Guidelines for expanding internationally

According to the World Bank, 61.4 per cent of the UK gross domestic product (GDP) comes from international trade. How does this compare to other countries? Almost 58 per cent of the world’s GDP is from global deals, while around 85 per cent of EU deals are international. However, with more and more businesses making the dive into international waters every year, there is not only strong competition, but hefty pitfalls when considering a global move as well.

1. Research, research, research

You know your business best, so do your research first, and ensure a solid foundation before you start.

Have a basic understanding of these areas from the outset:

Political and economic climate   Political and economic climate
Banking environment   Banking environment
Currency stability   Currency stability
Reliability of telecoms   Reliability of telecoms
Legal system   Legal system
Employment considerations   Employment considerations
Visa and work permit requirements   Visa and work permit requirements
Requirement to keep books and records locally   Requirements to keep books and records locally

2. Select the best team

Of all the aspects you could invest in, having the right adviser on board is probably the single most important. It will alleviate many worries you may have when making your first steps into a new jurisdiction. 

Find an adviser who has done it before. 

As you begin to look to the horizon, you need to arm yourself with as much guidance, experience and information as possible. You are moving into the unknown and need to understand things will be different compared to home soil.

Pick an adviser you like, genuinely. They are your first point of contact for your business, especially during challenging times, so strengthening yourself with someone who has dealt with these issues before is invaluable.

3. Home-grown advice, naturally

There are so many barriers to getting the right answers to technical questions in foreign regions. Language issues, time zones and cultural differences can all hamper your progress. Therefore, having an advisory team step in and communicate on your behalf, on the ground, is essential, and not as costly as you think. 

4.  Find a complimentary legal adviser

Having this home-grown team looking after your best interest, wherever you want to go in the world, will need a lawyer, and the most effective approach would be to use someone your adviser recommends. This means your two most critical advisers are already used to working together and can continue to offer a joined-up service to you in the overseas jurisdiction. You’re all on the same team that way. 

5. A UK bank with overseas scope

Sharing your business aspiration and plan with the UK contact with either your own branch, or a member of the same network should provide you continuity and buying power. Allowing your bank to understand the full scope of your business can help with funding requirements and the movement of your funds. 

6. Looking after your profits

This sounds obvious! However, from a tax perspective you should understand your withholding tax position, whether there is a dividend tax and what recharges can and should be made around your Group. 

There may also be foreign currency controls in place and specific processes required to authorise a dividend or overseas payment. 

Often businesses will have their money tied to multiple jurisdictions and trying to unpick this situation once you are on the wrong side of it can be far more expensive and time consuming than getting it right in the first place.

7. Know your terms

Here are some terms that can present a grey area. In a brief nutshell: 

Residence Residence is where a company pays its taxes. Residence is usually created on incorporation, but it is possible for Residence to be created without incorporation.
A permanent establishment

A Permanent Establishment is a tax presence which is created by one entity in another tax jurisdiction. For example, if you send someone to Spain, employed by the UK company, they rent office space there and start to do business on your behalf. Though you haven’t incorporated a Spanish legal entity, you could still have a presence for corporate or indirect tax purposes. In addition, having a corporate tax presence does not automatically give you an indirect tax presence, and vice versa.

Effective management Effective Management is (unsurprisingly) where an entity is effectively managed from. This could be in the country of incorporation or another country. It’s important because it is the tiebreaker in most of the international tax treaties and will ultimately dictate where an entity is resident and could cause dual residence. 

8. Keep an eye on cash flow

Timing of payments, including but not limited to tax, can make or break your project. 

Model the expected cash flow of your new venture to other countries. This includes the effect of withholding tax, payroll taxes and payments on account for indirect or direct taxes. Check the contract for any retention by any parties and understand the effect that it will have on your investment. 

9. Prioritise tax

One area of difficulty arising from normal trading is customers withholding tax at source. This can come as a surprise, especially for businesses used to dealing only with UK customers. RSM has experience in resolving these issues, where there can sometimes be a tension between tax and commercial considerations. Every region is different, so take the time to understand the rules for both the operation and your staff. 

Be brave

Often people skim over tax clauses in contracts, which is when withholding taxes can sting you. Tax needs to follow the commercial rationale – how can we make money and make the tax work for you, not the other way around.

10. Plan, plan, plan

Have a plan, review the plan, evolve the plan, and deliver the plan. Keep your mind open and your business flexible. You can learn each new set of rules or manage each new challenge as it presents itself. 

When there is change there is normally a period of adjustment, but you can’t let this define your business. Nobody would ever take steps overseas if they let the compliance define the business. Be brave!

Meet your expert – Claire Spencer

Claire, an RSM tax partner, has extensive advisory and industry experience, spanning fast-growing start-up businesses to some of the UK’s largest international groups.