Don’t overlook the tax implications of global expansion

Many businesses are contemplating expansion into new global territories. Often, the commercial aspects of overseas projects are considered in great detail but tax issues are either left to the last minute or overlooked completely. Understanding the overseas tax position is essential to ensuring businesses comply with tax obligations, minimise incremental tax costs and ultimately achieve their expected profit from the work. UK employees working overseas may be liable to income tax and social security in the foreign country, as well as income tax and National Insurance contributions at home.

In addition, employers will normally be obliged to deduct any overseas income tax and social security directly out of workers’ salaries and continue to be obliged to operate UK PAYE. Double tax and withholding obligations are never popular. In some cases, double tax treaties and/or social security agreements may give a bit of protection but certain reporting formalities will normally still exist.

Where such liabilities still arise, payrolls must be carefully managed to avoid incremental costs and ensure people are no worse off.

Authority from HM Revenue and Customs for UK employers to operate a “net of foreign tax credit arrangement” can help achieve this.

Often, employees must also report their overseas earnings on local income tax returns. Failure to do so can result in significant penalties.

Tax treaties may be available to reduce or eliminate any corporate income and withholding tax liabilities, but formalities must be followed to take advantage.

Any incremental tax costs should be understood in advance and factored into the company’s pricing model. The VAT implications – both UK and foreign – of working abroad should also be considered.

For more information please don’t hesitate to contact us.