Setting up or expanding overseas

Our recommendations for business owners considering their international strategy.

Overseas expansion

We are currently seeing an increasing number of UK businesses trading internationally, whether this be within the EU or globally.

Online trading and the use of online marketplaces, such as Amazon, have made it even easier for businesses to reach potential customers, many of whom they would not have considered to be within their target market just a few years ago.

Initially, trading abroad may be by way of exporting, using a local agent or distributor. Once the local market is understood, businesses may then seek to set up or expand their business operations overseas.

Setting up overseas could be by way of buying an existing business, entering into a joint venture arrangement with a local partner, or often it is by setting up a branch or an overseas subsidiary.

Brexit has led many businesses to reconsider their strategy for trading internationally, as highlighted in a recent survey.

64% of IoD surveyed currently export to the EU whilst 51% import from the EU. Of these, two-thirds of businesses that export to the EU were looking to relocate or set up operations overseas. Whilst , overall, the survey found that nearly a third of their members had now either commenced setting up abroad or were actively considering doing so as a consequence of Brexit.

The benefits of setting up an overseas business can include:

  • increased market penetration and access to a wider market
  • improved customer service and after-sales support
  • increased brand awareness and enhanced marketing message to the local market
  • access to incentives for foreign investors
  • reduction of operating costs. 

In our experience, in addition to understanding the cultural differences, language and political stability of the overseas country, to successfully expand and set up a business operation abroad there are a number of key areas that require due consideration.

Ten areas of focus - what you should consider, research and seek advice on for successful expansion abroad.

Set-up
What activities will the overseas business be performing?  

Will these activities create a permanent establishment and therefore a taxable presence in the overseas territory?  

Assuming a taxable presence is created, is it best to set up the overseas business as a joint venture agreement, company or a branch of the existing UK business?  

How long will this set-up process take and what regulatory and other requirements need to be met?

Are there any trading or other licenses that need to be obtained?

How can locally generated intellectual property be appropriately protected?
Structure
What is the best ownership structure and how will the overseas entity be held from the UK? 

What are the overseas territories requirements in terms of shareholdings – are there any restrictions on ownership or minimal capital requirements?  

If a subsidiary company is set up, who should hold the shares – the existing UK company, UK individuals or should a holding company be set up to create a worldwide group?  

From a tax perspective what are the pros and cons of each option?
Management and control
Who will manage and control the activities of the overseas business and who will be the directors?  

Where will those people be located and does this cause any additional tax residency issues that require consideration?

Do local country regulations require a local national director or employee to be recruited?

From a tax perspective will there be sufficient commercial substance in the overseas country?
Profit repatriation
Many UK businesses that expand overseas will seek to repatriate some or all of their earnings / profits back to the UK.  

What is the most efficient way of doing this – via dividends, loan interest and repayments, royalties, management charges or by way of other trading transactions?

Are there any local regulatory restrictions on profit and cash repatriation that need to be considered?
Funding
How will the overseas business be funded?

Options may include: by subscribing for share capital, a loan from the existing UK business, UK or overseas bank finance, third party investor finance, or a combination of these. 

How long does it take to set up an a local country bank account?

Are there any currency controls or foreign exchange restrictions that require consideration? 

What are the pros and cons of each source of financing and which may be the best from a commercial and tax perspective?
Employee transfers and mobility
What payroll and employee tax obligations will arise on the transfer or recruitment of employees abroad and how are these best structured?

Do you need a locally compliant employment agreement? 

What visas / work permits do you need to employ foreign nationals? 

How employer vs employee friendly is the local country and how difficult is it to terminate an employee’s employment?

How can double taxation be minimised from an employees’ perspective?

What are the mandatory insurances you will need?
Transfer pricing
What are the local country’s transfer pricing rules?

What benchmarking, documentation and other evidence will be required to demonstrate that transactions are being conducted at a price and on terms that are at arm’s length?
Withholding tax
What withholding taxes will arise under local tax rules on payments of interest, dividends royalties or other payments?

