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Business Tax: International establishment

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Nick Farmer - Menzies Accountant

Nick Farmer – International Tax Partner

When building and establishing an international presence it is important to have a separate approach for each territory. No two markets are the same, and what works well in one just may not work in another. Having a well devised and researched plan of action can make or break the success of the venture, and this will require getting under the skin of the local rules and regulations and understanding the risks, cash and profit implications for the business. The typical areas that a business needs to get upfront visibility on include:

Group structure and local entities:

there will usually be choices to make about what type of foreign entity to establish, such as whether to trade through a branch or company, and this decision will have both commercial and tax consequences. This should be co-ordinated with the existing structure so that active decisions are taken regarding the ownership arrangements and how each entity is going to be managed and controlled.  

Financing the operations and cash management:

planning should identify the level of finance required to support the local operations and whether debt or equity funding would be most appropriate. The cash management policy should be extended to consider the banking and currency arrangements as well as the overall repatriation policy of the group. 

Trading arrangements and profit positioning:

a clear picture needs to be built for how each local entity will trade and make profit, and this should reflect both the specific country measures as well as the intercompany position of the group. This will involve assessing the operating model and identifying the assets, risks and functions relevant to each group company. Underpinning this will be a range of cross-border corporate tax issues and the relevant tax treaty rules will clarify the local and UK taxing rights.  

Tax, accounting and legal issues:

getting a detailed understanding of the local regulations will be required to ensure compliance obligations are met, such as the necessary registrations, timing of tax payments and relevant filing dates. Arrangements will need to be put in place to comply with all local laws, including contractual arrangements and employment matters, as well as setting up payroll, benefits and pension plans.  

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Approaching international establishment in a coordinated fashion will provide the framework that a well-run business needs if it is going to be on the front foot with its expansion plans. There is often a lot to do, but it is important to take control of the process and not just be reacting to the multitude of questions and issues that can arise. Each territory will have its own unique ways of doing business and these will need to be carefully followed, and obtaining both UK and local tax advice at an early stage can help smooth the process and ensure the structure is fit for purpose and that no unexpected surprises arise. We have helped many businesses to establish international operations and to navigate through the process with the support of the overseas member firms of HLB International.


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