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What to consider when expanding your architectural business Internationally

An origami Menzies graphic of the globe

Many architects focus their efforts in the UK, but an increasing number are also looking further afield at new markets and / or to employ highly trained, skilled, yet often cheaper architects.

The quality of architects in other countries with a lower wage structure, such as Poland for instance, enables firms to have a more economical support function to work on UK and international projects, whilst also enabling the entry to new markets in overseas territories.

The fact that UK architectural qualifications will no longer be automatically recognised in EU countries following Brexit is another consideration for exploring overseas operations.

Whilst market and resource research are key prior to international expansion, considering whether to have a branch or subsidiary undertaking is also essential.  Some key differences are as follows:

Subsidiary

Branch

A separate company and therefore legal entity from that of the UK architectural business, incorporated and registered in the overseas jurisdiction to complete design work in that country and other related markets.A permanent establishment in the overseas jurisdiction but this is not a separate entity from that in the UK and therefore the figures are included within the UK company financial statements.
As the subsidiary is a separate legal entity, disputes are likely to be ring-fenced within the company. Therefore, if there are claims against the overseas practice, the UK entity would not be responsible for paying the liabilities.Commercially there is a bigger risk to the UK business as it is effectively that entity operating in the foreign country.  Therefore, any legal disputes are more likely to involve the UK entity which could be liable for paying liabilities in the overseas jurisdiction.
Corporation tax is paid locally and any dividends paid up to the group company in the UK would be done so tax free or often at a reduced rate of 5% withholding tax as a result of the various double tax treaties the UK enjoys.Corporation tax is paid locally and in the UK, where double tax relief is then claimed if applicable.  This means that whilst the profits should not be taxed twice, the lowest rate of tax applied will be that in the UK.  This is currently comparatively low but is due to increase to 25% for companies with profit in excess of £50,000 from April 2023.

We find that a subsidiary structure suits most architectural practices from a commerciality point of view when they are considering taking on multiple projects and expanding into new markets.  This is because it is easier to demonstrate a permanent local presence in markets where customers like to deal with businesses from their own country, whilst limiting the risk of potential claims involving the UK entity.

However, it is important to consider this tailored to the individual needs of each architectural business, with branches being more useful if there are small one of projects. Getting the structure of overseas operations right would feed into the wider group structure planning.

Who would own the subsidiary company?

If a subsidiary company is established, then consideration of who owns the subsidiary is required.  If an existing UK trading company is used, there would be increase commercial risk and conflicting investment and commercial roles

Such a structure does not cater well for future expansion or exit either, and therefore it is often preferable to adopt a holding company structure.

How can we assist your international efforts?

We have extensive global reach through our HLB International network and if required, we can refer you to teams across the globe, coordinating any required services.

  • HLB International is a leading network of independent professional accounting firms and business advisers
  • HLB International’s annual revenue amounts to USD 2.37 billion – making it one of the largest international accountancy networks across the globe.
  • More than 27,000 staff in 745 offices worldwide, with over 150 countries represented.
  • Representation in all major offshore jurisdictions.

A SEAMLESS SERVICE

Whilst member firms remain legally independent, the HLB network maintains its cohesiveness through its international client business activities, a common identity and continuous communication and through regular regional and technical conferences. HLB’s motto is “Global in Reach, Local in Touch”, projecting the strengths of its members and the cohesiveness of its operations for the benefit of clients.

INTERNATIONAL COORDINATION OF WORK

International business is central to nearly all of our clients and we understand, advise and help our clients on both an inbound and outbound basis. HLB, as an international network, is made up of 150 similar sized firms, all focused on responsiveness and providing a quality service. Rather than being a virtual network, we know our counterparts across the globe and Menzies plays an active and significant part in the HLB leadership.

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