As businesses grow, new opportunities often arise across seas and borders. From manufacturing plants to shipping and distribution centers to administrative offices, international expansion can open doors.
Taxes, of course, will differ between countries. The tax law of the other country will likely affect several aspects of business, including withholdings and reporting. Even when a business hires a worker or starts a short-term project in a foreign country, there may be several tax issues worthy of consideration.
Assessing foreign tax environments
With your attorney, you can prepare for international expansion within or outside of the United States by examining key tax issues, such as:
- Payroll for foreign employees: Tax laws may affect the classification and payroll withholdings of foreign employees.
- Minimization of a taxable presence: Depending on a business’s needs and circumstances, there may be methods to reduce the risk of foreign tax obligations when operating in another country.
- Registration with local authorities: If there is a taxable presence, businesses will need to register with the appropriate jurisdiction and pay duties as necessary.
- Reporting in both countries: Businesses and shareholders may need to report assets in foreign countries to the initial country and vice-versa.
- Filing and reporting requirements: Depending on the applicable industry, each country may have special reporting requirements regarding timing and documentation.
- Double taxation: Businesses must carefully balance their tax obligations and revenue in multiple countries to minimize tax burden.
- Foreign tax credits, exemptions and deductions: Tax benefits may be available in either country to offset double taxation and promote international trade. Tax treaties between countries may play to a business’s favor.
- Ecommerce tax laws: Even without a physical presence in a country, a business may have a digital presence in a country, which may be subject to unique taxation.
This list is certainly not comprehensive, but it provides a glimpse into the complicated nature of international business taxes and compliance. Tax matters may also have ties to other legal matters, such as employment law, entity formation and transactional law.
When entering a new geographic market, businesses are also entering a new tax environment. It is critical to review the specific details with a professional when preparing for international expansion.