Inbound and Outbound Investment Explained
U.S. companies wanting to expand into overseas locations, or non-U.S. companies looking to expand into the United States, have much to consider and often do not know where to start as they expand globally. Often, companies see an economic opportunity and want to quickly focus in on international tax implications, but this is just a small piece of the discussion. Strategic planning starts with the commercial and operational business strategy and considers the nature of the underlying investment being made by the business.
There are a number of ways that companies can engage in business across borders. They could be making a passive investment such as real estate, or may be looking to engage in more day-to-day operational activity where there are feet on the street in a foreign jurisdiction. Regardless of the scope of the investment, business expansion into a foreign jurisdiction (whether inbound to the U.S. or outbound to another country) often happens in a life cycle. For example, a business may start to gain traction with sales in a foreign market. This will prompt them to investigate that marketplace and consider placing employees there. If there is need or opportunity, they may choose to invest in a distribution facility or perhaps a regional headquarters in that jurisdiction, and could even establish a licensing center that houses all of their intellectual property. Foreign investments can run the gamut from simply selling a product in an overseas market, to a robust day-to-day operation.
There are a number of issues to consider while planning how this life cycle will be carried out, and it should center around what the business hopes to achieve with this expansion. If there needs to be feet in the street to operate the business, will they be hiring employees locally, or bringing people from an overseas location for staffing? Where specifically is the business setting up shop and have they considered the unique culture of the geographic location they have chosen? In the U.S., have they investigated local incentives and how to realize them? For U.S. inbound investments, what foreign jurisdiction is the business coming from? There may be planning efficiencies based on tax treaties, or the business may be limited on direct investment if no tax treaty is in place. Cash flow expectations and treasury management are another critical piece that dictate planning and how the business will operate. Perhaps they want to make a passive investment such as real estate and leave cash in the foreign jurisdiction to invest down the road. On the other hand, they may want to establish a day-to-day operational structure that immediately distributes dividends to the foreign parent and investors.
The issues of staffing, incentives, favorable tax treaties, and treasury management will likely require different experts such as legal counsel, credits and incentives consultants, and international tax experts that can put the pieces of the puzzle together and alleviate the tension around complex business issues.
With the right partners, global business planning is not a burden, but an opportunity for a business to achieve their goals on a global scale.