This is the second part of a series on steps to take while planning, launching and executing your expansion abroad.
As mentioned in one of my last blog entries, I am sharing the experiences we gain at Hull Speed Associates as we assist our clients in expanding abroad. The experiences I share are real situations of how we encourage our clients, and the pragmatic steps we take to help them in this process. I urge you to share your comments by clicking the comments button below. Oh, and please subscribe to the blog if you have not done so already ;-).
The second step is the beginning of the expansion phase, choosing a location(s) to establish the legal entity(s). I have chosen the UK as an example as a place to start.
Just a quick note about Corporate Tax Rates. The Corporate tax rate in the UK has just recently changed from a maximum of 28% to a maximum of 26%. Compare this to the US corporate tax rate which can exceed 35%. We will talk about Transfer Pricing in another entry but it kind of makes you think, doesn’t it?
The UK has several legal entity options but on average our clients choose one of the following three: a Place of Doing Business, a Branch company, or a Ltd. Here are a few highlights of a Branch.
A ‘Branch’ is basically an extension of the company it is a Branch of. A bit like a branch on a tree. It functions as an office rather than a stand-alone entity. It cannot sign contracts for things such as property lease or employment contracts, for example.
A few items to note:
- Profits and losses are part of the company it is a Branch of instead of as a stand-alone company.
- Liabilities extend back to the company it is a Branch of. Ouch!
- You actually register the company it is a Branch of instead of the actual local company.
- Corporate documents of the company that owns the Branch are filed in the registration and must be presented in English. If you are registering a foreign company whose corporate language is not English, certified translated documents will need to be prepared and filed.
Hmmmmm.. Lets go to the next part and revisit this later…
- Liability extends back to the company it is a Branch of.
- The perception of doing daily business. Ltd vs. Branch Office of a foreign company.
- Reporting requirements are from the company it is related to instead of as a stand-alone. Audit and disclosure requirements, for example.
- You still have annual corporate tax filing requirements.
One question for me kind of sums it up: “When would this option make sense…?” Given the liability issues mentioned above, I’m not sure I can think of one. Perhaps you can?
I would like to thank Paul W. from our UK service provider for contributing to this entry.
In the next entry I will address “Place of Doing Business”.