Rajesh Sharma outlines some of the key tax questions that entrepreneurs should ask when going international.

An increasing number of businesses are expanding into new markets as they strive to meet their growth targets and access more cost-efficient resources. Before setting up overseas, it is important to consider the tax implications. There is no one-size-fits-all tax solution, so each case should be analysed on its own merits and the underlying business circumstances in order to avoid unfavourable tax consequences in the relevant jurisdiction.

Below are some of the key tax-related issues to consider when planning any overseas expansion.

Legal structure

  • Have you identified the commercial drivers for your overseas expansion?
  • Is your legal structure based on these commercial drivers?
  • Have you considered the general tax implications of your chosen legal entity, e.g. access to losses, extraction of profits and general business taxation?

Overseas taxation

  • Are you setting up a permanent establishment overseas?
  • Have you identified all of the country, state and local taxes in your preferred location?
  • Are you aware of the VAT and indirect taxes liabilities on cross-border transactions, e.g. even when selling goods or services from the UK, there may be UK and overseas VAT issues to consider?
  • Are you familiar with the tax and social security requirements related to sending UK employees to work abroad?
  • Have you considered any withholding taxes that might be payable in an overseas territory when repatriating profits to the UK?

UK taxation

  • Have you considered whether your business will be taxed in the UK on overseas profits and if there is any double taxation relief available?
  • Are you aware that dividends from overseas subsidiaries or profits from overseas branches can be exempt from further taxation in the UK?
  • Have you considered whether transactions between the UK and overseas operations will be subject to transfer pricing rules in both countries?
  • Have you assessed your transfer pricing obligations under the relevant transfer pricing regime?
  • Have you planned for a tax-efficient exit or disposal of assets of the overseas business?

At Smith & Williamson, we work with our Nexia International colleagues around the world to provide a full range of accountancy, tax and business services to help you expand your business overseas.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.