Whereas expansion may always be interpreted as a positive thing, the direction in which you take your business may not necessarily lead it towards future success. For instance, once you reach a critical point in the size of your operations, it may make perfect sense to take your business overseas, yet, others might prefer to build up their presence at home. Those who decide to expand across their borders will have a difficult choice to make – whether to register as a foreign branch or a native subsidiary. That being said, here are five pros and cons of overseas company registration that might help you make up your mind once and for all.
1. Pro: The Issue of Taxes
The first issue you will face is one of the taxes. Namely, most of the time, a branch cannot be taxed in a target country, but only in the company that the business is based in. On the other hand, a subsidiary is susceptible to local taxation laws. In other words, you get to choose which country scheme your overseas company will use, always leaves you with a probability to go for a more favorable option. While to some, this feature would be interpreted as inconclusive, having a multitude of choice is undeniably a good thing.
2. Con: Profit Repatriation
One large issue with setting off a subsidiary lies with the problem of profit repatriation. For instance, while running a subsidiary, you first get to pay according to the double tax agreement and then deal with the unfranked dividend to the parent company. Certainly, a branch might not have to pay to withhold, however, this doesn’t necessarily have to increase its profit repatriation rate. Either way, it might be for the best to consult professional accountants in both your target country and your company before making a move. In fact, finding local partners in all areas of business is highly advised.
3. Pro: Trapped Losses
Another massive choice, that gives you a freedom to set the course for the future overseas company is the issue of trapped losses. You see, if your overseas office or company is a subsidiary, its losses are its own. While this may not sound that great, it provides a massive level of financial protection for the parent company, if the risk of penetrating a target market is that great or the competition is estimated as particularly vicious. On the other hand, if you decide to go to a branch, you get the ability to use the resources of the parent company to cover for the overseas business. In this way, you might withstand a long period of working under pressure, which might result in a major profit further down the line.
4. Con: Potential Rebranding
When starting a company, even some of the most ambitious entrepreneurs start with only the local market in mind. This is to find, except for the part where the name you pick or the logo you use stand for something else abroad. For instance, when Burger King first moved to Australia, they found that the name was already used by a food shop in Adelaide. For this reason, they had to rebrand themselves as Hungry Jack’s, which definitely wasn’t cheap from the marketing standpoint.
This means that you’ll have to rework some slogans (with your company name used in a wordplay), as well as print completely new merchandise. Which sometimes means starting a completely independent, second marketing campaign for the local market. On the other hand, the growth potential of your subsidiary or branch will not be limited in any way by this, seeing as how Hungry Jack’s is currently the world’s second-largest franchiser of Burger King.
5. Pro: Tax Benefits
At the end of the day, some countries offer all sorts of tax benefits in order to attract foreign investors. This means that they get to pay their worldwide income at a competitive rate. This makes some of the most ambitious entrepreneurs register the parent company in countries like Cyprus and then open branches all over the world. Once again, for a small-scale operation, this doesn’t have to be cost-effective, yet, for those who plan to start an international business empire (or start a legacy that, one day, might grow into one), definitely stand to benefit from this option.
As you can see, registering a company overseas has an efficiency rate conditioned by many different factors. The risk rate, the countries in question, the structure of your company and the subsidiary-vs-branch issue are just some of the things that can determine the efficiency of this idea. On the other hand, with so many companies choosing to do so, it’s more than clear that there’s profit to be made this way. All of this is to be taken into careful consideration.
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