By: Tony Nunes, Kelly & Partners Chartered Accountants
What are the top three factors exporters need to consider when trading abroad?
Expanding abroad can contribute to significant growth and success for a business. But it can also trigger myriad complex commercial, legal and tax issues. Here are three of the main issues businesses need to consider when exporting.
1. Legal structure
One of the first and most important steps will be to decide how to structure your offshore operations. The legal structure you choose can have enduring tax and legal consequences, so it is fundamental to get it right.
Your legal structure can have a significant impact on the following:
- How taxes will be assessed.
- How often you need to file tax returns and other paperwork.
- How you prepare and maintain your accounting records.
- How easily you can repatriate profits.
The key is to ensure your choice of structure supports your business activities and objectives, as well as ensure you are able to comply with the relevant legal and tax requirements.
Tax will be a significant consideration for any business expanding overseas. Direct taxes are typically levied on the profits or gains of an entity. When new clients come to us we typically find they have a high effective tax rate, most times it exceeds 65 per cent, that is, for every $100 profit, the owner is paying $65 tax. Also, you will need to be aware of your compliance obligations in relation to the indirect taxation system.
Often clients fail to consider cross border transactions will often trigger withholding taxes in respect of certain payments including interest, dividends, rents, royalties and management or service. You should consider whether a double taxation agreement exists between Australia and the foreign country, which may provide a reduction or exemption of the amount of withholding tax payable.
Your foreign business should be structured in a manner to ensure all taxes are legally minimised on a global level.
You may consider relocating existing employees to the foreign country since they already have a detailed understanding of the business and its activities. On the other hand, they may lack local knowledge and can be more expensive to relocate and remunerate compared to local hires.
You will also need to obtain an understanding of the obligations your business may have in relation to expatriates and local hires. This should include consideration of the following:
- Labour pay and conditions.
- Immigration and relocation laws.
- Income tax obligations.
Businesses today operate in a dynamic and fluid global environment, which can bear many rewards but can also present a variety of business issues and risks that need to be carefully managed. It is thus important to ensure you get professional advice as you navigate your business through the difficult and often complex legal and tax rules.
You can also read this article in ECA's spring issue of International Business Today.