How can a Russian-speaking business operate abroad?

Host: Hello everyone! Welcome to the Hussle podcast, and I am your host today. Here we talk about the latest news of economics and discuss major challenges and problems that business owners and managers in the CIS face. We are also going to share expert opinions and recommendations on business and finance by industry leaders. The podcast is brought to you by Red Barn.

When an employee or even an entire team moves abroad, it is called global mobility. And the trend has been gaining momentum in recent years.

For example, I found a report by WHR Global which says that about 64% of companies have at least two relocation packages designed for both long-term and short-term employment. As is the case with any type of migration, global mobility is volatile and its laws and requirements tend to change constantly.

Today our goal is to understand what exactly is happening today, how relevant the trend is for Russian-speaking companies and those who are employed abroad or work from abroad. Our expert today is the founder and CEO of EasyStaff Vitalii Mikhailov. EasyStaff is an international company that serves freelancers and their customers worldwide. Hello and welcome Vitalii!

Vitalii Mikhailov: Hello Arseni, and hello everyone. Yes, I am all for it.

Host: Thank you for walking us through the topic. Without further ado let’s begin. So you represent a Russian-speaking business abroad. Can you share a bit of your personal experience on global mobility today? What trends could you outline?

Vitalii Mikhailov: Yes, indeed, we’re an international company with several Russian-speaking legal entities. Currently the team is remote, and there are about several dozens of employees, and we are all based in different countries.

And this is a real trend, the norm of the modern business where companies are not focused solely on where they operate. Owners are not limited in locations, and they can find employees anywhere in the world to match their positions. But there are also some ins and outs to take into consideration. With Russian-speaking companies, they still tend to choose Russian-speaking employees as it is easier to communicate with them. Overall, national mentality plays a huge role in team building. Consequently, it is easier to organize a team in a Russian-speaking context where hiring and HR management are familiar.

The modern world helps you do so rather effectively. I am pretty sure that not only EasyStaff but also any American or European companies follow this logic as they grow and expand overseas.

Host: I’ve noticed that many companies increasingly expect to relocate or to work with a relocated or a foreign employee in 2024. What are the benefits of relocated staff? And what are the downsides?

Vitalii Mikhailov: You’ve mentioned the report ‘Mobility + Culture: Data-Driven Insights on Global Mobility and Corporate Culture' by WHR Global. I would not consider it a reference in our conversation today. You see, the mentalities of us and the Americans do not really coincide. As for upsides and downsides, it depends on the perspective.

For employees, the benefits are crystal clear. For example, relocated workers (i.e. when a company extends internationally and moves some workers to new locations) are the followers of the new lifestyle ‘work and travel'. We have several relocated employees, and they are the core of the team. From my own experience, I see that this approach to work helps workers gain new perspectives on the world as they combine work and leisure. This may not be the norm of life yet because offline/office-based employment is still widely supported. But for modern IT/digital businesses freedom of mobility is a default standard they offer to their employees.

Today, valuable employees are offered work-and-travel opportunities so they are not bound to a country or an office. On top of that, the pandemic made companies rethink work organization, so they realized that remote is not bad at all.

Moving on to advantages for businesses, global mobility helps engage important employees as they are motivated to stay with an employer that lets them travel. Additionally, there are hidden benefits. For example, with a traditional employee you pay for their stationary, taxes, insurance, etc. But for a mobile employee who moved abroad the employer’s tax responsibility may change. The employee eventually changes their tax residency, and for the company that entails reduced tax burden. This is a prominent advantage that is entirely legal. Along with letting your employees travel, you can significantly save on office-related spending and payroll costs.

Host: You’ve seen the recent interview of Pavel Durov, haven’t you?

Vitalii Mikhailov: Have not seen it yet, but I heard a lot about it.

Host: I mentioned it for a reason! Mind if I give you a tiny spoiler?

Vitalii Mikhailov: No problem.

Host: In this interview, Durov shares how his team was looking for a place to relocate to. It was the States, and prior to that Germany. The last city was Dubai where they stay today. I am bringing it all up because this particular story of an individual business proves that no country is the promised land business-wise. On the whole, I feel Durov’s story reflects how relocated companies and solo work-and-travel professionals often face similar problems.

Let’s dwell a bit on issues a relocated company or a company with remote employees may face. Like, what are top-5 or top-10 problems that are not obvious in the beginning but may go snowballing later on?

