Compliance is often treated as a cost of doing business. For companies expanding across borders, the conversation usually begins with a familiar question: “Do we need to incorporate locally?”

The answer can be presented as a simple regulatory requirement, but that framing misses the more important question:

"Why does the regulator want you to incorporate in the first place?"

Understanding that question changes the way we think about compliance. It moves it from being a box-ticking exercise into a problem that can be understood, designed for, and ultimately embedded into the product itself.

That is the gap we have been thinking about at Startbutton: the difference between the compliance problem as a client sees it and the actual regulatory problem that needs to be solved.

The compliance gap

When a business wants to enter a new market, it may see incorporation as the obvious path to compliance.

From the clientʼs perspective, the equation can look something like:

Enter a country → incorporate a local entity → obtain licences → open local accounts → hire people → pay taxes → operate.

But incorporation is not the end objective of regulation. It is only a mechanism through which the regulator achieves other objectives. Once you work backwards from those objectives, the problem becomes much clearer:

1. Consumer protection

A regulator wants to know that businesses operating within its jurisdiction can be held accountable. If a company is serving consumers locally, the regulator needs mechanisms through which it can enforce consumer-protection requirements, investigate misconduct, resolve disputes and, where necessary, take action against the business. Local presence can therefore provide regulatory jurisdiction and enforceability.

The underlying question is not necessarily:

“Does this company have a local company?”

It is:

“Can we effectively protect consumers who interact with this company?”

2. Anti-money laundering and transaction integrity

The second objective is the integrity of the financial system. Consider a business collecting payments from customers in a particular market while sitting outside that market. If funds are being processed through local payment service providers but there is no clear underlying merchant or economic activity supporting those transactions, the regulator may reasonably become concerned about transaction laundering and other forms of financial crime.

The regulator therefore wants to understand:

• Who is actually collecting the money?

• What is the underlying business activity?

• Who ultimately receives the funds?

• Where are those funds settled?

• Can the parties involved be identified and held accountable?

Again, incorporation is only one possible mechanism for answering those questions. The underlying objective is transactional transparency and financial-system integrity.

3. Tax

The third issue is taxation. Governments want to capture economic activity within their jurisdiction in their tax framework. Cross-border businesses make this considerably more complicated. A regulator or tax authority needs to understand where economic activity occurs, who generates revenue, what obligations arise locally, and how those obligations can be enforced. For a business, this can become a complex exercise involving local entities, tax registrations, accounting, reporting, and cross-border tax considerations.

So the clientʼs perceived problem is:

“We need to incorporate.”

But the regulatorʼs actual problem may be:

“We need to ensure that economic activity occurring in our jurisdiction is visible, taxable and enforceable.”

They are two different problems.

4. Capital flight and foreign exchange risk

There are also broader economic considerations. A regulator may be concerned about what happens to money generated within its economy when a foreign business enters the market without establishing a meaningful local presence. If a foreign business can access local consumers, generate significant revenue and then repatriate most of that value, there may be relatively little improvement to the infrastructure and economic capacity being built locally. The concern is therefore not simply that money is leaving the country. It is that the country may be providing the consumers, infrastructure, and also the economic opportunity, while capturing relatively little of the long-term value created by that activity. This becomes particularly important in markets where foreign exchange is constrained or where governments are actively trying to manage external flows.

Local establishment can therefore serve as a mechanism for ensuring that some economic value remains within the market. 

But there is an important complication.

This logic was largely developed around traditional businesses. For a manufacturing company, requiring local establishment can result in factories, equipment, employees, suppliers, and physical infrastructure. For a digital business, the relationship is much less straightforward.

A digital company can serve millions of customers in a country without needing a large physical footprint. Its infrastructure may be distributed globally, its employees may be located across multiple jurisdictions, and much of the value it creates may be intangible. Therefore, applying a physical-economy framework mechanically to a digital economy can produce unintended consequences.

The question to be asked is:

How do you ensure that a digital business contributes appropriately to the economy without forcing it to recreate an entire traditional corporate structure simply because that is how regulation historically measured economic presence?

5. Employment and local economic participation

There is also a broader socioeconomic objective: job creation. Governments do not only want businesses to sell into their markets. They often want those businesses to develop the local economy. 

From a regulatorʼs perspective, a foreign business that enters a market, earns revenue from local consumers, but employs almost no local workers may seem economically incomplete.

