We are getting accustomed to the challenges of Brexit, but what are the key issues when expanding your business further afield?
The combination of Brexit and the pandemic was, for some, the perfect storm and many companies put their international expansion plans on hold. But now that we’re getting used to Brexit and COVID restrictions have been lifted, it’s clear companies are dusting off their stalled plans or embarking on brand new expansion exercises.
Much of the focus has been on the UK leaving the EU and the many issues it has raised. For some these include the need to establish a corporate presence in Europe to be able to continue to trade in Europe.
Changes brought about by Brexit have meant paying closer attention to international compliance rules and regulations. These include visas, payroll reporting requirements and more robust employment contracts. But what about conducting business in the world beyond Europe?
New focus territories
Whilst the USA is and always has been a key location for UK businesses, many are exploring new territories. Singapore, Australia and Canada are proving popular. International tax rules are generally well developed for these territories, and tax treaties and social security agreements exist. But remember: the rules around tax and social security reporting for employees differ with each country and are dependent on the individual treaty agreements. Social security agreements are also different from the European A1 regime.
How tax havens differ
Like many sectors, the insurance industry often includes one of the so called tax havens (such as Bermuda, the Caymans or the British Virgin Islands) as a location for a group entity.
Many tax havens do not require business to operate out of their country or individuals to reside there to receive tax benefits. But it’s often the case that companies like to have a presence on the ground. So how should these overseas entities be staffed? Team structure is an important commercial decision, and where there is an international element it can be complex.
Does someone senior go out for a period of time (or perhaps permanently) to set up the operation, and then recruit locally? Or does a whole team relocate?
Many companies are keen to offer employees the chance to experience working in an overseas environment, often as an incentive to attract and retain the best talent. But compliance is vital, as treaty protection is often not available and the resulting tax and social security rules can be complex and costly.
Bermuda, for example, has a social security agreement with the UK. But there’s no tax treaty, so any employee visiting the UK from Bermuda for work instantly creates a payroll reporting requirement for the UK company. It’s worth noting, though, that with the right documentation, UK National Insurance contributions can be exempted.
Non-resident directors
Overseas groups expanding to the UK for the first time, either by acquisition of UK groups or formation of new UK entities may mean that non-resident directors of UK companies are appointed. These directors are assessed under specific legislation, and treaties often have a separate article setting out where the taxing rights lie: whether with their individual country of residence or the country of residence of the company.
Social security is assessed separately and may be exempt in the UK if they qualify under an HMRC concession or are based in a country with which the UK has a social security agreement.
Governments across the world are looking for ways to raise revenue, and the UK is no different. Businesses with internationally mobile employees, seconded employees, non-resident directors, or simply overseas financial interests, attract attention. This is because the authorities know there is a significant risk of non-compliance, and hence a ready source of additional income.
Don’t get caught out
New markets bring in new business and can provide exciting opportunities. But it’s important to adhere to relevant legislation and be aware of the risks it brings
Always seek professional opinion or advice when thinking of expanding internationally. Taking advice will almost certainly cost less than correcting mistakes afterwards.
For guidance on appropriate internal policies and reporting, please contact Stephen Kenny.
