Overseas markets present a huge growth opportunity
If you have successfully proven your product in Australia, it may be time to look beyond your borders. However, there are several elements to consider before you start jet-setting.
Expanding overseas is not as simple as replicating what you have done in Australia. Different laws apply in different countries. As a result, there are different legal hurdles to navigate. This article will set out the legal issues you should consider before expanding overseas, including your tax, employees and customers.
What Business Structure Will You Use?
For most businesses, the primary consideration in deciding whether to expand overseas is whether the unit economics make sense. Will you make more money selling your products or services overseas rather than expanding nationally? To make this decision, you need to know your expected profit. To do so, you will need to know how much you will be taxed. How much you will be taxed depends on which business structure you choose.
What are the Options?
Different countries tax businesses differently. Therefore, different business structures suit business operations in different countries. The table below outlines several options to consider when choosing how to expand your business.
|Type of business structure||What will be taxed?|
|Foreign company (e.g. subsidiary of your Australian company)||If you set up a company in another country, everything that the company does will likely be taxed in that country. This may be a great outcome if the tax rate is lower in that country. However, if the tax rate is higher in that country, you might prefer a different business structure.|
|Permanent establishment||You might create a permanent establishment in a foreign country, depending on your type of operations. For example, you might have an office or a warehouse in a foreign country. This means you have a permanent establishment in that country. What amounts to a permanent establishment depends on the circumstances. If you have a permanent establishment in a foreign country, all things attributable to your business in that country will likely be taxed there (rather than in Australia). Therefore, you need to have processes in place for determining what is and is not attributable to the business in that foreign country. This can be a high administrative cost.|
|No foreign company or permanent establishment||Whether this is possible depends on your operations. For example, suppose you have a warehouse or use a contractor in a foreign country. In that case, it might not be possible for you to avoid having a permanent establishment in that foreign country. You should speak to a tax lawyer about your operations to determine whether this is possible. If you do not have a company or permanent establishment in a foreign country, you will have more options to limit taxed profits in that foreign country.|
Not all consumers are the same – especially consumers in different countries. Depending on what is popular and culturally acceptable in that country, you may have to modify your product or service offering. If you change your product or service, consider whether you need to make any changes to your legal documents.
What Legal Documents are Needed?
They will also likely contain provisions that address specific Australian laws. For example, such documents may contain provisions dealing with GST or Australian consumer laws. You should also speak to your lawyer and ask whether any changes need to be made, before making these documents available to customers in foreign countries.
How Will You Deliver Your Product or Service?
One of the most significant hurdles in expanding overseas is organising your supply chain. If you are a wholly online service, this may be less of an issue. However, if you need to deliver any physical product or service, you need to think about execution.
If your business involves physically delivering products, you might need to engage distributors in a foreign country. You might even need to set up a warehouse. This can have tax implications, as discussed above. Additionally, you will need to have contracts in place with people who can assist with transport and delivery. It is not simply a matter of having those foreign distributors sign your Australian contracts. You should update these contracts to address the local legal risks and requirements.
If your business involves physical service delivery, will you be engaging employees or contractors in a foreign country? If so, you will need employment or contractor agreements for those people. Again, you should update your Australian template documents to reflect the risks and laws of the relevant country.
|Employment laws vary hugely in different countries. It is best practice to get legal advice before you engage workers in foreign countries. This will ensure you do not fall foul of any particular legal requirements.|
Before deciding to expand overseas, you should consider:
- what business structure you will use. Different business structures are more suited to different countries and different business operations;
- whether you need to localise your product or service offering. If so, you might need to update your customer documents; and
- how you will deliver your product or service. You will need different contracts in place with your distributors and workers. How you deliver your products may also have tax implications.
Helping Australian businesses in New Zealand
If you’re an Australian business looking to operate in the New Zealand market, Alliott NZ Chartered Accountants provide strategic business guidance and practical financial advice on how to structure your business here.
Over the years we’ve helped many companies successfully set up shop in New Zealand. Our experience in this area has helped to position many of them for growth in the local market by putting in place tax structures to suit their specific needs.
Please contact Greg Millar or Vanessa Williams on +64 9 520 9200 to discuss your particular situation and receive advice that is relevant to you.
Article first published 6 July 2021 by Dynamic Business. Retrieved from https://dynamicbusiness.com/brand-account/what-should-i-consider-before-expanding-overseas.html