GROWING ABROAD: WHAT TAXES TO CONSIDER DURING BUSINESS EXPANSION

There is a typical sign that tells you your company is ready to be internationalized: a significant growth in new markets. For certain industries, exporting products or services to various countries can mean extremely high costs, which may render the business un-profitable. If you recognize the sign, it is necessary to evaluate whether to open a new subsidiary — but it may also mean that you have not reacted promptly enough.

Before and after

In the 90s, entrepreneurs started their expansion process and put together the business conglomerate as needs arose. They then realized that this was a costly way to expand, due to the restructuring service and high tax contingencies.

Time, however, has brought about new opportunities, and today’s trends move in a different direction. Entrepreneurs who dream big think globally and launch their expansion after having conducted tax planning, which is sustained in time and minimizes all sorts of contingencies. Although this may seem like a risky step to take, with proper planning, having a branch abroad today has become a simple task which, generally, does not require large budgets for offices and/or personnel, but simply incorporating a company and operating from the country of origin. Nonetheless, this decision calls for careful prior analysis and validation by the financial department, because it’s not simply studying tax matters from the stance of the parent company, but also from the position of the operating companies, thus harmonizing the tax and financial circuit of the global structure.

Tax burdens to look for

Although there will always be taxes which are specific to a particular jurisdiction, there exist a few that are common to all countries in the region. Some of them are the Income Tax, the Value-Added Tax and withholdings for services provided between countries. NOTICE: what usually changes in each country is the tax rate. If the entrepreneur is at an advanced stage in the expansion process, i.e. if it is operating in more than two countries, it is essential to consider the income tax at the global level.

The good news is that the tax impact is coordinated by countries through treaties to avoid double taxation (i.e. so that taxes on earnings are not levied twice) or to lower the tax rates. States make specific agreements to the benefit of companies.

Another advantage that must be considered is Promotion Laws which grant tax and fiscal benefits, such as Argentina’s Knowledge-based Economy Law (in Spanish, LEC). The countries in the region are talent hunters and they seek to offer incentives for companies — especially tech companies — to set up within their borders, so as to facilitate the process. Other noteworthy examples are Chile’s “One-Day Company Incorporation Law” and the recently passed Entrepreneurs’ Law in Uruguay, both of which offer benefits similar to those stipulated in the Argentine Entrepreneurs’ Law.  We should mention that in these three countries there exists the Sociedad por Acciones Simplificadas (Simplified Joint-Stock Company), a business structure under which a company can be incorporated with fewer requisites and lower costs than those of the Sociedad de Responsabilidad Limitada (Limited Liability Company) or Corporations.

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