establishing operations abroad - enterprise ireland · corporate structure – establishing a...
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Establishing operations abroad
Mary Nyhan, Principal, Nyhan Tax Advisers
18/09/2014 1
Summary • Tax implications
• Structure abroad: Subsidiaries, agents, new businesses abroad
• Related Financial implications
• Risks, benefits and landmines
• Case study
18/09/2014 2
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
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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
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Taxation • Corporation Tax
• VAT
• HR issues and Payroll Taxes
• Other taxes
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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
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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
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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
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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
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Corporate Structure – well
established
• New company
- local shareholder required ?
- Tax residence
- Board of directors
- Strategic presence
- Tendering process
- Reporting obligations
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Corporate Structure – well
established
• Agency agreement with local partner
- Key benefit evaluated
- Read the small print
- Testing the waters
- Agreement is key
- Exit arrangements
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Corporate Structure – well
established
• Agency agreement with local partner
- Restrictive covenants
- Common brand
- Guarantees and risk
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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
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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
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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)
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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
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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
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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
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International HR issues
• Importance of a written policy
• Gives consistency
• Manages employer risk
• Greatest “risk” area
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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
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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
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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 on Friday 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 tax resident. 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
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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
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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
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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
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HR Policy
• Policy on equalisation:
- Same as never left Ireland?
- Company gets benefit of overseas tax rates?
- Individual gets benefit of lower tax rates
18/09/2014 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
18/09/2014 27
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
18/09/2014 28
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
18/09/2014 29
Reimbursement of expenses
• Local rules
• Some local rules do not reimburse temporary expenses e.g. Poland
• Need to factor into package to the employee
18/09/2014 30
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
18/09/2014 31
Financing structures
• Keep it simple
• Dutch financing structures are not for everyone!
• One tax relief for interest sufficient
18/09/2014 32
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?
18/09/2014 33
International allocation of profits
• Keep it simple
• Arms’ length
• Risk linked to profit
• Transfer pricing reports – benchmarking requirements
18/09/2014 34
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
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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
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Financial implications
• Withholding taxes (usually on Revenue)
• Contract terms
• Specific local taxes
• Foreign exchange risk to the extent we cannot match
18/09/2014 37
Questions
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Thank you
18/09/2014 40