Traditional trading borders are being replaced by open markets serviced by internet, technology and improved logistics. Business is mobile and broad in its application and so are the people and businesses that support it.
Many businesses, especially small business are looking across international borders to buy and sell products and services. Historically the domain of larger business with experience and deeper pockets this type of activity was more formalised and the laws understood.
Small business, emerging or otherwise, is breaking new ground. But do they know what to look for and what the potential implications may be?
Countries are finding that their tax bases are weakening and there are constantly measures being considered to ensure that if money is earned or even sent overseas then they are looking to take their share. This may be in the form of withholding taxes on royalty, interest and dividends or it may be an income tax assessment deducted at source.
It could be through duties or consumer based taxes like VAT and GST. Every country has its own laws and while double tax treaties provide some guidance and some relief there is a lot more complexity than meets the eye.
There are some essential questions that need to be asked when transacting across borders :
- Are the transactions offshore delivered through permanent establishments controlled in those jurisdictions?
- What is the residency and control profile of the entity or person transacting in that jurisdiction?
- How do the laws treat internet based sales and activity and how is your internet trading structured?
- Where do the goods and services originate or where they are delivered from?
It is essential to consider the following elements:
- Legal construction of the sale
- Residency and control of the seller
- Valuation of components by source
- Legal Structure
- How is the service delivered/transferred?
- Transfer pricing
- Permanent establishments
- Industry specific rules