Vitalii MIkhailov: These are two very different cases. When a company is relocated as a whole or team by team, then all the problems fall on the shoulders of the company. When a business relocates, it needs to readjust cash flows and find new ways to generate revenue. New bank accounts must be established in a different country, and the business needs to get legally bound to the place where it makes revenue. Don’t forget about proper compliant accounting and tax management!

As a result, the business owners need to let their clients know that the business has been registered in a new country with new bank accounts and new compliance terms. And in this case, an employee’s worry really doesn’t go beyond daily household questions. You see, they remain an employee, and they are likely to be given some minimum relocation support package along with necessary documentation to stay in the country. Chances are, founders themselves will be overseeing the process for C-level workers as well, so for a mid-level employee this type of relocation is simply perfect.

But for the business, it is associated not only with massive spending but also with numerous risks. If relocation is not planned well, then the business is likely to lose part of its clients or even of the business itself if it is related to tax, banking, accounting requirements in their destination. This case, albeit excruciating for the business, is advantageous for employees.

In contrast, the other case is fully in the benefit of the employer. When an employee moves abroad, then the company doesn’t really have any problems. Basically, a worker opens up a new bank account where they now live to keep receiving salary. In turn, the company has to find a way to pay your salary. We had a few clients that were not able to send money to their employees who relocated. Personally, I’ve heard of quite a few such situations. This problem is kind of fundamental but once it is solved, everything else is fine. It is not as difficult or fatal as it sounds.

Going back to the worker, in this case every other question, issue or problem is up to the worker to solve. Basically, an employee becomes a freelancer. The degree of separation from the employer is considerable. While there may be some level of control over work quality, working hours, work location and other aspects are not monitored by the employer.

But still, not every employee can get past these challenges. Either the employer understands that they can’t set up a whole new payment scheme for a single employee, or the employee in the end opts out of remote work for this particular company. Depending on their finances, they can either find a new job, or go back to their original workplace.

Host: Vitalii, are there any other aspects that are faced by all businesses across the board? Some intricacies that business managers tend to overlook?

Vitalii Mikhailov: I can’t really say there is a uniform factor that applies to all. Each case is unique, and there are reasons behind it. First, it all depends on the business. Going back to Durov, his business is a high-margin, high-performance, overall well-off business that has money to make frequent mistakes and survive. On the contrary, a low-margin business that is highly dependent on location, suppliers, and customers, is not in a position to experiment with relocation. Pretty much all offline companies and even some online businesses simply can’t afford moving as their unit economy might shatter once subjected to new tax regulations. That’s not to say it is bad. It’s just the norm for business like this. Often it is the founder or the owner that relocates instead of the whole team, so the business remains where it is.

I guess what I am trying to say is that there is no common denominator that businesses can universally use to guide themselves through relocation. Each case requires serious analysis that considers its risks and benefits. Likewise, every founder or CEO makes their own decisions and has an even bigger picture to take into account. And we have not even touched upon destinations! For example, the celebrated Dubai is a top-of-mind choice for many business owners, but it is far from being a one-fit-all solution. Dubai is in fact in Europe’s FATF list which means it is kind of in the gray zone for Europe business-wise. To put it in simpler terms, European clients won’t be able to pay a company in Dubai.

In a nutshell, CEO or owners or founders need to be informed of how and if their clients will be able to pay once the company relocates and what tax will apply to revenue.

Host: You must have understood by now that we love to discuss business news in detail. Let’s talk about global mobility and how it affects EasyStaff. How many workers are remote in EasyStaff?

Vitalii Mikhailov: Everyone’s remote. We have multiple companies, but there are not any full-scale offices where people go 5/2. There are locations listed as our offices on paper, though. And there is an office in Lithuania where I work. It’s because I prefer working in a regular workplace with a table and a coffee machine instead of some cafe or a park or whatever.

We’re exceptionally mobile since our team is spread across Finland, Croatia, Spain, Italy Lithuania and Cyprus. Neither I nor any other C-level manager controls where an employee works from. Even our time zones are different and it certainly is not a barrier. I really consider myself and the team to be ambassadors of remote work and remote teams. I find nothing but benefit in this approach.

Host: How did your team realize there was demand for international money transfers through a third-party agent?

Vitalii Mikhailov: Before I came up with the concept and founded EasyStaff, I had been CFO at KiwiTaxi. It’s an online platform to book transfers from airports and railway stations to hotels across the world. KiwiTaxi covers more than 100 countries. As CFO, I developed and sustained the financial structure of the company. And it was in that role that I realized there was a market for the service and it concerned so much more than tourist transfers.

