Almost every country in the world wants foreign firms particularly large transnational corporations to make investments in their economy. It leads to job creation, one of the critical inputs for any economy to grow. However, large organizations have their own dynamics that hold them back from directly recruiting all their employees in a new country they invest in. This is where the umbrella companies come into the equation. They act on behalf of their client companies in tapping local recruitment agencies and offering contractual employment. You will come across many an umbrella company in Iceland offering their services.
How Does it Work?
These are normally known as international umbrella companies. This is how they are described across many countries in Europe. In the USA and other continents, companies offering almost identical services are referred to as ‘Professional Employment Organizations’.
The bottom line is like this: the umbrella companies take on the responsibility of employing people for various assignments on behalf of overseas companies. They employ the people on their rolls, make the salary payments, take care of the payroll taxes that are to be withheld, and make the contributions towards pensions, etc. They would get reimbursed for this by the client organization. An umbrella company in Iceland would, in turn, utilize the services of local recruitment agencies.
The Responsibilities of the Umbrella Company
The umbrella company usually helps with recruiting employees where their assignments are of a temporary nature. If the foreign investor is setting up a new facility in Iceland, they would need a lot of hands to deal with the planning and execution of the construction of the facility. Once the factory or the facility comes up their services may not be required any longer. The umbrella company in Iceland will hire these people on contractual employment and comply with all the local laws. They are referred to as independent contractors. Each country has different laws on how the employees are paid their salaries and the taxes withheld and paid to the government. The umbrella company is better equipped to handle these matters.
What are the Identified Benefits of Umbrella Companies?
Many large organizations may prefer not to create a large establishment in the countries they invest in. These add to their already high overheads and there are issues they encounter while employing foreign nationals on the company’s rolls. They may even avoid setting up a 100% subsidy in the country of destination again saving them euros or dollars. The employees too may gain in taxes to be paid by them through this arrangement. All entities have to operate within the confines of the laws as existing in the respective region or nation, in this case, Iceland.
The umbrella companies also take care of administering the benefits due to the employees, like severance pay, payment for treatment of sicknesses, and holiday pay. The outgo for the multinational company would prove to be much higher than what the umbrella company pays.
Are There Any Risks Involved in This Arrangement?
The only issue that an umbrella company in Iceland or elsewhere can face is if the tax authorities take umbrage at the arrangement on the grounds that there is any non-compliance. If the arrangement takes care to address the regulations things may not be difficult. In some odd cases, there have been reports of the umbrella company making payments to their employees and calling them as loans. These can have serious implications for the employees also since the authorities can ask them to pay taxes on these payments treating as salary payments.
The umbrella companies are useful to encourage large corporations to come and invest in countries like Iceland. The foreign investor can commence the operations with the least resistance.
If you have plans to invest in Iceland and need local assistance contact Swapp Agency.