International tax 101: Planning is key
If you’re operating across borders, complying with local tax laws, reporting requirements, statutory filings and staying on top of new legislative developments – just to mention a few – it can cause a headache and, if mismanaged, severe financial and reputational damage to your business.
When your company is competing in multiple jurisdictions, tax planning is key.
In this article, we’ve identified the top four starting points to consider to ensure that you are not caught off guard when operating abroad. This serves as an introduction of what will be discussed in the next few articles in which we will expand on some of these topics and cover additional exciting aspects to consider when it comes to international taxes.
Understand the tax system
I think it goes without saying that it is very important to understand the tax system of the country you are planning to operate/invest in. Some basic questions to consider are:
- Is the tax system source or residency based?;
- What is the corporate income tax rate in the country?;
- Ease of tax filing – i.e. manual or e-filing
- Will there be double taxation relief available?;
- Ease of repatriation of funds;
- Withholding taxes applicable;
- Other indirect costs/taxes of operating in the country, e.g. social security, payroll taxes, stamp duties, annual duties, reverse value-added tax (VAT), etc.
Understand the tax obligations of the country
Familiarise yourself with the tax filing and payment deadlines in the country.
Unexpected penalties and interest can have a massive impact on the cash flow of an entity and this can be easily avoided if filing and payment deadlines are properly managed.
Make sure you understand what taxes the entity should register for. Sometimes the mere presence of employees in a country does not only create an income tax risk, but also a risk from an employee’s tax perspective. Exposure to all taxes should thus be considered.
Understand the revenue authorities
When it comes to international tax planning, it is not only the local laws at play, but also how different laws intersect, including international tax treaties (double taxation agreements or DTAs).
In certain cases, both the local tax laws and DTA will not give clear information to base your decisions on and it will be required to discuss with a specialist what the practice is that is followed by the revenue authorities in the country.
Don’t wait until the last minute
The best way to maximise your financial potential and minimise stress is to have a comprehensive long-term international tax planning strategy. That means you should never wait until the last minute.
Very often the operational side of a business runs into a deal without properly consulting on the possible tax implications. This has resulted in so many projects ending up less viable than initially planned.
Take time and plan accordingly. Tax exposures can be minimised by obtaining proper tax advice in advance.