Expanding overseas: Important tax considerations
Irish businesses are increasingly seeking new markets abroad. However, the commercial benefits can be diminished if foreign taxes are not dealt with correctly. Here are five things to watch out for if operating internationally:
- Structure. When determining the correct structure businesses should consider:
- Minimising the cost of operating in the foreign country
- Any regulatory requirements
- The ease of making payments to and receiving payments from the foreign operation
- The ease of winding up the foreign operation
- Obtain expert advice. Don’t assume that all tax systems are the same. Obtain expert advice on your obligations for payroll taxes, VAT (or similar tax), etc. Simple administrative errors can lead to penal fines and even prosecution by foreign tax authorities.
- Local taxes. Many countries, such as the United States, operate state and local taxes in addition to federal taxes, which will vary depending on where you establish your business. Lack of planning for and compliance with local taxes can have serious implications.
- Withholding taxes. Irish businesses are familiar with withholding taxes on interest and dividends, however, some jurisdictions will also levy withholding taxes on international payments for services (e.g. engineering, architectural, etc.) which might take time to recover or in some cases are not recoverable. If not factored into the original pricing any withholding tax can eliminate the anticipated profit from providing the service.
- Incentives. Don’t forget the possibility of an employee availing of the Foreign Earnings Deduction (FED) which is a potentially valuable tax relief available for employees for time spent working in certain foreign countries.
If you would to discuss the tax implications of expanding overseas contact a member of our tax team.
