Many businesses are looking to expand overseas, often with a view to broadening their customer base or benefiting from cheaper costs. However, expanding overseas will require the business to understand and manage the tax and other rules in the overseas country, in particular how these rules interact with those in the UK.
Below are some key considerations that you should be thinking about before expanding overseas.
Choose the best location(s) for expansion
This should be a commercial decision based on factors such as customer base, location of key suppliers, employment factors and regulations, language barriers, transport and communication links, but regulatory and tax implications in the particular locations are important and should also be considered.
Consider the structure of your activities
Identify whether sales can be made remotely or whether overseas personnel or a formal presence will be required.
Understand whether an overseas presence will create a taxable establishment overseas.
Contemplate the rules surrounding the creation of a permanent establishment overseas. For example, if contracts are signed overseas or marketing is undertaken overseas it is likely that this would create an overseas presence for tax purposes.
If a formal entity is required, then consider whether this will take the form of a branch or a company. Consider the pros and cons of each. (This will have implications for the use of losses, repatriation of profits, and the applicability of various regulatory requirements, for example audit.)
Consider the attitudes of prospective customers and suppliers, as many may prefer to deal with a local company as opposed to a branch of a UK company.
Understand local direct taxation
Identify if the country has a tax treaty with the UK to ensure that double taxation is not suffered.
Consider if the country has competitive rates of direct and indirect tax.
Contemplate whether there is a simple and stable tax system in place.
Understand whether the country’s tax authority has a positive reputation for dealing with businesses.
Consider transfer pricing regulations.
Understand local indirect taxation
Consider the VAT/sales tax implications of making overseas sales.
Consider the impact of customs duties that may apply.
Understand local payroll and related taxes.
Consider local wealth and capital taxes.
Consider local markets and regulatory issues
Understand and comply with local requirements. For example, some countries require the company to be ‘controlled’ by locals or for a certain number of officers to be locals.
Understand minimum capital requirements to establish a company or branch.
Talk to local legal advisers.
Speak with local business support groups and advisers.
Consider ways to incentivise local staff.