The concern becomes:

• Are local people being employed?

• Are local skills being developed?

• Is local talent gaining experience?

• Are businesses creating opportunities for people to build wealth?

• Are local suppliers and service providers participating in the value chain?

This matters especially in emerging markets, where employment and economic mobility are key policy objectives.

These show us that the regulator is not necessarily thinking only about regulatory compliance. It is also thinking about economic participation. This is one reason other businesses have emerged to solve part of this problem indirectly.

Employer-of-record platforms such as Workpay and Deel let international companies employ people in markets where they may not otherwise have a traditional corporate structure.

Conceptually, this is the employment-side equivalent of what a merchant-of-record model does for commerce. The employer-of-record model addresses: “How can a foreign business participate in the local labour market without establishing a traditional entity?” The merchant-of-record model solves  part of the problem of: “How can a foreign business transact compliantly in this market?” Both are examples of the same broader solution: Instead of forcing every company to build the underlying infrastructure itself, technology can provide the infrastructure as a service.

The socioeconomic question

There is, however, an important distinction between creating jobs and merely creating local administrative presence. A company can establish a legal entity, rent an office, and hire a small number of people without creating meaningful economic participation.

On the other hand, a company could employ hundreds of people locally, pay taxes, use local suppliers, and contribute significantly to the economy without maintaining the same physical structure traditionally associated with a multinational corporation. The regulatory question has to move beyond:

“Is there a local entity?”

and toward:

“What economic value is this business creating locally, and what obligations should follow from that value?”

That is a much more useful framework for the digital economy.

How to turn regulatory objectives into technological infrastructure

This is where technology becomes interesting. Instead of starting with the assumption that every business needs to recreate a traditional corporate structure in every market, we can start with the regulatory objectives themselves.

If the objectives are consumer protection, transaction integrity, and taxation (alongside broader concerns around capital, foreign exchange, and local economic participation), can they be met by technology? Can they become infrastructure?

That is the approach we have taken.

Rather than treating compliance as a collection of legal processes that sit outside the product, we think about how regulatory requirements can be built into the product itself. The result is an attempt to solve a complicated regulatory problem through a single technological interface.

For an expanding business, that can mean reducing the operational complexity traditionally associated with entering new markets. For regulators, it can mean greater visibility, traceability, and control. The opportunity is not simply to make compliance cheaper. It is to make compliance programmable.

The true cost of compliance

This also changes how we should think about the “cost” of compliance.

Clients often estimate compliance based on the visible components:

• Incorporation fees

• Legal fees

• Licence fees

• Local employees

• Accounting

• Tax advisers

• Bank accounts

• Reporting

• Regulatory filings

But the real cost is much larger. There is:

• The cost of understanding the regulatory environment.

• The cost of interpreting ambiguous rules.

• The cost of maintaining multiple entities.

• The cost of keeping those entities compliant.

• The cost of building operational processes around different regulatory regimes.

• And perhaps most importantly, the opportunity cost of slowing down expansion because compliance is difficult to operationalise.

This is where the gap between perceived compliance cost and actual compliance cost becomes significant. A business may believe it is paying for a licence. In reality, it is paying for an entire system of regulatory accountability. The opportunity is to turn that system into infrastructure rather than forcing every company to build it independently.

Engaging regulators: Compliance is not a one-way conversation

Technology alone does not solve regulatory problems. Regulatory engagement is equally important. And before attempting to engage them, companies need to understand them. Regulation is shaped by context, interpretation, and institutional priorities. To understand them, read through policy papers. What are they saying? What problems are they repeatedly highlighting? What risks are they attempting to prevent?

What language are they using to describe the industry? What outcomes appear to matter most to them?

These signals can tell a company a great deal about how a regulator is thinking before the company ever walks into a formal meeting.

Associations matter

Industry associations can also play a significant role. They provide a mechanism for businesses to collectively engage regulators, communicate industry-wide concerns, and contribute to the development of

regulatory frameworks. A single company asking for an exception can look self-interested. An industry collectively demonstrating that a particular rule creates an unintended consequence can become a much more meaningful policy conversation.

Education is also regulatory engagement

Another important mechanism is education.

Regulators are expected to understand increasingly complex technologies, business models, and financial systems. That is not always easy, particularly when technology evolves faster than regulatory frameworks. This education also costs a lot of money, which regulators are probably well funded for.

