3 Crucial Things to Think About When Taking a Business Abroad 

Dec 19, 2018

3 Crucial Things to Think About When Taking a Business Abroad

Every investor out there dreams of one thing; growing the enterprise into a multinational. But this is a long journey that requires clear understanding and planning of every step. Business administration experts insist that growing business cannot happen by chance.

Even when the environment is favourable, entrepreneurs have to carefully strategize to optimize profits and keep growing to the next step. The following are the four most important things to think about when planning to take your business offshore.

Business Trip

Providing Legal And Operational Local Director​

The first step to growing your business abroad is offshore company incorporation. The targeted country will have a set of rules that enterprises can use to register businesses and start operations.

In many jurisdictions such as Hong Kong and Singapore, investors can register businesses on their own by preparing the required document. However, this can be lengthy and expensive because you will be required to fly to the target jurisdiction to apply.

The alternative that many investors consider reliable is using company registration services through agencies. Agencies are professional entities allowed to help register businesses on behalf of investors. They help with documents preparation and file them on your behalf to make the process easy and fast.

Offshore bank account opening

Once the offshore company has been registered, it will need a bank account to start operating. It is important to use secretary services when opening a bank account to make it successful with the first attempt.

Many banks have become extra stringent and opening a bank account is no longer an easy task. However, the experts will help you to get the required documents and raise the chances of getting the bank account by more than 99%.

The operational costs

There is no denying it, taking a business offshore will have to involve some cost. From the process of incorporating the business to acquiring an office, you will have to foot the bill.

The best way to go about this is ensuring that you can cover all the costs for about one year before the business can start meeting the expenses.

Mistakes to Avoid When Selecting Experts to Assist You Grow a Business Globally

Dec 19, 2018

Mistakes to Avoid When Selecting Experts to Assist You Grow a Business Globally

Business experts are professionals who help your business approach operations differently for success. They add the vigour that the enterprise needs to catapult to success. If you take a look at the top multinationals such as Apple Inc and Alibaba, the bulk of their strategies are crafted by experts.

To use expert services when seeking to expand business abroad, the starting point is hiring the right professionals. The following are the key mistakes to avoid when hiring experts to assist your offshore business to grow to the next level.

Using family members to simply cut on cost

Many are the times when you will get businesses hiring family members to act as experts. While the members can still deliver good results if they are professionals in respective areas, the idea can be very wrong if the objective is cutting cost.

In many cases, family member will rarely see the business differently. Therefore, it will be difficult to introduce a new perspective that can help the business follow the hard but the right route to success. Instead of using family members, go for professionals with proven skills in secretary services such as offshore business incorporation and tax matters.

Not introducing the experts early enough in the business cycle

When you introduce an expert into a business, it is important to optimize their services for higher monetary value. This will be very difficult to achieve if you fail to contract the business expert early enough into the business cycle.

The focus should be getting the right business professionals to assist the enterprise even before starting the operations. Consider identifying an expert early enough to assist the business with the following important tasks:

  • Offshore business incorporation
  • Business bank account opening.
  • Crafting a business entry strategy for the new jurisdiction.
  • Demonstrating tax substance for your business.

To get more from the expert, it is advisable to identify the one who can help in multiple areas. For example, consider identifying a professional who can help with company incorporation abroad, drawing reliable marketing strategies, and creating the right operational structure.

How to Get It Right on Business Substance?

NOV 16, 2018

How to Get It Right on Business Substance?

The concept of business substance has become very important today, than any other time in history. However, this concept is often shrewd in controversy. The recent proclamation by the EU that companies in zero tax territories will need to demonstrate substance or attract severe penalties has jolted investors and entrepreneurs to refocusing on this crucial component.


What exactly is business substance?

Business substance (also called economic substance) is the economic reality of an enterprise to avoid high tax burden on its operations and related tax challenges resulting from many tax authorities.

The focus is on ensuring that a business is providing economic substance in line with its status, operation, and profits. The concept is aimed at preventing businesses that need protection from tax burden taking undue advantage over others even after growing in profitability.

Why is business substance important?

Starting from 2016, many banks and tax authorities began requiring companies to demonstrate substance. Under the latest OECD action plan targeting Base Erosion and Profit Shifting (BEPS), firms and transaction have fallen under serious threat of missing substance.

Today, there are many enterprises with structures that feature double tax where no taxes are levied on international transactions.

BEPS targets to prevent abuse of the treaty benefits when multinationals with structures that are only crafted to enjoy benefits that come with DTAs (double tax arrangements).

