As your company grows and sets its sights on reaching customers beyond the borders of Canada, the prospect of establishing a presence in international markets beckons. Although a strong business plan and market strategy may be firmly in place, it’s crucial to consider these important tax matters before taking the leap into global expansion.
Local tax regulations 
Gain a firm understanding of the tax system of the country you are looking to expand into. This involves more than just income taxes, and would also include state and local taxes, sales and value added taxes, franchise taxes and payroll taxes. It is essential to contemplate factors that might trigger a need to file in a tax jurisdiction, commonly known as “nexus.” By doing so, you can strategically plan to address your expanding global filing obligations as your business undergoes further growth.
Local accounting requirements
Understanding the diverse financial reporting requirements among countries is crucial, as it directly impacts a company’s compliance obligations. These obligations involve statutory audits, financial statement filings, and adherence to local generally accepted accounting principles (GAAP), which may differ significantly from the familiar GAAP standards in Canada. This awareness is vital for navigating regulatory landscapes and ensuring seamless international business operations.
Structuring and ownership 
One of the benefits of the Canadian tax system is the Lifetime Capital Gains Exemption (LCGE), which allows the owners of certain qualifying Canadian businesses to exempt a portion of the proceeds from the sale of the business from capital gains taxes. There are several conditions to ensure the sale qualifies for the LCGE, one of which is that more than 50 per cent of the business’s assets must have been used in an active business in Canada for 24 months prior to the sale. Depending on how the company structured its global expansion, it may exempt itself from the LCGE and careful consideration should be made of the ownership structure of foreign businesses prior to incorporating.
The company should also assess its strategy for funding overseas expansion, whether through debt, equity or a blend of both. Additionally, careful consideration is needed for the tax-efficient repatriation of profits back to Canada. When companies neglect to carefully consider how they finance their global expansions, they often run into tax inefficient transactions for the global group. The company will also have to manage the myriad of reporting requirements and information returns required to be filed in Canada including T106s, T1134s, T1135s and NR4s, amongst others.
Operations management 
Aligned with its business plan, the company must deliberate on the operational approach for its foreign ventures. Will these operations serve as profit centers, fuelling growth, or as cost centers supporting the expansion of the Canadian operations? With that comes the need to manage intercompany transactions including the requirement to determine appropriate transfer pricing and the consideration of withholding taxes or other taxes and fees that may need to be levied.