What tax treaty or other reliefs, can be applied for to potentially relieve the withholding tax?
VAT and duty
What VAT and duty is payable if you import goods into the overseas location? 

Who will bear the cost of these taxes? 

What ongoing local VAT compliance requirements are there and who will assist you in meeting these obligations? 

Will you need to appoint a fiscal representative in the local country? 
On-going compliance
What are the local country statutory accounts filing requirements and deadlines?

What are the key reporting requirements and filing deadlines for corporation tax, VAT/sales tax, payroll and other local taxes?

What are the key rates of the tax that will potentially be suffered including corporate, VAT, employer payroll and other local taxes?
Set-up
What activities will the overseas business be performing?  

Will these activities create a permanent establishment and therefore a taxable presence in the overseas territory?  

Assuming a taxable presence is created, is it best to set up the overseas business as a joint venture agreement, company or a branch of the existing UK business?  

How long will this set-up process take and what regulatory and other requirements need to be met?

Are there any trading or other licenses that need to be obtained?

How can locally generated intellectual property be appropriately protected?
Structure
What is the best ownership structure and how will the overseas entity be held from the UK? 

What are the overseas territories requirements in terms of shareholdings – are there any restrictions on ownership or minimal capital requirements?  

If a subsidiary company is set up, who should hold the shares – the existing UK company, UK individuals or should a holding company be set up to create a worldwide group?  

From a tax perspective what are the pros and cons of each option?
Management and control
Who will manage and control the activities of the overseas business and who will be the directors?  

Where will those people be located and does this cause any additional tax residency issues that require consideration?

Do local country regulations require a local national director or employee to be recruited?

From a tax perspective will there be sufficient commercial substance in the overseas country?
Profit repatriation
Many UK businesses that expand overseas will seek to repatriate some or all of their earnings / profits back to the UK.  

What is the most efficient way of doing this – via dividends, loan interest and repayments, royalties, management charges or by way of other trading transactions?

Are there any local regulatory restrictions on profit and cash repatriation that need to be considered?
Funding
How will the overseas business be funded?

Options may include: by subscribing for share capital, a loan from the existing UK business, UK or overseas bank finance, third party investor finance, or a combination of these. 

How long does it take to set up an a local country bank account?

Are there any currency controls or foreign exchange restrictions that require consideration? 

What are the pros and cons of each source of financing and which may be the best from a commercial and tax perspective?
Employee transfers and mobility
What payroll and employee tax obligations will arise on the transfer or recruitment of employees abroad and how are these best structured?

Do you need a locally compliant employment agreement? 

What visas / work permits do you need to employ foreign nationals? 

How employer vs employee friendly is the local country and how difficult is it to terminate an employee’s employment?

How can double taxation be minimised from an employees’ perspective?

What are the mandatory insurances you will need?
Transfer pricing
What are the local country’s transfer pricing rules?

What benchmarking, documentation and other evidence will be required to demonstrate that transactions are being conducted at a price and on terms that are at arm’s length?
Withholding tax
What withholding taxes will arise under local tax rules on payments of interest, dividends royalties or other payments?

What tax treaty or other reliefs, can be applied for to potentially relieve the withholding tax?
VAT and duty
What VAT and duty is payable if you import goods into the overseas location? 

Who will bear the cost of these taxes? 

What ongoing local VAT compliance requirements are there and who will assist you in meeting these obligations? 

Will you need to appoint a fiscal representative in the local country? 
On-going compliance
What are the local country statutory accounts filing requirements and deadlines?

What are the key reporting requirements and filing deadlines for corporation tax, VAT/sales tax, payroll and other local taxes?

What are the key rates of the tax that will potentially be suffered including corporate, VAT, employer payroll and other local taxes?

Contact us

Our specialists are passionate about helping businesses grow both
within the UK and internationally, we will work with our international network,
Crowe Global to support you and implement your expansion strategy.

By making smart decisions today we can create lasting value
tomorrow.
Simon Crookston
Simon Crookston
Partner, Corporate Tax
Kent