Global Business

What tax issues should be considered when expanding overseas?

There are many tax issues to consider when expanding your business overseas into new markets. Initial considerations include:

• Do double tax treaties exist in the markets you are looking at, to avoid paying double taxes?
• What are the rules relating to withholding and other local taxes?
• Transfer pricing rules – how do they operate? What about the impact of the BEPS measures?
• Is GST registration required, or a local equivalent?
• How will profits be repatriated to the Australia and Australian shareholders?
• Can existing assets be transferred overseas without triggering any undesirable tax outcomes?

Seeking professional tax advice will ensure all relevant issues, liabilities and reliefs are identified from the outset, enabling appropriate strategies to be devised and implemented in support of your overseas expansion plan.

How is tax liability triggered in an overseas market?

Simply trading or selling to consumers within an overseas market may be enough to trigger local tax and regulatory liabilities, even if you haven’t established a formal presence within the jurisdiction.

As such, the manner in which you operate in a jurisdiction will be critical in determining your tax liability.

Usually, if a company will be taxed if it is a tax resident of the country it does business in or, instead, has a permanent establishment in the country. As we have seen from the public commentary regarding Google and other online businesses, it is quite possible to have significant sales in a jurisdiction without creating a tax obligation.

How will profits be brought back into Australia?

For most small to medium sized businesses, the key issues extract value from the business tax efficiently, and being able to sell the business tax efficiently. The same applies to business operating internationally.

However, a question might be where the accumulated value or the asset ‘resides’. Should funds be brought back in to the Australian tax net, or can the value and asset be left offshore efficiently? We can explore and advise on all possible options.

How is intellectual property dealt with when expanding overseas?

Intellectual property (“IP”), such as trademarks and know-how, usually become the most valuable assets held by the business. The IP can become integral to the generation of profit by the business across various jurisdictions.

Firstly, you must consider where these IP assets are held. They may be held in a holding company in an appropriate and tax efficient jurisdiction. Operating companies in, perhaps, higher taxed jurisdictions may pay a licence fee for the exploitation of the IP. Usually, such a payment will be tax deductible for the paying company.

Local tax rules must be taken into account, and also the provisions of any double tax treaties and other international tax considerations. Australia’s transfer pricing and anti-avoidance rules must also be addressed. Other considerations, such as the Australian tax incentives to encourage research and development (“R&D”) should not be overlooked. Such reliefs and limitations should be considered from every angle when devising a structure which is both commercially and tax effective.

What are the tax issues of moving employees overseas as part of growth plans?

Expanding your operations overseas will impact your tax and reporting requirements in respect of local and globally-mobile employees.

For example, if you hire from the local market, what are your duties relating to payroll?

For Australian employees deployed overseas, tax residence will need to be clarified and resulting implications for tax liability, including payroll withholding and employment taxes, and ensuring employees avoid double taxation.

Tax planning will help ensure payroll withholding and remittance obligations in the overseas location are met.

An additional area of complication is employee share and incentive schemes. Operating such schemes across borders without effective tax planning could raise excessive or unfavourable tax bills.

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