Technically, freelance requires that there is a platform that connects customers and freelancers worldwide. It is also supposed to channel and facilitate cash flow as well as provide closing documents. EasyStaff provides necessary documentation for both freelancers and clients. We started off with an MVP that attracted initial clients which led to understanding that there indeed was demand for the product. After that, we discovered there is a market for the service and that pioneers were many and certainly not us. Frankly, this got me by surprise! Since then, we have been developing and growing, and so far we have set up two other business tracks.

Host: I’d love to know what those tracks are!

Vitalii Mikhailov: There are three products now. The fundamental product is EasyStaff. As follows from the name, it makes staff management easy. We offer a single touch point with an intuitive UI where a client adds their freelancers and remote workers (via an email invite) and manages them through assigning tasks, sending them money and documents. Consequently, a company pays to EasyStaff and receives closing documents from EasyStaff. This is a major feature as to stay transparent and compliant tax-wise, companies need to receive invoices. And invoices tend to differ from country to country. On top of that, closing documents are also provided for the freelancer so they are able to declare income legally where they have tax residency. Closing documents are necessary not only for tax authorities but also for banks that freelancers use.

Next, there is EasyStart and it’s been developing consistently for the past few years. Named similarly, EasyStart is a freelance platform that serves contractors. Basically, it is designed specifically for freelancers that need to send a compliant invoice to their client and get paid. EasyStart generates invoices that are sent by EasyStaff, so again the business interacts with a B2B partner, not an individual freelancer. After funds have been received, EasyStart identifies what freelancer the money is for and it is further credited to their account. Customers receive a PDF with all the necessary primary accounting documents. So for them, this payment is full-scale spending which is not taxed. In turn, freelancers can withdraw money via any method that suits them best after a small commission is taken. Withdrawal methods are crypto currency, Paypal, Skrill, any bank card or bank account. In simpler terms, freelancers provide their corporate clients with any payment method they need, and withdraw money in a preferred way.

The final product is EasyBusy. It is a freelance platform where freelancers post their portfolios and customers post projects and find freelancers. EasyBusy is a full-scale marketplace that we are working on now. We see several hundred finished projects, although it has only been released about 2 months ago. The ambition is to build an entire ecosystem for freelancers and customers that will cover every possible interaction between the parties. Finding each other, establishing safe and compliant cash flows, providing documentation… and it doesn’t end there. I have other projects in mind, but I don’t want to talk about them yet.

Host: Well, I hope to see you soon again to share news of your new projects.

Vitalii Mikhailov: Of course.

Host: Going back to the research we talked about earlier today, it really caught my attention that 68% of surveyed companies shared that their relocation program faces internal pressure. That is, top management requires that spending on remote workers must be cut. Am I right saying that the EasyStaff ecosystem basically solves the problem? What problems do you help solve for relocated companies?

Vitalii Mikhailov: The EasyStaff ecosystem helps companies decrease their costs associated with relocation. You see the report you refer to discusses a very expensive relocation package where companies basically hold their employees' hand through the process. In other words, companies take it all on themselves as they make employees comfortable abroad. And that is absolutely okay. Especially for large businesses, as I assume that WHR Global that made the report is an expensive provider for industry leaders rather than SMEs.

Through platforms like EasyStaff and others, as we are not the only provider, cutting back on costs is easy as we basically untie this direct customer-freelancer/employer-worker relationship. But you know, it is sort of a mixed blessing. On the one hand, companies indeed do not pay tax with us, as their freelancer/employee gains tax residency elsewhere and now manages their tax themselves. So the company doesn’t pay tax for the worker any more and even cust its relocation package. In the end, it is only salary that is paid, and payroll costs are decreased.

The other side of the medal is that the employee has nothing to gain from it. It is always like that, you know. Where there is loss, there is gain. Here, it is the employee that seems to be losing as they are not provided with a relocation program and every question, from housing to bank accounts, is on them. But it often depends on how things are between workers and employers. Sometimes there is undercover support for employees to help them adapt. Still, for individuals who are experienced expats or who travel alone, without a family or a partner, relocation is not too troublesome.

It must be understood though that not every big company is ready to just throw their employees in at the deep end. After all, employees may simply walk away. So there are multiple psychological factors in play, such as loyalty and trust.

Host: You’ve mentioned EasyStaff is not the only player in the market. What are the alternatives? How are they different from EasyStaff? Let’s talk a bit about competition.

