International expansion strategy: maintaining international tax compliance
International tax frameworks have similarities. Learn which taxes to expect as you start selling in new countries.
Your tax liability grows with your business. That’s why launching any successful international expansion strategy also means thinking about your international tax compliance.
But how can you ensure international tax compliance when your business is subject to different tax rates? Crucially, who do you have to pay and how much? In this article, we’ll explore some of the tax issues you may run into as your business expands so you’re prepared. We’ll also discuss how to avoid common accounting pitfalls so you’re not caught out by an unexpected bill down the line.
International expansion strategy: international taxes to keep in mind
Although the specific rates may differ between countries, certain types of taxes can be found across borders. We’ve compiled a list of common tax types you’ll encounter so you can factor them into your profit margins.
Value added tax (VAT)
Value added tax (or VAT in the UK) is a common type of tax that businesses face across the world. VAT is applied on the sale of most consumer goods and currently stands at 20% in the UK (with some goods being exempt or charged at the lower 5% rate). However, this picture changes if your business operates internationally.
EU countries have a minimum VAT rate of 15%, meaning businesses charge an additional 19% on sales in Germany versus 24% on sales in Finland. Governments across Asia and the Pacific also charge differing rates, ranging from 13% in China to 10% in Japan and Australia.
Income or corporation tax
You may also be subject to income or corporation tax, depending on how you structure your business. As most international businesses are limited companies, we’ll outline corporation tax rates as they’re more relevant. Corporation tax is applied to your net profits, so you may not always have to pay it if your business doesn’t perform as well as expected.
Corporation taxes are marginal, meaning that you pay specific rates at different profit thresholds. Some counties have relatively small tax bandings. For example, the UK’s corporation tax rate is either 19% or 25%, while Irish rates are 12.5% or 15%. In contrast, French corporation tax rates have larger gaps, at either 10% or 25%.
Further afield, the figures are reassuringly similar. American corporations pay 21% (down from 35% since 2017) while Chinese non-resident companies (as in, international businesses) pay 20% to 25%.
Excise or import duties
Excise duties are a type of tax applied to goods like alcohol, sugary drinks and tobacco products, as well as gambling or environmental waste services. Luckily, if you don’t sell within any of these product categories, you won’t need to worry about them.
Excise duties were recently changed in the UK’s latest Autumn budget, and they also feature in countries like China and Australia, and in regions like the EU.
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How to maintain your international tax compliance
Make sure you’re not caught out by an unexpected tax bill at the end of the financial year. Launch an intelligent international expansion strategy with the latest expert advice and follow our steps on maintaining your international tax compliance below.
Expect some amount of tax
Countries will expect your business to pay some form of tax: government departments don’t take kindly to businesses playing dumb to avoid paying their fair share.
You’ll need to do your research to determine what your business is expected to pay for each type of tax you’re subject to.
Watch out for changes and new tax terms
Not all taxes are called “taxes” — you can see from reading our limited list above that the terms used can vary from “tax” to the more subtle ”levy”. Even more typical types of taxes like VAT are called “consumption tax” in Japan, “sales tax” in America or “goods and services tax” in Australia.
Ensure you’re familiar with the local accounting language in whichever region you operate in so you don’t mistakenly evade your taxes because they weren’t called “taxes”.
Trade deals and tax treaties
The UK government is striking new trade deals with countries all across the world, helping businesses access new markets.
At the time of writing, the UK government has either fully ratified or is in the process of finalising 31 trade deals with nearly 70 countries. A common feature of trade deals is improved market access and favourable tax treatment, helping businesses sell goods into new markets. As your business explores new territories, check whether you can access programmes to lower your tax burden while maintaining your legal compliance.
Even if the UK hasn’t yet formalised an entire trade deal, agreements like tax treaties can also help reduce the tax and admin burden your business faces. For example, the UK has an agreement with China to stop UK SMEs from being double-taxed by both nations.
Have a clear accounting record
A thorough and organised accounting record is vital when maintaining your international tax compliance. Maintaining up-to-date records can help make your tax calculations and paperwork more accurate, and can help you survive unscathed if you’re ever audited.
Consider using modern accounting software to reduce your admin, easily record your transactions and instantly calculate taxes across global sales.
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