Setting up a business abroad is no longer a global expansion strategy restricted to wealthy individuals and international conglomerates. 58% of UK-based SMEs are open to expanding their business abroad, and thousands do so every year.
If you’re interested in setting up a business abroad, or expanding your current business abroad, then this is the blog post for you. At EQ:IQ, we believe that a firm knowledge base is crucial to success, which is why we have created this article. Focusing on both the commercial considerations and tax implications inherent to international business expansion, we hope that we can bring you one step closer to creating and structuring your overseas business.
- Commercial Considerations For International Expansion
- Tax and Regulatory Considerations
- Choice Of Jurisdiction And Service Provider
- Be Aware Of Local Laws
- How To Structure Your Overseas Business
- Partnering With EQ:IQ For International Business Expansion
Commercial Considerations For International Expansion
There are countless benefits of international business expansion, such as:
- Implications of Brexit for UK-based businesses
- Labour costs
- Providing support services to customers
- Expanding sales into a new market
- Holding and exploiting intellectual property
- Government guidance and incentives
- Manufacturing at lower costs
No matter your motivations for international expansion, it is important to ensure that the local jurisdiction is capable of meeting your needs. Some jurisdictions may claim that they can accommodate your requirements, but their systems are not of the standard to which UK business owners are accustomed.
Conducting thorough research is integral to your global expansion strategy. You should look at different providers and jurisdictions, speak to entrepreneurs who have already achieved international expansion, and ensure that you are completely up-to-date and in-the-know. This will help you to understand the realities of the situation, and to plan accordingly.
Tax And Regulatory Considerations
Many foreign jurisdictions offer lower tax rates and reduced or simplified regulation. Monetary benefits of international expansion include:
- Lower corporate tax rates
- Lower tax on dividends
- Lower capital gains and inheritance tax
- Tax incentives for inward investment
- Bespoke regulatory packages for financial or investment based firms
- Simplified administration for VAT, MOSS and other fiscal obligations
Local jurisdictions often offer lower rates or simplified procedures, but these headline rates don’t always apply to your circumstances. For example, just because a jurisdiction boasts a 0% tax rate on dividends, does not mean that you, as a UK resident, will be in a position to receive dividends at that rate.
To receive beneficial taxation rates when setting up a business abroad, you need to structure your offshore business correctly in the first instance.
Choice Of Jurisdiction And Service Provider
There really is no single jurisdiction that is better than another for international expansion: it depends on your business and its requirements. Some businesses, for example, will require a jurisdiction in the EU, whereas others will require a regime which specialises in friendlier regulatory frameworks or low corporation tax rates.
Most service providers will specialise in one or two jurisdictions only. It is vital, as the first step in any global expansion strategy, that business owners conduct thorough research into the most appropriate place to call their second business home.
Given the interaction between UK law, local law, UK taxation and local taxation, it is vital that the provider you choose to create your overseas business is well versed in this multi-disciplined arena. The provider must specialise in UK tax and local tax, and should ideally be regulated locally with a professional UK qualification (preferably in UK taxation).
Unfortunately, more often than not, local providers specialise only in the establishment and registration of local companies and trusts. This means that clients often find that they walk blindly into punitive tax, interest and penalty charges down the line.
Be Aware Of Local Laws
The local law in the offshore jurisdiction is just as important a consideration as the headline tax and regulatory offerings. The following factors are common frustrations which can prolong your venture into international business expansion.
- Conflicts regarding the use of your business name.
- National banking regulations and the ability to transfer funds internationally.
- The time it takes to courier goods.
- The time it takes to comply with local audits, company law compliance and employment law considerations.
- Ability to obtain or maintain requisite professional insurance and qualifications.
We have seen, all too often, that what appears to be a perfect jurisdiction is often plagued with bureaucracy and commercially prohibitive local compliance requirements.
Once again, whether or not local law plays a factor in your freedom to conduct business will depend on your specific business and its requirements.
Our best advice is that you conduct research, research and more research!
How To Structure Your Overseas Business
There are two key considerations you must take into account when expanding your business abroad, and deciding on an effective structure:
- UK Tax Implications
- Ownership, Liability & Perception
UK Tax Implications
Very often, tax-efficiency plays a central role in deciding to expand your business abroad. However, if done incorrectly, all offshore profits will be taxed in the UK.
When deciding how to structure your foreign business, specialist advice will be required in the following areas:
- Transfer of assets abroad legislation
- Settlement provisions
- Transfer pricing
- Profit shifting provisions
- Controlled foreign company legislation
To avoid the worst of the UK anti-avoidance legislation it will often be necessary to ensure your business is properly managed and controlled outside of the UK and has real substance in your chosen jurisdiction.
Ownership, Liability & Perception
When expanding your business abroad, it is important to consider whether the operation will be:
- A branch of the existing UK company
- A direct subsidiary of the UK company
- A stand alone company
In deciding which of these three operations to utilise, the following factors also need to be taken into consideration:
- Whether you want separate liability from the UK operation
- Who is to own the offshore company; will it be an individual or a UK company? Dividend tax considerations are essential in making this particular decision.
- How do you want your clients to perceive the offshore company? Will it be branded identically to the UK business or should it be seen as a separate business?
The best conclusion we can offer is to produce a succinct checklist of the factors to research when considering international business expansion. You should:
- Choose your jurisdiction based on your individual requirements.
- Ensure your service provider is well versed in both UK and local taxation.
- Ensure the local jurisdiction’s local law can cater to your needs practically.
- Carefully consider how your business is to be structured – tax, ownership, liability and perception.
Finally, the path to international expansion can be a complex one, requiring significant research. Partnering with a competent service provider can make the process significantly easier, easily ensuring that the hassle and cost of expanding your business abroad is offset by the tax and commercial benefits.
Partnering With EQ:IQ For International Business Expansion
At EQ:IQ, we offer comprehensive financial and advisory services. Our unique approach to business combines unmatched global expertise in our specialist areas, with a corporate culture that focuses on knowing and understanding our diverse customers and their needs.
If you’re interested in knowing more about EQ:IQ, or believe that we can help you or your business in any way, then please don’t hesitate to get in touch. Contact us today, and a member of our dedicated team will be happy to help, as quickly as possible.