With the fast paced world of technology, cheaper air travel and even Brexit, there has been lots of coverage on how globalisation is becoming more and more evident. As always, there is plenty of red tape involved for both expanding businesses to individuals jetting off for work.
Any business considering looking to expand its operations into another country should organise its structures to accommodate the varying tax jurisdictions. When initially testing the foreign market checks should be undertaken to determine whether a permanent establishment is created and what foreign tax liabilities arise. Some companies opt to operate as branches and others as subsidiaries. Unfortunately there is never a one size fits all approach and each expansion should be considered separately.
Broadly, there is little administration difference between setting up a branch or a subsidiary – both still need to register at the relevant companies office, file accounts, register for VAT, Corporation Tax and Employment taxes, if required.
A branch is part of the company and most countries require the full company accounts to be submitted. The profits or losses are aggregated within the company’s UK profits and any foreign tax paid should receive a credit against the UK tax liability. There are special branch exemption rules which can be beneficial to companies setting up foreign branches whereby the foreign profits are not included within the UK tax calculations.
As a separate legal entity, a subsidiary can be commercially and legally more attractive depending on licences and each country’s laws. The profits from the subsidiary should be taxable in the country of establishment and not included within the UK corporate tax return. Profits arising in the subsidiary may be distributed back to head office and generous reliefs are available if the subsidiary is sold.
Recent trends have seen droves of our local talent pool seizing opportunities across the globe. Whether leaving, arriving or coming back home, each individual should review their tax position and understand if any taxes are applicable.
Broadly, international tax law allows an individual to have one country where they are tax resident and liable to report their worldwide income. The first UK tax residency test is based on the number of days spent in the UK during the tax year – usually being located in the UK more than 183 days determines a UK tax resident. The number of days rule is adjusted for those arriving and leaving the UK depending on the number of factors tying the individual with the UK – these include:
- family test – spouse/civil partner/minor child living in the UK;
- accommodation test – available UK accommodation for more than 91 days;
- work test – accruing more than 40 days work within the UK (a working day for this purpose is only 3 hours); and
- time spent in the UK in previous years – Over 90 days in either of the previous two tax years.
Consideration should be given to the payroll implications in the particular country in which you are employed.
This is only a brief summary of some of the key points that affect the tax residency of companies and individuals. It is important that the detailed rules are considered for your specific circumstances and specialist tax advice should be taken.