BEPS utilizes different tools including the following to ensure that the treaty is not abused:

  • Substance requirements to facilitate benefits under DTAs.
  • Anti-abuse regulation in different DTAs.
  • Installation of anti-abuse tools in respective home countries.
  • Controlled Foreign Company (CFC) rules.

The target of all the economic substance measures is to enhance genuine business operations of the company structures and its transactions. When a company misses substance, it risks severe penalties or even getting blocked from the market.

What are the dangers of missing business substance?

Businesses and transactions that do not demonstrate tax substance are at risk of getting slapped with the following penalties:

  • Missing on various tax deductions.
  • Double taxation.
  • Court battles and severe penalties.
  • Controlled Foreign Company (CFC) rules.

What is the correct level of business economic substance?

Demonstrating the correct level of business substance is dependent on size as well as underlying transactions. Therefore, you need to review the business structure and its operations to be able to reach the right level of substance. Here are some red flags you need to know.
  • The director lacks ample qualifications to run the business operations, and the working is not commensurate to a reasonable workload.
  • The business has missing tools such as phone lines and computers in the balance sheet. This is considered a fake substance approach.
  • The business and location transaction types are not matching where the aim of the company is tax based and not related to the added value.

The primary goal of business substance is ensuring that enterprises and their transactions are genuinely reflected so that tax benefits are enjoyed as a side effect as opposed to being the core goal of the company structure.

Indeed, an artificial economic substance is not a reason enough for company protection from tax authorities. The recent adoption of common reporting standards (CRS) and the implementation of The Foreign Account Tax Compliance Act (FATCA) took away the bank privacy that companies and individual enjoyed previously. Now, the business planning structures are easily exposed.

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Requirement for Tax Substance in Tax Planning Designs

Oct 28, 2018

Requirement for Tax Substance in Tax Planning Designs

The concept of substance over the legal form has become crucial in the rightful representation as well as the reliability of info captured in financial statements. The main goal of the concept is ensuring that all business transactions are presented in a manner that demonstrates the real position of the business.

This post demonstrates how the principle applies outside the focus of financial statements. In particular, it looks at how it affects the larger tax planning community.

A closer look at the concept of substance over the legal form

The concept, substance over the legal form enables the tax authorities to set aside the legal form of a business and take a glance at what actually took place in transactions. The aim is preventing the artificial structure from abuse especially through tax avoidance.

For any company to enjoy a beneficial tax regime (jurisdiction with lower tax rates), it is required to comply with tax substance requirements set by the tax authorities. These requirements often vary from one country to another. Here is an outline of these requirements;

  • The substance of the business structure includes things such as location (physical presence) and presence of all the operational components such as staff, assets, and directors.
  • The substance of the business transactions revolves around the nature and where the transactions were done. It also seeks to answer the question, “How does the party benefit?”

A glance at the tax rulings in the Netherlands

The Netherlands, one of the countries with a very advanced mechanism of real substance identification uses a system referred to as tax rulings. The tax ruling is a confirmation from the tax authorities that allow business owners to establish well in advance the tax burden, their rights, and duties in various circumstances.

The tax ruling framework uses two types of agreements from the tax authorities; the advance tax ruling and advance pricing agreement.

  • The advance tax ruling is an agreement based on the Dutch tax system classification of international businesses based on the applicability of participation exemption as well a permanent establishment.
  • The advance pricing agreement is an agreement that approves the determination of the method of calculating profit in relation to cross-border transactions between a company and foreign establishments.

In order for a tax ruling to be issued, the tax authorities must ensure that the cross-border transactions where a Dutch company is a party actually took place. Here are the requirements for tax substance.

  • Half of the company’s managing directors reside in the Netherlands.
  • Managing director resides in the Netherlands and is qualified for the position.
  • The company has salaried employees.
  • The company has running bank accounts in the Netherlands.
  • Bookkeeping is done in the Netherlands.
  • The company has met all fiscal obligations.

Steps to make your company demonstrate substance

Having looked at the case of the Netherlands, the main question remains, how can you demonstrate substance in your situation? Like in the Netherlands, the concept of substance is tailor-made. This implies that any attempt to generalize the books or presentation will not work.

The target for your business should be redefining your operational goals and make the operations open. Here are some of the ready solutions to help you demonstrate substance:

  • Always seek a tax opinion about transactions and the entire concept of tax substance in relation to your enterprise.
  • Make sure to follow proportionality when distributing the business functions, losses, profits, and assets.
  • Ensure to maintain a functional office with all the functions such as staff and assets.
  • Keep the business records well and continuously develop the company.
  • Comply with all the tax and other laws in the country of operations.

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