finance

Expanding overseas? Don’t let tax get in the way


The past 18 months have been a tumultuous period for businesses across Scotland. Many were significantly impacted by the pandemic and forced to take stock and reconsider their positions.

We’re now returning to some form of normality and many businesses are starting to move into growth mode. And, as economies re-open on the world stage, many Scottish businesses are looking overseas in search of new markets and opportunities.

We don’t want tax to get in the way of a business doing what it does best and expanding. However, thinking about tax early is critical to help gauge the feasibility of any new international venture.

The nature of the expansion is key

Not all global expansions look the same and deciding how to do business overseas is often one of the first questions for firms.

There are many options, including selling remotely from the UK, possibly with travelling salespeople, or opening an overseas branch or company. Each has its own unique tax consequences that need to be worked through.

Selling remotely from the UK, for example, can minimise the direct tax impact. However, in addition to managing VAT and customs, a common pitfall is inadvertently triggering an overseas taxable presence.

In some countries, merely having one employee visit on a regular basis to do business can be enough to trigger local social security or direct tax obligations and this could have a significant administrative and financial impact if it’s not managed.

Remember indirect taxes

Assessing the VAT position early is a must. Will an overseas VAT registration be required?

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Or, perhaps, will multiple registrations be required?

And, if so, how will this impact the cost of doing business?

For businesses looking to Europe, Brexit has had a significant impact on the VAT position. The UK is now classified as a ”third country” outside the EU. This means import VAT and other customs duties now need to be assessed carefully when goods and services are provided into the EU.

As well as managing risk, implementing an appropriate framework and ensuring correct VAT registrations and processes are in place early can often simplify the administration and minimise potential VAT costs.

My colleague Katie Aghabala, KPMG’s head of VAT for Scotland, is currently helping several businesses set up in Europe and further afield.

While VAT can appear a daunting prospect at first, getting your house in order early can prevent it becoming a roadblock to new growth opportunities.



Katie Aghabala, KPMG’s head of VAT for Scotland
Katie Aghabala, KPMG’s head of VAT for Scotland

Managing tax on cash flows

The tax impact of cross-border payments can be, well, taxing.

It can become a significant cost of trading cross-border and it is critical to assess as part of business planning and when proposing for new work.

This includes assessing whether tax should be withheld from payments back to the UK, whether that be income from overseas customers, interest payments on loans provided from head office to fund the expansion or the repatriation of surplus profits.

The UK has an extensive network of double tax treaties which often minimise potential withholding taxes on cross-border payments. However, the treaties can vary in their nature and it’s important to remember that the UK can no longer benefit from certain beneficial EU directives.

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It is, therefore, important to consider each country on a case by case basis to ensure there are no unforeseen tax costs.

Don’t let tax get in the way

The international tax landscape is in a period of flux. The OECD is currently progressing very quickly with the development of a framework to introduce a global minimum tax rate of 15% and to create new taxing rights for “market” jurisdictions.

While the plan should mainly impact large multinationals, it underlines the wider upheaval in the international tax landscape and every Scottish business operating overseas should be mindful of this.

Tax has traditionally been seen as a barrier to international business, but this doesn’t have to be the case.

I won’t pretend it’s always straight forward. However, if adequate planning is done and tax is managed in the right way, businesses can tap into new growth opportunities and successfully expand their operations across the globe.

Craig Barrowman is a director in KPMG’s tax and legal team in Edinburgh



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