The world is your oyster – expanding overseas

  • Author Laura Burton, Director, Expatriate Tax and Yorkshire TMT sector lead, BDO LLP

  • 30.05.2023

BDO's Laura Burton looks at the key considerations for businesses looking to expand into overseas markets.

The world is your oyster’ has never been a more appropriate phrase when it comes to business growth, as more and more companies explore the potential of overseas markets in order to meet their strategic aims.

The technology and digital sectors are no different. In fact, according to recent statistics from our Economic Engine survey of 500 mid-sized businesses, more than a quarter of tech businesses intend to expand overseas to support business growth in the next 12 months. This is mirrored in the region, with one in five Yorkshire businesses also eyeing international expansion.

Overseas markets have the potential to accelerate businesses growth, opening up a wealth of opportunities for tech and digital companies beyond domestic shores. While the potential is obvious, there are a number of important consideration to bear in mind before making the move into new territories. But what are they? Laura Burton, Director and Yorkshire TMT Sector Lead at BDO LLP in Leeds, takes a look at the key considerations when setting up shop overseas.

Tax implications of expanding internationally

There are a host of tax implications to consider when expanding internationally, including, but not limited to, corporation tax, income tax, social security and VAT. For your first time exploring a specific overseas market, understanding when taxes will be triggered, whether or not relief is available to avoid dual taxation (and the related filing requirements), is key to avoiding any tax pitfalls and making sure that your overseas entity is established in a cost-effective manner.

An often-misunderstood area is knowing when a tax liability may be triggered, even though the company has not yet formally incorporated/established themselves in the overseas location. For example, from an income tax and social security perspective, an employee may trigger a liability to these ‘taxes’ from day one, unless an exemption is available in the overseas territory. Furthermore, even where an exemption may ultimately be due, there are often administration requirements that need to be met.

Working with an advisor to choose the right funding structures

We would always recommend that a tax adviser is brought in during the earliest stages of the overseas expansion, so that the tax implications can be considered alongside the commercial rationale for expanding into a certain territory. For example, it may be cost effective from a tax perspective to incorporate and hire from one location over another; equally, the funding structure could also impact the overall tax position (i.e. should the parent company provide a loan to the overseas entity or obtain more equity?). Understanding the tax implications of dividends arising in an overseas entity, versus interest on a debt, is an important factor.

Once a suitable location is identified and the funding structure agreed, the adviser can help the business to understand their compliance obligations and may also be able to outsource a large part of the incorporation and ongoing compliance requirements.

Common mistakes that businesses can make when expanding internationally The most common mistake we see from a tax perspective is seeking advice too late; it is much better and less costly to be ahead of the curve from a compliance perspective, rather than trying to unwind things when errors are made. Being unaware of the rates of taxation on different funding structures, and how this may impact the bottom line, is also a common trap for unprepared businesses.

The potential of overseas expansion

There are big opportunities from international expansion and UK businesses should feel confident in taking advantage of these. Don’t make assumptions things will work in the same way as they do in the UK. Do your homework on where you want to expand to and why – many will expand with existing customers. If you are having people on the ground, make sure you choose your location wisely and don’t be lured purely by incentives. Forward planning is key; take advantage of services provided by the Department of International Trade, and seek advice from experienced professional services firms with their own international networks.

The technology and digital industry is undoubtedly a key sector for investment worldwide and, with research estimating that the world’s top tech multinational companies alone operate nearly 23,000 subsidiaries worldwide , the case for overseas expansion is clear.

If you would like to find out more about expanding overseas, contact Laura Burton on [email protected]

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