Don't Throw Away Your Profits

Tax planning is a year-round event if you want to minimize your business's tax bill. Compared to local markets, doing business internationally presents some unique challenges. In a company international expansion, you need the help of a professional whether it's surviving an audit, capitalizing on business deductions, or finding tax-friendly ways to run your business, to help reduce your tax obligations and make paying taxes less anxiety provoking. For instance, the top corporate income tax level in the United States is 35 percent. In the United Kingdom, it's 28 percent. But in Ireland, it's only 12.5 percent and in Bermuda there's no corporate income tax at all. In the current economic climate, the last thing you want to do is to pay hard-earned profits as unnecessary taxes. Here are a few ways you can minimize them.

EUROPEAN UNION

Changed VAT rules for taxation of services apply from January 1, 2010. Business to Business (B2B) supplies of services will be taxed in the country where the customer is located. However, Business to Consumer (B2C) supplies of services will continue to be taxed where the supplier is located. Companies can reclaim foreign VAT electronically in their own member state rather than filing VAT refund claims in each member state where they incurred VAT. For B2C Telecom, Broadcasting and Electronic Services, the changes apply from January 1, 2015. These rules affect all businesses so plan ahead to ensure your systems comply. Failure to pay the correct amount of VAT is a direct bottom line hit because the revenue authorities require payment of VAT, even if you did not actually charge and collect it.

LUXEMBOURG

Luxembourg is reducing its corporate income tax rate in stages from 29.63 percent to 25.5 percent. The first reduction is effective from January 1, 2009 with a further reduction in 2010. The 29.63 percent consists of the national 22 percent corporate tax rate, a 4.00 percent surcharge and a local business tax rate of 6.75 percent applicable to Luxembourg City. Capital duty is being abolished as of January 1, 2009 bringing Luxembourg into line with most other EU countries.

AUSTRALIA

Australia recently introduced very attractive tax breaks for companies conducting research and development on behalf of qualifying foreign companies within the same group. The new rules provide a 100 percent deduction for the R&D base cost and a further 75 percent deduction for expenditure incurred in excess of the prior three year running average. Where the group does not have any presence in Australia for at least 10 years, including branch operations, then all R&D expenditure in the first year may be claimable at the 175 percent rate.

CHINA

Despite China's new legislation, many tax breaks remain. New approved software production, IC design companies, and in some cases IC production companies, obtain from the first profit-making year, a two-year tax holiday followed by three years of a 50 percent tax reduction in rate. Other incentives also apply relating to employee training expenses, depreciation of capitalized purchased software, etc. In certain circumstances, for IC production companies, this may be increased to a five-year tax holiday followed by five years of a 50 percent tax reduction in rate.

Entering a foreign market can open great new opportunities for your business. However, in an international business expansion, establishing a business presence abroad is rife with numerous challenges as business environments vary greatly from country to country. Incomplete knowledge about foreign markets can be a real impediment in your international expansion. A business model with well planned strategies and execution policies can deliver promising results.