Despite these uncertain times, expanding overseas can be a key driver for future growth for an ambitious business. International expansion can breathe new life into a company, drive huge value and set it on a path of continued success.
Expanding a business overseas is a strategic opportunity that will help diversify revenue streams, revitalise product development and give high returns on investment. But expanding a business into different jurisdictions takes time – this is a long distance run, not a sudden sprint to the finish line. Furthermore, expanding operations into a new jurisdiction can be fraught with challenges and risks that need to be addressed long before the first boots are on the ground.
For any company turning up in a foreign country, a multitude of tax and legal issues need to be addressed. This can be a labyrinthine experience and not for the faint hearted – but then faint hearted businesspeople seldom set their sights on overseas expansion.
Tax and compliance have to be at the top of any board’s agenda, ensuring the correct steps are taken the moment the company representatives land in-country. It’s pivotal to learn these issues to avoid any costly mistakes from the start.
Understanding local tax issues will best be done by ensuring the business seeks out and hires the best local tax advisor. The company will need to look at structuring the new operations and how local taxation affects the day-to-day running of the business.
Many businesses may prefer to open a subsidiary as a preferred business vehicle when expanding overseas, for tax and commercial reasons. With a UK company looking for overseas opportunities, for example, that subsidiary may be 100% owned in the UK. But depending on the jurisdiction this may not be allowed because of local restrictions, whether it’s a certain industrial sector or region within a country.
In China and much of Southeast Asia, for example, the local ministry in charge of foreign enterprises prefers joint ventures with a local partner. This can help with compliance structures but also means different tax issues depending on the stakeholders and the type of profit extraction. So, again, it’s crucial to ensure there is plenty of financial and risk management planning with local tax and legal advisors.
Interestingly, a survey in the UK by Trade & Export Finance found that 34 per cent of UK businesses were worried about misunderstanding local regulations. These statistics could be replicated by businesses across different jurisdictions as they struggle to comprehend compliance and governance requirements in their adopted countries. UK Trade & Investment stated: “Different business cultures, legal environments and languages increase the risk of confusion when you trade internationally.” This is an important fact to remember.
Indeed, often what is considered legal in the home country is not legal in the new territory of operations. You need to know the local market intimately and only a local legal advisor can help you with that. Depending on the kind of business that is setting up, it’s not just tax to watch out for, but compliance on a range of issues such as local health and safety laws, data protection, real estate, logistics and even culture.
Language can be the key to unlocking the door to local regulations. English is often the number one business language spoken around the globe, but it’s arrogant to believe that all transactions and day-to-day business will be in English. To understand local compliance issues, multilingual advisors are key to smoothing through the risk of language ambiguity, particularly when it comes to local law. A simple grammatical error or wrongly spoken phrase can jeopardise deals and often result in a foreign business facing legal action.
Ultimately, for a business to thrive outside its own borders, it will need to be on top of all the local regulations – and these include how local culture reacts to foreign enterprise culture.
Crucial to ensuring all goes well is a level of local expertise, with advisors who will fill in the knowledge gaps, giving a degree of hand holding when needed and ensuring compliance. So the key takeway is to do your homework and be very thorough:
• Know the market – remember a local firm already has the knowledge that could be a critical factor in saving time.
• Understand compliance – local firms will be able to ensure that the business will comply with all rules and regulations.
• Build your network – a local firm already has an established network, this can be easily tapped into and explored.
• Knowing the culture – any business expanding abroad should be familiar with the culture in the country. Understanding a country’s culture is a sign of respect, as well as critical for communications with the right people and departments.
In the following pages, IR Global members across the world address questions that help businesses to survive and thrive as they establish themselves in different jurisdictions. From tax to corporate governance, our members take you on a journey that can help you understand how to expand your business internationally – with little or no pain.
