companies as they have gone through #globalexpansion. The method by which these ... individual working from home, into a
Global Expansion News March 2017
As your business expands internationally, whether that is through selling goods or services, hiring people or establishing entities in new territories, it becomes exposed to wide and varied compliance issues. Whilst every situation can be different, this regular snapshot will aim to highlight some of the challenges our clients face as they go through #globalexpansion.
What Brexit could mean for foreign investors
Management information for your global expansion
On 23 June 2016, the British people voted with a majority of 51.9% to leave the European Union. In her speech delivered on 17 January 2017, the Prime Minister Theresa May outlined the government’s position to negotiate a free trade agreement with the European Union once Article 50 is triggered, which will set in motion the formal process of leaving the EU. This is expected to be this month. It was made clear by the Prime Minister that it will be one of the government’s main targets to withdraw the UK from the EU single market and the customs union in order to put the UK in a position to negotiate new free trade agreements with both EU and non EU countries.
Is it better to be consistent or concise?
Depending on the terms of a free trade agreement with the EU, it can be expected that the UK’s position regarding trade with other European countries will change. These changes could affect the ability of workers to move freely between the UK and the European continent, the way the movement of goods to and from EU countries are handled, and whether services, such as licence provisions, can still be provided and received without the need to deduct a withholding tax charge. It is important that foreign investors trading with the UK and other European countries understand the possible implications for their business due to the upcoming Brexit negotiations, as and when these become clear. Blick Rothenberg has been invited to present on this topic at a number of forums, including at the IStS (a leading conference of German speaking tax advisors held in St Moritz in January). In doing so, we have been able to build on our client facing experience. We have received little negative feedback following Brexit and indeed have seen many people increase the emphasis on having a location in the UK due to the strategic importance of the consumer and business markets. We will continue to pro-actively advise our clients as and when appropriate.
At Blick Rothenberg we have supported well over 2,000 companies as they have gone through #globalexpansion. The method by which these companies have accounted for their international subsidiaries tends to fall into one of three categories. Overkill Consolidating every subsidiary, even if they employ one individual working from home, into a bespoke consolidation pack using a standard chart of accounts and splitting costs across departments does ensure consistency but does escalate compliance costs considerably. This is especially the case when these are bespoke packs developed in Excel that tend to require, even in this day and age, manual data entry. This leads not only to higher accounting and professional costs but can be a big drain on employee time. Oversimplified More times than you would expect for companies with global ambitions, the accounting for smaller subsidiaries is completed as a separate department within the parent entity’s accounting ledgers. This can end up being a very short term saving. The majority of companies adopting this method struggle to produce appropriate year-end accounts for the tax authorities or other filing purposes. In some cases this breaches local legislation around record keeping. At the most extreme, we have seen companies who have paid tax on the same profits in two counties and have gone through significant time and cost to rectify the issue. This can also lead to failing to pay taxes under the appropriate legislation leading to costly tax audits or significant issues when going through a later sales process.
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Optimal
Changing rates of VAT
Our experience suggests best policy is to adopt an approach somewhere in the middle, considering the nature of the business being accounted for.
Many of our clients who are supplying digital services have registered for MOSS and pay VAT on their sales across Europe to the UK authorities through this scheme. Those clients should be aware of the following changes in rates which may impact pricing decisions and/or profit margins.
Of course you should use the same chart of accounts locally as for group reporting but cut these down as far as possible so that they only include the relevant cost categories. You should consider any local requirement to use a specific chart of accounts and map your codes to this from the start. There may be differences arising from the international nature of the group. You will need to agree in advance which entities bear the exchange risk on inter-company balances for example. Where practical, you should ensure that the subsidiary accounts are finished a day or two ahead of group reporting to allow time for any recharges to be reflected, but bear in mind what will be material to the group accounts. Ideally you want to achieve an appropriate level of oversight whilst leaving ownership of the results with local management and allowing them time to manage growth in the day-to-day operations.
The standard Romanian rate of VAT has dropped from 20% to 19%. The Hungarian government has introduced a reduced rate of 18% for what they term “internet access”, whereas their standard rate of 27% remains unchanged for “telecommunications, broadcasting and electronic services”.
Saudi Arabia to introduce VAT It has now been agreed by the cabinet in Saudi Arabia that a value-added tax will be introduced from 1 January 2018, most likely at 5%. This follows an IMF recommendation to raise revenues to balance the budget and is reflective of a trend for more and more countries to introduce a value-added tax as a means of raising revenues.
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©March 2017 Blick Rothenberg Limited. All rights reserved. While we have taken every care to ensure that the information in this publication is correct, it has been prepared for general information purposes only for clients and contacts of Blick Rothenberg and is not intended to amount to advice on which you should rely. Blick Rothenberg Audit LLP is authorised and regulated by the Financial Conduct Authority to carry on investment business and consumer credit related activity.