Vitalii Mikhailov: Well, I can’t help but mention the gigantic competitor that is head and shoulders above the other services in the market. This is Deel. They are the pioneers who basically built the market. Their final round of investment collected $ 380 million. Clearly, some serious venture capital giants support them.

Deel lets customers from all over the world hire freelancers in different jurisdictions and seamlessly pay them. There is no denial they have conquered the entire market but they are also the ones who made it. As a matter of fact, I didn’t even know they existed when I got started with EasyStaff. Sadly, I entered the market without realizing the full scale of competition. Deel is American based in Delaware, and we are kind of far away from each other, and their presence in Europe is modest.

In turn, EasyStaff is based in Lithuania, so the European market is more accessible to us. We have been gaining authority steadily for the past years, and we have some Americans among our clients.

There is also a Russian-speaking competitor called SolarStaff. You see, the name of EasyStaff is based on Solar Staff. The simple logic was that if my product is named somewhat similar with ‘staff' in it, it will spark interest and comprehension in people that come across EasyStaff. The strategy proved right, and most of our clients learnt about us through Solar Staff. Solar Staff is based in Cyprus, and their presence in the CIS is strong. They are really focused on this market, whereas our interest lies in the European market. There are countless details of course, but I feel this pretty much paints the picture.

Host: Let’s consider a real case. A Russian-speaking company works abroad where it has recently relocated. Could you name top-5 initial challenges and potential threats that should be delegated to a third-party to manage?

Vitalii Mikhailov: Well, let me add some more context to this hypothetical then by saying that it is an online business, not bound to a location and able to relocate.

First off, it is the founders' passports. Banks worldwide have varying levels of trust for passports depending on where they were issued. First and foremost, the founders need to have a residence permit. Every beneficiary or owner or founder — basically, every person that has ownership over the business must be a legal resident of the country. Without a legal residence permit, 80% of doors simply won’t open for you. And this principle is applicable to virtually any country where a business relocates.

Once a residency permit is obtained, the founder is able to register the company and to set up personal and business accounts as well as corporate accounts. These are grassroot level steps. In the CIS, the market is more financially developed than European or even American markets. So these steps may seem easy and primitive, but the context is different thus making these steps considerably harder than back home.

Once the company is registered, the founder must understand how tax is paid. In Europe, the VAT works differently. The approach is the same, but the amount is different. Additionally, the choice of jurisdiction must be informed, as different locations offer different rules for how business is run.

Language is paramount, too. In Europe, the English language is not widespread at all. If the founder assumes they will manage their business in English, in Italy, for example, it simply is not the case. In Hungary the red tape is overwhelming. In my experience, Estonia and Lithuania are the countries where English is spoken most widely and government-related operations are most digitized.

The founder needs to have a good long look at how a destination country works before they choose to relocate their business there. Everything from government affairs to basic everyday interactions with an accountant needs to be considered and assessed in terms of simplicity and accessibility. If business feels difficult at home already, then going global may be truly staggering.

Host: What case comes up first where EasyStaff helped a Russian-speaking company settle abroad?

Vitalii Mikhailov: In 2017 I was setting up business operations for CDN, i.e. Content Delivery Network. Its roots are Russian, but it would later be sold to G-Core Labs from Luxemburg. My task was to set up their presence in the UK where I took care of all things legal and reconnected their UK corporate with their clients and suppliers. And after that, the company was sold.

Hiring a competent professional with appropriate experience is crucial here. Their past cases make you as a company informed of risks and regulations. The reason CDN was sold successfully is because the product itself was backed up with established financial and legal components in compliance with European law.

The same is true for KiwiTaxi which I mentioned earlier. The company is also of Russian descent, and I was hired to make it international. The core of the product had to be relocated to outside of Russia due to currency control and other obstacles at home including finance and legal. So KiwiTaxi had to be localized for the foreign market it then became part of. And this was the very first product developed by me that is thriving to this day. But I don’t manage it anymore, of course.

Host: Fantastic, Vitalii! Thank you very much for joining our podcast today! It’s been amazing learning from you about how Russian-speaking companies can work abroad. This was the Hussle podcast, and our guest today was Vitalii Mikhailov, the founder and CEO of EasyStaff. Once again, thanks for joining us!

Vitalii Mikhailov: Thank you for having me, Arseny! This is my first podcast, and it seems to have been quite alright.

Hussle by Red Barn: https://redbarn.ru/audio/kak-russkoyazychnoj-kompanii-rabotat-za-rubezhom/

June 11, 2024