The globalized economy and recent trend of telecommuting bring the typical U.S. based business access to a significant pool of labor and new potential markets. These changing dynamics provide an opportunity for businesses to begin or accelerate their global business expansion plans. However, with this business opportunity comes risks—from complex regional laws, regulations, and taxes, to managing wages and benefits across borders. Firms making a global expansion their operational focus need to understand the tax and other complications they will face.
Establishing a Global Business Structure
When a company decides to expand globally, it needs to determine how it will create its products or offer its services in each specific market. Some countries allow companies to set up a “representative office” arrangement. This structure can avoid tax obligations that come into play with a physical presence, although the activities of the workers are also typically constrained by law. Companies also often make the mistake of assuming two countries operate similarly. Further questions will then present themselves as a firm goes deeper into an expansion, including if the local company will function as a branch office or its own company. There’s also the question of how profits should return to the HQ company in the most efficient and compliant manner. For instance, will these profits fall subject to taxation upon the time they are earned, or when they are repatriated to the company’s home country. Companies need to have clear processes in place for executing their repatriation strategy in the proper way that is appropriate for the specific operating country.
Managing a Global Workforce
U.S.-based corporations expanding globally often jump into the decision too quickly, without considering the local labor and wage issues. Managing remote work situations on a global scale requires well-constructed policies. Firms should decide how compensation and benefits will be applied to these workers, or if they’ll simply function as contractors. If they’re operating in multiple countries, then there is a significant amount of complexity to manage.
Small and mid-size companies, as well as large corporations, share similar challenges, either when planning or in the process of expanding overseas. With global expansion, businesses face multiple obstacles surrounding tax compliance and local laws, which is a significant time and financial commitment and can distract the focus from growing the company. Business leaders also must identify ways to stay ahead of competitors and the best way to get to the market as quickly and seamlessly as possible. McGuire Sponsel has significant experience in the area of global expansion.
If you have any questions about our team or any global business issue, do not hesitate to reach out.
Jason Rauhe, CPA is a Principal in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.
Rauhe previously served as Director of International Tax at a Top 100 CPA Firm, where he was responsible for the firm’s international tax division and major industry alliance networks.