Money
Issue No. 38 - December/January 07/08
International tax traps to avoid
by Pamela Brombal
Expanding into international markets involves careful planning and significant commercial decisions. Tax should be considered early. It can be dealt with efficiently with proper planning.
According to Merv Burton, Director of Tax Services at William Buck, there are many traps Australian businesses can fall into when entering an international market for the first time.
Failure to protect Australian assets, lack of compliance with local country tax rules or entering an arrangement with a dodgy local agent are common mistakes.
The consequences range from paying too much tax to fines, penalties and restrictions on business activities or, in the worst case, leaving Australian business assets open to litigation.
“The key commercial decision a company must consider before going global is asset protection,” Merv says.
“This involves deciding whether to set up a subsidiary in a foreign country, to open a branch office or a representative office.
“A representative office is simply having a representative in the foreign country to take orders and deal with enquiries.
“An international branch is essentially just another office of your Australian business, set up in much the same way as a new branch in a different state of Australia.
“A branch or representative office are low cost ways to dip your toe in the water, but if there is a problem and litigation ensues, all of the assets of the Australian company may be at risk.
“Establishing a subsidiary business overseas is more expensive and takes more time than setting up a branch, but it reduces the risk of having Australian company assets exposed.
“An alternative may be to set up a new Australian subsidiary and have that company open a branch or representative office in the foreign country. That way, the Australian company with the assets has increased protection from any potential risks.”
Merv says understanding the risk implications in a n...
