From Local to Global – Overseas Tax Considerations for SMEs

Doing business overseas: what are the tax issues for SMEs and entrepreneurs?

Expanding overseas is high on many of our clients’ agendas…

International business is no longer solely the territory of large business. However, SMEs and entrepreneurs seeking to do business overseas need to understand and prepare for the nuances of conducting international business including overseas tax planning and compliance.

International operations present new tax challenges and obligations including considering when and where tax liabilities arise, the taxation of employees and VAT.

When does tax arise when trading overseas?
How you operate in an overseas market will relate to any tax liability. Selling to consumers within an overseas market may be enough to trigger local tax and regulatory liabilities. An business does not necessarily have to have established a formal presence there to have compliance obligations and liabilities.

Typically, a company will be tax resident in a country in which it is doing business or has a permanent establishment. However, it is possible to have significant sales in a jurisdiction without creating such a taxable base.

It is important to confirm whether registration for VAT, or its local equivalent, is required. Liabilities can arise even if you are not physically present. For example, online and mail-order sales to private customers in the EU require registration in another EU member state where turnover exceeds the threshold in that country.

What are the tax issues of moving employees overseas?
Expanding your operations will impact your tax and reporting requirements in respect of local and globally-mobile employees. For example, if you hire from the local market, what are your duties relating to payroll?

For UK employees deployed overseas, tax residence will need to be clarified and implications for tax liability, including payroll, withholding and employment taxes, and ensuring employees avoid double taxation.

Employee share plans and incentive schemes can result in additional complications.

How is intellectual property dealt with when expanding overseas?
Intellectual property such as trademarks and know-how will often be some of the most valuable assets of a business.

For an expanding international business, a key consideration will be where these assets are held. For example, it may be that the intellectual property is held in one jurisdiction and operating companies in other jurisdictions pay a licence fee to it for its exploitation.

Many jurisdictions, including the UK, offer tax incentives to encourage research and development. Such reliefs should be considered when considering future trading structure.

How will profits be repatriated?
How to extract value from the business tax efficiently is a key issue for SMEs. This is no different for SMEs doing business overseas.

There are various routes that could be taken to repatriate profits including the payment of dividends, interest, royalties and intra-group service charges. Local regulations will need to be reviewed and the most appropriate method of profit extraction assessed depending on the circumstances. It may further be that funds can be left overseas to fund future growth in that market or other overseas markets rather than being repatriated to the UK.

When should I expand my business overseas?
Whatever your commercial driver, effective international tax advice should act as a critical enabler for overseas expansion. Seeking professional tax advice at an early stage will ensure all relevant issues, liabilities and reliefs are identified from the outset, enabling appropriate strategies to be devised and implemented in support of an overseas expansion plan.

Do you have a question about SME & Overseas Taxation? Click Here

Enterprise Tax Consultants can advise on all aspects overseas expansion

Tax advice services include Expanding Overseas and International Taxation as well as non dom tax & expat tax advice for individuals, businesses & for offshore trusts.

Check out this pdf from UK government to learn more about expansion overseas… or read more articles, help and advice from our team about SMEs and doing business internationally below. You may also wish to attend our free event this month in Manchester regarding Doing Business Internationally and Expanding Overseas.

About the Author:

Ryan is a Chartered Tax Adviser with a breadth of advisory experience ranging from advising entrepreneurial clients and owner-managed businesses on transaction tax issues arising from the disposal and reorganisation of companies to advising land estates and rural businesses on inheritance tax, estate and succession planning, as well as resolving HMRC disputes, enquiries and investigations.

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