Nearshoring

What it means

Nearshoring moves work to a provider in a geographically and culturally close country - for a Slovak company typically within Central Europe. Unlike offshoring to distant regions it keeps a similar time zone, a short journey and the same EU legal framework.

Price is not the only reason. Just as often it is about the availability of specialists, language coverage, or needing a provider you can meet in person within a few hours.

Nearshoring is about where the work goes, outsourcing about who does it. A company can move an activity to an outside provider in a neighbouring country, but also to its own subsidiary or branch there. The second case is nearshoring without outsourcing, and it raises different questions: own staff under a foreign law, intra-group pricing and management at a distance.

How it works in practice

In accounting and IT, nearshoring is common for development teams, document processing and customer support. It works where there is a defined SLA, clear division of responsibility and shared working procedures.

Within the EU there is no customs paperwork, and services usually fall under reverse charge according to the place of supply rules. The reporting obligations remain.

When a client moves document processing or customer support to a provider in another country, the provider usually becomes a processor of personal data. Before any data is handed over we therefore prepare a data processing agreement with the client and check who at the provider will have access to it.

What to watch out for

If the provider is a related party in the group, the prices must satisfy the arm’s length principle and the relationship falls under transfer pricing with documentation. That is exactly what gets overlooked when work moves to a sister company.

If a company builds its own team in a neighbouring country, or has someone there long term with authority to conclude contracts, a permanent establishment may arise. It brings tax obligations in the other state, registration and bookkeeping under local rules, which quickly wipes out the savings from nearshoring.