government contracts. In most emerging (civil law) countries, it is the amount of registered corporate capital that determines the level of corporate liability, the amount that may be borrowed from a bank, but also what contracts the firm may participate in. Some countries require almost half a million dollars in registered capital to bid on even the smallest government contract, and several millions of dollars must be registered before participation on infrastructure or other capital projects are allowed.
XPM Global has been assisting clients establish Foreign Affiliates for clients since 1992, including turn-key setup from incorporation to functioning hand-over.