Frequently asked questions about starting a new venture in a foreign country.
We want to start a new venture abroad but we are not sure which is the best country to move to. How do we make that decision?
Deciding where to start a new venture is an important decision with several far-reaching implications. Issues relevant to registering the business and incorporation all have legal ramifications and tax implications that cannot be easily altered once you are in business. Plus, it is important to understand any international tax treaties that may impact the new venture, in terms of tax rates and rules. A country that seems like a high-tax environment may have a treaty that relieves the tax burden to some extent. Plus, it isn’t enough to look only at taxes and the business environment – infrastructure is very important, especially digital infrastructure.
What other questions do we need to answer before selecting a location?
Where will the activity that produces profits be performed? The country that hosts the most profitable part of the business will have a good case that theirs is the country where the business should pay taxes.
Where is the “place of effective management?” A conflict between the most profitable location and the location where management actually manages the business can create the possibility that the new venture may get double taxed, which is untenable. These two factors – profit creation and management — must be addressed before a location is selected.
How does the structure of the investment in the new venture effect taxation?
There are many ways to structure the investment that have tax implications. If the investment is structured with a loan, the debt service will be treated as income and taxed at that rate. The investment can be structured as an investment by Company A and they distribute the equity from the new venture to partners, who receive dividends from the new venture. Dividends are typically taxed at a rate of 10 percent, which is usually lower than the income tax rate. These are just two possibilities among many that a tax attorney can discuss with you.
Where is the best place to pay corporate taxes on a new venture?
There is no simple, black and white answer to this question. Moreover, international tax compliance requires a global view of all the possible implications when starting a new venture in a foreign country. At the least, an answer to this question requires an analysis of tax rates and terms in candidate countries.