Taxes and Regulations at Home and Away

It’s exciting to take your business global, but
you face complex obligations when you start
doing business across borders. Play it safe:
Know what you don’t know.

YOU PROBABLY SAW the title of this section and said to yourself, “I’m going to skip this one for now and come back to it later, when I’m having trouble falling asleep.” You probably thought it would be a whole lot of this:

The organization or reorganization of portions of a multinational enterprise often gives rise to events that, absent rules to the contrary, may be taxable in a particular system. Most systems contain rules preventing recognition of income or loss from certain types of such events. In the simplest form, contribution of business assets to a subsidiary enterprise may, in certain circumstances, be treated as a nontaxable event. Rules on structuring and restructuring tend to be highly complex.

(26 US Code 351)

Fortunately for us both, I’m not going to write like that.

Tax and treaty concepts

Here’s the deal. Businesses looking to go international obviously have to pay taxes and abide by regulations, potentially in every country where they operate. Depending on where your business is incorporated, it may have to pay higher or lower taxes than similar companies incorporated elsewhere. Additionally, you may have to pay more or less tax than other companies from your country of origin who do business in countries where you are not active.

To make matters more confusing (sorry), depending on what specific industry you’re in, there may be certain tax breaks or exceptions that apply in certain countries only for your industry. The worst case scenario is double taxation, when you pay taxes on the revenue your business earns in the country abroad, plus taxes in your company’s home country. Luckily, tax treaties have been widely put in place between countries that trade together, in order to prevent companies who do business internationally from getting smacked with double taxation.

I could yammer on and on about all the different taxation possibilities in all the different countries for all the different types of business sectors, but you would literally die of boredom, old age, or an unfortunate combination of both before I got to the part that fits your specific scenario. So here’s what you need to know about international business taxation.

1. You need to consult with a professional accountant who specializes in international business taxation before you set up your business abroad.

2. Your business’s taxation scenario is unique, based on, among other things, your country of origin, your business sector, and where you’re conducting business (hence, why you need a professional familiar with all those facets to square you away).

3. When conducting international or foreign taxation research, ensure you’re researching corporation tax information and not individual tax information. In many countries, taxation for individuals and businesses differ.

4. The penalties for failing to file international business taxation paperwork and to pay on time are often more expensive than the actual taxes your business will owe.

5. Certain taxation perks and benefits exist, but I’d advise you to be very careful with them (again, hire a professional to prepare your tax filings).

6. The national and international tax regulatory authorities are sharing more data and closing more and more loopholes by the day, swiftly wielding a gigantic hammer of justice on those who defy them. Don’t try anything stupid or shady with your business’s taxes. It’s just not worth it.

Regulations

You want to know something else? I hate regulations. Not because I don’t like rules; I love rules. I hate regulations because they make it easy to accidentally get into trouble. It’s easy because you never see one regulation walking through the forest by himself. They travel in packs. And while I know they are designed to protect me, my industry, my customers and my livelihood, boy are they hard to read, understand, and apply. Even the people I pay to help me understand regulations hate regulations.

The bad news for those of us just trying to engage morally and ethically in international commerce is that even do-gooders like us get hung up trying to comply with regulations. Similar to taxation, regulations are different based on where you’re from and where you want to do business. And since nothing in life is free or easy, if you want to engage in business abroad, it is your responsibility to know, understand and abide by that country’s regulations (as well as your own country’s regulations).

As you’ve seen earlier in this book, the most common regulations you’re likely to encounter while engaging in international commerce include corruption and trade regulations. Some things that are legal in your country of origin may not be legal in your target market, and vice versa. Additionally, you may not be able to import or export certain items across borders, or the goods you move may need safety tests and certificates that can become very expensive, so do your homework before completing your budgeting and profit calculations. (And by the way, if this isn’t enough of a responsibility, you may find that certain customers may require certification of workplace safety and pay, environmentally friendly components, and other items—usually at your expense.) That’s why it’s important to know what regulatory restrictions exist between your country of origin and the countries with which you’re planning to conduct business.

Call for help!

The best advice I can give you about complying with international regulations is to understand that you must abide by the regulations of all countries involved, not just your own. You can’t just go run and hide under your embassy’s skirt if you find yourself in trouble with a foreign nation’s regulatory authorities. Your embassy may be able to persuade the foreign government not to chop your hands off, but there are executives who have served time in foreign prisons for not abiding by the regulations imposed by a foreign government.

So how do you play it safe? For both tax and regulation advice, consult with professionals who specialize in international business and trade, and who have experience working with entrepreneurs who have engaged in commerce in the nations in which you’re looking to do business.

I sincerely hope I haven’t dissuaded you from expanding your business into the international marketplace. It’s exciting and very rewarding to take your business global, but it would be a disservice if I didn’t make it clear that your responsibilities as a businessperson grow when you’re doing business across borders. Just play it safe and work with appropriate professionals to set things up properly, and then be sure to consult with them about obligations you face as your business develops.

S.G.