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Crossing The Ocean - Don't Miss The Boat
by Pauline D. Reynolds, CPA, CFP, CM, AA
October 23, 2007
Many small and mid-size companies are beginning to turn to international operations as a way to
establish or expand their international foothold. The international marketplace can hold many
exciting opportunities for expansion and increased competitiveness. However, it is easy to miss the
boat if you do not properly understand the tax requirements of even the smallest international
venture.
Tax laws and procedures vary tremendously between countries, and they are constantly
changing. Tax issues rarely drive a company's decision to add an international operation, although
they can play a defining role in the company's ultimate success or failure. Whether your plan is to
export a product to France or build a major manufacturing facility in China, it is critical to
address tax issues before they take you by surprise. The following tips may help keep your
international ventures from missing the boat and help to make your venture more successful.
Examine your corporate structure Your company's corporate structure can help determine what
taxes you pay internationally. The international tax difference between types of entities can be
dramatic depending on the country in which your venture is domiciled. Review the treaty of the
country you are expanding to The United States has treaties with many countries to assist with the
double taxation of income earned. It is critical that you review and understand the treaty and its
tax implications. Beware of indirect taxes
There are many indirect taxes that must be paid to foreign countries just as companies doing
business in the United States must collect and pay sales tax. Be sure you know what indirect taxes
each company you do business with is required to collect based upon the specific country within
which you are operating.
Some common indirect taxes include:
Value-added tax (VAT): Many countries levy a VAT of some sort. These taxes are levied at
every level of production, from sourcing to manufacturing to selling. Often, tax credits are
available to compensate companies for some or all VAT expenditures, so be aware that these exist.
Customs duties:
Custom duties can vary both by country and by product. Make sure you are set up to pay the
required duty and to file all required paperwork. The customs requirements are very complicated and
the penalty is onerous for failure to comply.
Withholding taxes:
Virtually every country has a withholding- tax system. If your company does not have a
physical presence in a country, and you are not protected by an international treaty, you could
easily find yourself owing significant withholding taxes on your gross income.
It is very important that you investigate and understand the implications of all taxes that
may apply to a venture before deciding whether it will boost your bottom line or put you in the
red. The potential for expanding operations into the international marketplace can be both exciting
and financially rewarding, but the tax implications can certainly affect both.
So, don't miss the boat by ignoring the tax implications when thinking about expanding your
international operations.
Pauline D. Reynolds is a partner at HLB Gross Collins,P.C. in Atlanta.
