When clients expand abroad, so too must those who serve them, or risk losing them to larger more global competitors.

Setting up abroad

Increasingly we are advising our clients on setting up abroad in locations such as the US, China/Hong Kong, Singapore and across Europe. Setting up abroad brings a number of issues that need to be addressed, some are peculiar to individual locations whereas others apply universally. Structure, cross border transfer pricing, tax residence and taxation of profit, taxation of profit repatriation, local employment and sales taxes all need to be considered to avoid pitfalls and optimise opportunities.

Structure

The simplest initial structure is likely to be to set up a branch of the UK company. This has the advantage that, if losses were to be incurred, which is not unlikely for a start up situation, relief should automatically be obtained in the UK as they will form part of the company tax computation. However, commercial issues should not be ignored – a branch structure will not ring fence the overseas operation should a law suit arise in the same way that a corporate structure would.

Transfer pricing

Transfer pricing issues need to be considered, and properly documented. Tax authorities in the overseas territory as well as the UK will be seeking to satisfy themselves that profits are earned commensurate to commercial risk borne. Conflicts frequently arise as clearly each authority will wish to see profits maximised in their own territory so they can maximise the tax take. Various techniques can be used, such as cost + for a sales office, or using a proportion of gross profit generated by each territory to the benefit of the overseas organisation.

Management issues

Management issues can provide further pitfalls. It is not uncommon, initially at least, for management of the fledgling overseas operation to be exercised entirely by a UK team. The effect of this is that the overseas business could be deemed tax resident in the UK, and taxed here as well as overseas. Whereas, depending on territory, it is likely that relief would be given for tax suffered overseas, the group could lose out as tax rates vary and there would certainly be increased compliance costs.

Sales tax

Sales tax also needs a comment, particularly if your overseas venture is in Europe. VAT legislation has many similarities across EEC member states, and an equally frustrating number of different interpretations. There is only one rule – if you are making sales in any European location, take advice – you may need to register for VAT in that territory also.

Cultural differences

Cultural differences also regularly arise in practice. We all know about the somewhat clichéd views on bowing in Japan but what about differences in Europe and America? In Europe, there are the obvious language difficulties, however, a modest attempt to speak the European language will often earn sufficient respect. There is also a danger when dealing with nationalities where we speak the same language such as the US. Spoken language may be similar, but business terminology can differ greatly and there is tremendous scope for ambiguity –be precise and be aware! 

How can Baker Tilly help?

There is no substitute for “hands on” local support. Baker Tilly are able to coordinate work throughout our international network from the UK. Baker Tilly UK is the largest member of Baker Tilly International, an independent network of firms operating in 110 countries, but overseen by the World Headquarters in Bloomsbury Street, London, from where we exercise quality assurance and global coordination. Together we employ over 25,000 people and are ranked 8th in the world as combined revenues – both a formidable force and a resource available to all our clients.

Next steps?

Come and talk to us about your plans. Nine times out of ten we can introduce you to our associates who we already have personal experience of working with, meaning we can offer a seamless cross border service with all the support you need.