Expanding overseas can be a real opportunity for significant growth to many businesses. Ambitious companies keen to explore emerging markets such as Mexico, Turkey and Indonesia or the more developed growth economies of Brazil, India or China can benefit from enormous commercial opportunities.
But having done the leg work of economic and market analysis to support expanding into new country the next question is ‘how do I go about doing it?’ Do you get on a plane yourself and go and meet some contacts and start signing contracts; or do you find a local person who can take on an overseas employee; or do you form trading arrangement with a local business to sell your goods or services? You may even consider incorporating a local company to give you a local identity and presence and to manage risk.
At this stage it is important to think about tax. It is imperative to understand both the type and rate of tax that will be suffered on your overseas activity but also the regulatory and reporting requirements in the local territory. Failure to register and report taxes properly in certain countries can lead to a company being barred from doing business in a country.
Key 5 tax areas that you need to be aware of are:
1. Employment taxes, income tax and social security. Is there an employee performing duties in the local country? Do you need to register a payroll?
2. Sales Taxes, VAT and equivalents. Do you need to register and account for local sales tax on your goods or services?
3. Withholding taxes. Will your customers be required to withhold tax from the payments they make to you? If so can this be reduced on that under the terms of a treaty?
4. Local business taxes. Are you finalising business contracts locally and have you knowingly or unknowingly created a local business presence, a branch, and hence need to register and pay local business taxes?
5. Will you get any relief against your UK tax liability for any overseas tax suffered?
Many countries have similar rules with regards to how transactions, businesses and people are taxed but there is no universal system of tax. You should look for specific advice on a country by country basis, relevant to the type of transactions and nature of business being undertaken.
I’ll be at on Stand 2118 at Going Global Live at ExCel London on 11 May talking to businesses looking to grow by expanding into overseas markets. During the morning I will also be giving a talk on the tax aspects of doing international business, and what you need to be aware of.
If you would like to join us at the UK's leading information hub on expanding overseas please click here to register with the event for free tickets.