office meeting presentation

International Trade group meeting

On 19th September, Crowe ran its fourth International Trade group meeting. 

Darren Rigden, Partner, Audit and Business Solutions
24/09/2019
office meeting presentation

The discussion group was attended by 25 individuals across different sectors and businesses of varying sizes. The speakers were:

  • Rob Lewtas from the Department for International Trade (DIT)
  • Henry Hatton from WorldFirst
  • Amanda Chandler from Crowe’s Global Mobility team.

Overseas markets was the theme of the meeting, with the group discussing key markets, new opportunities, how to access these markets and some of the issues to consider.

When considering expanding overseas there are many factors which could dampen your appetite, and these include:

  • ensuring there is an accessible market for your product
  • how to deal with cross border payments
  • currency risk
  • legal and regulatory considerations, red tape & paperwork
  • logistics
  • communication
  • ensuring the total cost, including taxes and tariffs, are known and that once calculated your product is still profitable
  • the movement of employees and Directors.

Determining the total cost of your product is vital, otherwise you could easily end up selling your product at a loss. In order to calculate the full cost, you will need to engage with legal and accounting advisors that have connections in the countries that you are considering. They will be able to advise on local laws and taxes which need to be considered as well as costs which might not be immediately apparent such as the cost (both time and monetary) of dealing with HR laws in that country. 

During our meeting, WorldFirst also highlighted how they can help their clients with managing currency risks and dealing with international payments. Getting this sorted at an early stage is very important both in terms of ensuring you can get paid, your cashflow cycle is kept as short as possible and that your currency risk is as low as possible in order to ensure you protect your margin.

WorldFirst had helped a client recently who had not previously worked outside of the UK but had a product which was in demand in Australia and were keen to expand into that market. However, their customers wanted to pay in Australian Dollars. In addition an initial investment of $2 million was offered as an intra company loan, to be repaid to the UK entity over the course of two years. This represented two problems:

  • opening an international Australian Dollar bank account with their UK bank was going to take three months, and be based in the UK (which would add additional costs for the customer)
  • the foreign exchange volatility over two years could significantly devalue the initial investment. 

WorldFirst helped develop a bespoke hedging strategy. This was achieved by a flexible forward contract from two years selling Australian Dollars, buying sterling with zero initial collateral required but with 100% certainty the amount of sterling they would get back at the end of the two year contract. In addition, the client was allocated an Australian Dollar account by WorldFirst, based in Australia which could be managed via an online platform allowing the FD in the UK to keep an eye on the payments and income from his new venture while allowing him to trade like a local in Australia – collecting funds from his customers in Australian Dollars.

The above demonstrates that, with a little thought, international payments and currency risk can be carefully planned to allow trading in new countries, while minimising the additional risk of doing so.

The ease of doing business in a country is often a key consideration and the easier it is to do business will often equate to reduced risk. The DIT has information on which countries are easiest to access.

Interestingly the top 10 countries, in terms of ease of doing business are:

  1. New Zealand
2. Singapore
3. Denmark
4. Hong Kong
5. Korea 
6.   Norway
7.   US
8.   UK
9.   Sweden
10. Macedonia 
 

This may surprise some people as countries like France and Germany are notably absent, highlighting the need to fully research countries before committing to them. In the case of France and Germany, their onerous HR laws are the reason why they do not appear on the top 10. A further source of information on potential markets can be found in the CIA Factbook.

The DIT also has many tools available to those exploring overseas markets and it is keen to help UK businesses explore these markets and help those businesses exploit those markets and reduce the risks associated with them. They are able to provide data on potential markets and also to help determine which markets products might be most suitable for.

They can use their tools and expertise to help consider:

legislation 

data trends

competition

ease of trading

demographics

regulation

demand

 corruption

Clearly exploring new markets is time consuming, but critical before venturing in to them. There are lots of resources available to help you with this. The DIT has a lot of information and can provide one to one support, help with trade missions and training. Professional firms such as Crowe can also help with advice on VAT, taxes and what to consider when moving employees and Directors across borders. Find the recommendations business owners should consider on their international strategies here Setting up or expanding overseas.

If venturing into a new market will involve employees or directors spending time in those locations, this needs to be considered carefully. This is a highly technical area and should be considered at an early stage with global mobility specialists. If you get this wrong the consequences can be significant including:

  • fines
  • business operational risk & disruption
  • bad PR
  • deportation
  • imprisonment. 

Your advisor will be able to advise on whether there is a Double Tax Agreement (DTA) exemption along with the tax implications if this is not available.

Key top 10 aspects to consider

  1.  Prioritise immigration: understand leads times as soon as possible and the boundaries between business visits and work   (requiring work permit). You can’t fix illegal working retrospectively. 
  2.  Know who is working where: what system or systems tell you where people are? Proactively manage the Talent aspects   (repatriation, extension of the arrangements).
  3.  Think about roles: Directors of local entities usually trigger more compliance.
  4.  Consider local vs local plus vs expat: each come with different cost and talent profiles. 
  5.  Policy: move to frameworks to polices as you grow and expand. Remember, people talk to each other and compare   packages!
  6.  Tax planning: can you create saving through delivering parts of the compensation differently.
  7.  Payroll mismatches: employee address is outside of payroll jurisdiction.
  8.  Employment status: self employed or contractors are not self employed in every jurisdiction. 
  9.  Permanent establishment risk is a real issue around people:  homeworkers and senior people travelling can create risks.   The home office can be a permanent establishment. For example, what do business cards and invoices say? 
  10.   Local labour law: the country of 'employment' isn’t the full story. Check if local rules apply.

 

Contact us

Darren Rigden
Darren Rigden
Partner, Audit and Business Solutions
Kent