Sam Goodsell – Director
The key to going global is both in the planning and seeking of advice where expertise is not held internally within the business.
As key members of the HLB International network we are connect to over 150 local accounting and advisory firms which we regularly work with to overcome many of the steps which we’ve explored here. These may seem like a barrier, but are intended to emphasise points to consider in order to make better decisions and avoid the cost of retrospective implementation which can be high.
Here are 7 steps that we believe every technology sector business should consider when looking to expand overseas.
Step 1 – Where to be based
When looking to ‘go global’ it is important to consider the best place for your product or service. Doing market research is critical in order to fully understand the impacts of the geography.
Understanding your competition, wage demands and the availability of key talent are just as important as identifying the demand for your product or service and business are often guilty of spending too little time at this phase.
Step 2 – Structure: branch vs. subsidiary
When it comes to determining which business vehicle to operate the answer of branch verses subsidiary is not a clear-cut one.
The truth is that each business circumstance is bespoke however there are some things to consider including:
The time you are likely to be established in the region?
For example, is this a service to a specific client on a short term basis or a long term commitment to generate new business?
What are the rules and risks of an area?
For example, a US based company operating under a UK branch would need to file it’s accounts at Companies House. The UK company with staff overseas would need to comply with the employment law of that region.
Be aware that having a subsidiary does not take away the need to comply, but it does ring-fence the reporting and liability of a global organisation.
Step 3 – Time management
Generally speaking, the further a business expands the greater the impact of timezones on operations and management pressures. Ensuring you have the right management team in place will not only help drive the business forward but also minimise downtime.
A simple example of this would be the timings of a management decision between a UK business and an overseas operation such as Australia. Flexibility will be crucial as meetings are likely to take place outside of core working hours and days could be lost to productive input if not planned well.
It should also be considered how much of the existing management time will be absorbed in the new operation; maintaining results in the home country cannot be ignored.
Step 4 – International cash flow
When setting up overseas – or any business operation – cash flow is key. A new startup is likely to incur significant costs before any revenue is generated and the wider business need to plan for this.
Consideration should also be given to any funds returning from an oversea operation such as dividends, interest and royalties as withholding taxes can vary considerably.
Step 5 – Transfer pricing
Where a branch structure is not in use, transfer pricing is an important consideration. The basic principle of transfer pricing is to establish an arms length rate applicable to costs provided within the group. This is to ensure that profits are correctly reflected and therefore subsequent tax liabilities are reported within each region.
At present, the UK has a de minimis limit for transfer pricing, however this is rare and therefore is likely to be required from the overseas location. Complexities can arise especially where the use of IP or internal resources are fundamental to the offering.
Step 6 – Putting feet on the ground
Before you employ your new staff it is critical to obtain the correct employment advice to ensure compliance. Complexities in this area often occur when staff from the head office are seconded over to the business.
It is important that these individuals both have the right to work in the location and are paid under the correct payroll taxes. Again, some exemptions are available, but take advice before applying these.
Step 7 – VAT
VAT is a complex are and should be considered from the outset. For a company selling a product, the location of where the stock is held can change the rate of VAT and the need to register in multiple countries. You may also need to consider the end user in the business plan as individual purchasers are handle differently to VAT registered businesses across Europe. It is also important to apply VAT to inter-company transactions which can often be overlooked.
Remember – a VAT group cannot be established like a UK only structure.