Establishing operations abroad

Transcription

1 Establishing operations abroad Mary Nyhan, Principal, Nyhan Tax Advisers 18/09/2014 1

2 Summary Tax implications Structure abroad: Subsidiaries, agents, new businesses abroad Related Financial implications Risks, benefits and landmines Case study 18/09/2014 2

3 General principles Time spectrum Keep it simple Tax should not solely dictate your structure/approach Leverage off Irish support bodies and other Irish companies Don t start from scratch 18/09/2014 3

4 General principles Do background research and know your goals/problems before speaking with external advisers -price for time but make sure you manage their time Local face to face knowledge is key Balance the additional revenue-v-costs of overseas location Be aware of constant changes 18/09/2014 4

5 Taxation Corporation Tax VAT HR issues and Payroll Taxes Other taxes 18/09/2014 5

6 Corporate Structure initial Initially marketing and business development No fixed place of business Independent agents No corporation tax or VAT presence If not broken, don t fix 18/09/2014 6

7 Corporate Structure establishing a presence An office or warehouse - Corporation tax or VAT/Sales tax presence? - Less than 6 months? - Limited human presence - Employees but not concluding contracts 18/09/2014 7

8 Corporate Structure establishing a presence Remote servicing - Constant change - Presence of server/website not sufficient - Credit card sales processed in Ireland - Limited human presence - Worked example 18/09/2014 8

9 Corporate Structure establishing a presence Branch - Independent agents become employees - Start concluding contracts - Fixed place of business with non-ancillary activities - Registration - Losses against Irish corporation tax 18/09/2014 9

10 Corporate Structure well established New company - local shareholder required? - Tax residence - Board of directors - Strategic presence - Tendering process - Reporting obligations 18/09/

11 Corporate Structure well established Agency agreement with local partner - Key benefit evaluated - Read the small print - Testing the waters - Agreement is key - Exit arrangements 18/09/

12 Corporate Structure well established Agency agreement with local partner - Restrictive covenants - Common brand - Guarantees and risk 18/09/

13 Corporate Structure well established Acquiring overseas business - Evaluate benefit - Historic Risk - Set up new JV company - Joint contribution preferred - Deferred consideration, if any - Charge into JV for Irish time and materials mark-up 18/09/

14 VAT and Sales Tax Easier to have a presence for VAT/Sales Tax than corporation tax Competing with local service providers Beware of timing of VAT refunds 2015 VAT changes Sales tax: Subject to constant change 18/09/

15 US Sales Tax Exemption if product is onsold to the customers Retail sales Vendor or customer Presence in the State vendor Warehouse creates presence and possibly local independent agent (affiliates) 18/09/

16 US Sales Tax Amazon: New York Illinois: Favour of retailer New Mexico & Oklahoma: where no nexus Rate varies per state Be aware of sales tax and effect on cash-flow 18/09/

17 2015 VAT changes Electronically supplied services to private individuals Digital video, ebooks and music Currently, place of supply is Ireland From 1 January 2015: EU state Mini One Stop Shop Alternative but no VAT recovery if used Review of systems now 18/09/

18 Corporate Structure US example Irish company US customers place online orders Retail sales Warehouse US bank account personal attendance Initially, independent agents for retail fairs etc. PO box for cheques and profile, business cards Profit attributable 18/09/

19 International HR issues Importance of a written policy Gives consistency Manages employer risk Greatest risk area 18/09/

20 0verseas income tax > 183 days and costs borne by local entity Who is responsible for the taxes employee or employer Corporate governance perspective Local payroll providers 18/09/

21 0verseas income tax Due to modern commuting and shorter-term projects, risk of Irish tax continuing to remain. Clear communication. Employee agreement Critical to have a procedure to collect the second layer of taxation applying and ensuring that this amount is refunded back to the company 18/09/

22 Illustrative example Joe works for an Irish company but works from the company s UK branch. He leaves Ireland every Monday morning and returns to Ireland onfriday evening to spend the weekend with his family. On average, Joe is in Ireland for 160 days each year. Joe s salary will be subject to Irish tax given that he is Irish taxresident. An individual is Irish tax resident if he spends more than 183 days in Ireland in a tax year or 280 days between the current and previous tax year. Joe will be subject to UK tax as he is working in the UK 18/09/

23 Illustrative example Irish Salary 100 Irish Tax 45 UK tax 35 Individual receives 55 Company pays 45 Income tax return required to claim refund 35 18/09/

24 Illustrative example solution? Change employer to UK company Irish PAYE does not apply No double withholding Cash-flow position improved Split contracts? Employee position can influence corporate structure 18/09/

25 UK tax residence Change from 6 April Based on ties to the UK -accommodation, work > 40 days, family, > 90 days Treaty override still applies 4 ties:46 days 2 ties: 121 days 1 tie: 183 days Still 60 day test and cannot be part of greater period 18/09/

26 HR Policy Policy on equalisation: - Same as never left Ireland? - Company gets benefit of overseas tax rates? - Individual gets benefit of lower tax rates 18/09/

27 HR Policy Policy on equalisation: - Same as never left Ireland? - Company gets benefit of overseas tax rates? - Individual gets benefit of lower tax rates 18/09/

28 Social Security Irish Social security E101 procedure to remain on the Irish system : Irish employer Factor when deciding on a branch or a subsidiary Transferability of benefits between EU only but subject to restrictions 18/09/

29 Reimbursement of expenses Actual-v Irish civil service rates Away from temporary place of work Affects company-v-branch decision Greater than 6 months, day civil service rate reduced by 50% 26 is 50% for London Records are key 18/09/

30 Reimbursement of expenses Local rules Some local rules do not reimburse temporary expenses e.g. Poland Need to factor into package to the employee 18/09/

31 Reimbursement of expenses UK Similar criteria to Ireland Dispensation so that employee tax returns not required Working rule agreements for particular sectors and in terms of norms No specific flat rate 24 month definition of temporary 18/09/

32 Financing structures Keep it simple Dutch financing structures are not for everyone! One tax relief for interest sufficient 18/09/

33 International holding companies Benefits of the Irish regime Avoid unnecessary layers of taxation Match companies to country of trading Separate group for international operations to manage risk? 18/09/

34 International allocation of profits Keep it simple Arms length Risk linked to profit Transfer pricing reports benchmarking requirements 18/09/

35 International allocation of profits Get benefit of Irish 12.5% rate Technology and IP in Ireland Licencing arrangements R&D tax credits in Ireland UK 21% US 35% plus 18/09/

36 Financial implications Evaluate cash-flow on after-tax basis Tax benefits should not turn an overseas project from loss-making to profitable Temporary VAT and Payroll VAT costs Allow margin for changes to tax regime such as Sales Tax 18/09/

37 Financial implications Withholding taxes (usually on Revenue) Contract terms Specific local taxes Foreign exchange risk to the extent we cannot match 18/09/

38 Questions 18/09/

39 Contact Details Mary Nyhan Tel: /09/

40 Thank you 18/09/