Business growth can be significantly hindered by the labyrinth of cross-border compliance requirements. Although there’s a sense of optimism regarding future international expansion opportunities, the persistent burden of compliance and complex regulations remains a challenge.
Dealing with taxes is seen by many as an immensely stressful task, and the time-consuming nature of unravelling the intricate processes associated with cross-border trade leaves business owners with little room to spare. The fear of penalties and getting entangled in a web of compliance issues further exacerbates their concerns, impeding progress in their international growth plans.
Each country has its own unique economic thresholds and understanding those tax liabilities as part of the registration process is a huge undertaking in itself. Likewise for exporters, accurately calculating the appropriate duties and taxes based on the specific item, location, and local regulations adds another layer of intricacy.
The repercussions of cross-border tax complexities have already been felt, with the UK economy losing a staggering £47.6 billion in revenue in 2021. If left unaddressed, this issue could result in an additional £16.1 billion of value lost to the UK by 2026*.
Below, we outline six case studies that highlight businesses and individuals with distinct international requirements. These examples serve to showcase the diverse range of challenges faced by internationally mobile organisations and individuals.
1. AVERTING DOUBLE TAXATION
Double taxation, which imposes taxes on the same income in both the home and host countries, is a cause for concern for many clients we work with. Through engaging in careful tax planning and structuring before moving to a new country, businesses and individuals can minimise their overall tax burden - for example, by selecting the most tax-efficient structure and taking advantage of available incentives or exemptions.
At Fortus, we assisted an individual who was resident in the UK much longer than expected due to Covid restrictions. They needed to understand their residence position and were concerned about double taxation. We worked alongside our Morison Global counterparts in the country where they were due to move to, to establish their residency and tax position.
Tax laws and regulations vary by country, so thorough research is required to understand the specific tax requirements before making any decisions.
2. UNDERTAKING A SUCCESSFUL SECONDMENT
International companies are increasingly recognising the potential offered by the practice of seconding experienced workers. Through strategically deploying talent across different locations, these organisations gain numerous advantages ranging from talent retention and strengthening corporate culture, to transferring knowledge and gaining broader global perspectives.
However, this HR arrangement’s generally poorly understood and often misapplied in practice. That’s why it’s important for organisations to seek guidance from global mobility specialists who advise on the best practices for every particular market.
Collaborating closely with our esteemed associates in Belgium, we provided comprehensive guidance on the UK tax and legal considerations when facilitating an individual’s secondment to the country.
By leveraging the expertise of our dedicated Tax and People Services teams, we ensured both the individual and their employer gained a thorough understanding of the crucial implications involved in the process, whilst ensuring full compliance with all necessary requirements.
3. SHIFTING PERSONAL TAX RESIDENCY
An individual's UK tax residency status is determined by the Statutory Residence Test (SRT). The SRT can be complex, with most of the tests looking at a combination of the number of days spent in the UK and the individual’s connections to the UK. An individual’s residence status affects whether they pay tax in the UK on their foreign income. And of course, understanding UK income tax is just one of many aspects to consider when relocating.
At Fortus we were approached by a Romanian accounting firm seeking our assistance in supporting a Romanian citizen client who had been working in the UK under a local employment contract with a Romanian employer. The client expressed their intention to relocate permanently to the UK with their family, and as a result, the activities for the Romanian company would solely be carried out in the UK.
Given the shift in their tax residency from Romania to the UK, our team was entrusted with providing comprehensive advice on various crucial matters. These included UK income tax rates and allowances, pension considerations, healthcare rights, implications of establishing a permanent establishment, as well as guidance on immigration requirements.
4. PREPARING THE UK SELF-ASSESSMENT TAX RETURN
Non-UK residents may find themselves subject to UK Income Tax and Capital Gains Tax (CGT) on certain income and asset sales originating from the UK, even if they reside outside the country. This can result in the requirement to complete a UK Self-Assessment Tax Return to fulfil their tax obligations.
Two illustrative cases shed light on these scenarios and the assistance provided by our Fortus team:
Assisting an American Entertainer
An American entertainer who had undertaken work in the UK sought our expertise when their American accountant engaged our services. Despite not being a UK resident, the individual had generated substantial earnings during their time in the country, making them liable for UK tax. We efficiently prepared and filed their UK Self-Assessment Tax Return, ensuring compliance with UK tax regulations.
Collaborating with US Associates on Property Transaction
We facilitated a client's property transaction, connecting them with our US associates to calculate the taxes due and assist with filing the necessary federal and state returns. By leveraging our international network, we ensured comprehensive support for our client's cross-border property dealings.
These examples highlight the complexities and obligations faced by non-UK residents when dealing with UK tax requirements. Whether it's income generated in the UK or property transactions involving tax liabilities, our team’s well-equipped to navigate these intricacies and provide tailored solutions that ensure compliance with both UK and international tax regulations.
5. MOVING PENSION POTS
Navigating the complexities of pension withdrawals for individuals who have transitioned from working in the UK to living abroad is a specialised area of practice.
For individuals who are considering moving overseas, or already live abroad, they have the option of transferring their UK pension into a suitable overseas pension scheme, for example, ‘QROPS’ – a Qualifying Recognised Overseas Pension Scheme.
There are potential tax efficiencies for transferring to a QROPS but it also comes with important tax implications, both in the UK and the country where the QROPS is located. Because of this, many individuals rely on tax advice from qualified business advisors and accountants.
We’ve been privileged to assist numerous individuals who have embarked on a journey that took them from working in the UK during their younger years to later relocating abroad. As these individuals reach retirement age, they seek expertise in navigating the complexities surrounding the withdrawal of their UK pension funds and understanding the tax implications involved in both the UK and their new country of residence.
Having accumulated pension pots during their time in the UK, these individuals are provided with tailored advice on the most suitable approach for withdrawing from their pensions while ensuring optimal tax efficiency.
6. IDENTIFYING GROWTH MARKETS
Expanding into new markets is a strategic move that holds immense potential for businesses seeking growth and diversification. Identifying untapped opportunities requires a deep understanding of local dynamics, tax regulations, reporting requirements, and compliance obligations. Not to mention cross-border transactions, currency exchange, and international tax treaties.
As part of our strategic planning with our client, they identified Canada as a key growth market for their business. To facilitate their expansion, we advised them on the optimal structure of their Canadian subsidiary, supported them in the opening of local bank accounts (a difficult process which highlights the need to call on good local expertise), as well as setting up local payroll and accounting for local payroll taxes.
Our team worked with a Morison member to ensure the share structure incentivised the key local employees in a tax efficient and compliant manner, and also advised on transfer pricing (the prices of goods and services exchanged between companies under common control).
In a separate individual engagement, we extended our support to a UK-based client who was residing in Canada but due to employment reasons, wanted to return to the UK. Collaborating closely with our Canadian associates, we ensured our client received comprehensive advice that addressed the unique tax aspects of both countries, enabling them to make well-informed decisions.
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From cross-border taxation and accounting challenges to cultural nuances and legal considerations, the path to international success is paved with numerous hurdles. However, by embracing a proactive approach and leveraging expert guidance, businesses can navigate these complexities with confidence.
Sources:
*Cross-border tax complexity cost the UK economy £47.6bn in lost revenue - Institute of Financial Accountants