Businesses therefore have an opportunity to help regulators understand what they are building.

Webinars, technical sessions, product demonstrations and educational materials can be valuable.

There is a practical reason for this too:

Education can reduce the cost of regulatory understanding.

Instead of asking a regulator to independently understand a new technology, businesses can provide the context required to evaluate it properly.

This is not about teaching regulators how to approve your product. It is about giving them enough information to regulate it intelligently.

Sandboxes: creating room for experimentation

Regulatory sandboxes are another important mechanism. They allow regulators and innovators to test new models in controlled environments before those models are deployed at scale.

For emerging technologies, this can be particularly valuable because neither side necessarily has all the answers at the beginning. The company learns what regulatory controls are necessary. The regulator learns how the technology actually works. And both sides can develop a more informed understanding of the risks.

That creates an important feedback loop:

Build → test → learn → engage → adapt → scale.

What happens when the law was written before the technology?

This is perhaps the most difficult question.

What happens when you already have a product, but the marketʼs existing laws were not designed for it? There is a temptation to view this as a binary problem:

The law says no, therefore the product cannot exist.

Sometimes that is indeed the answer. Businesses cannot simply ignore laws because they believe their products are innovative. But there is another reality that regulators and innovators must acknowledge:

Law is often reactive.

Technology changes the world first. Regulation frequently follows. The internet created new forms of commerce before many regulatory frameworks existed to govern them. Digital financial services created new ways of moving and storing money before legislation could fully account for them. Streaming fundamentally changed media distribution before many broadcasting frameworks were designed to accommodate it.

This means we should not expect every new technology to fit perfectly inside an existing regulatory framework. If it does, there is a reasonable question to ask:

Was the framework actually designed for this innovation, or is the innovation simply operating within an existing category?

Innovation can expose the limits of regulation

This is where regulators have an important responsibility. Regulation exists to protect markets, consumers and the public interest. But regulation can also unintentionally suppress innovation.

Consider a hypothetical streaming business operating in a market where the law requires every broadcaster to obtain a traditional broadcasting licence, e.g., Uganda. The rule may have made sense when broadcasting meant transmitting content through traditional television infrastructure. But applying the same framework mechanically to an internet-based streaming service may create unintended consequences.

It may increase the cost of entry, discourage innovation, and prevent local entrepreneurs from building competing services. And ultimately, it may protect an old model rather than the public interest.

The question should therefore not always be:

“How do we make this new technology fit the existing law?”

Sometimes the better question is:

“Does the existing law still achieve the outcome it was created to achieve?”

That is a much more productive regulatory conversation.

Markets evolve, business models evolve, and regulatory frameworks must sometimes evolve with them.

The balance: innovation within regulatory boundaries

None of this means companies should ignore regulation. Quite the opposite.

The most sustainable approach is to understand the boundaries, operate within them where possible, and continuously engage regulators where those boundaries are unclear, outdated, or incapable of accommodating legitimate innovation.

That means:

• Deploy what you can legally deploy.

• Understand why the rules exist.

• Document the gaps.

• Educate the regulator.

• Demonstrate how the risks can be controlled.

• And continue the conversation as the product and the market evolve.

Regulatory engagement should therefore not be treated as a one-time approval exercise. It should be treated as an ongoing relationship.

The future of compliance

The future of compliance may not be about building more compliance departments, hiring more lawyers or creating more entities. It may be about building compliance into the infrastructure through which businesses operate.

The fundamental shift is from "Compliance as paperwork" to "Compliance as infrastructure".

From “Which entity do I need to incorporate?” to “Which regulatory objectives need to be satisfied?”

From “How much will compliance cost me?” to “How much of the compliance burden can technology absorb?”

And ultimately, from "Regulation versus innovation" to "Regulation enabled by innovation".

That is the opportunity.

The businesses building the future will need to navigate regulation, but regulators will also need better tools for understanding and governing those businesses. The most interesting companies may therefore be those that sit in the middle: translating regulatory objectives into technology, and translating technological innovation back into something regulators can understand, supervise and trust.

The true cost of compliance is not the price of incorporation. It is the cost of creating a system in which a business can operate safely, transparently and accountably within a market. And if that system can be turned into technology, compliance stops being merely a cost of expansion. It becomes part of the infrastructure that makes expansion possible.