“The UK’s reputation as a leader in the creative industries means that we are in a formidable position to take advantage of international opportunities.”
Taken from the CBI website, these words ring true in my experience. Many UK creative businesses lend themselves naturally to international expansion.
There are several reasons for this. There is strong overseas demand for Britain’s creative output. Creative services are relatively easy to export. And many of the country’s creative firms are based in London, a location that’s renowned as a global business and creative hub.
At the same time, the domestic market for many creative services is becoming increasingly saturated. With growth at home sometimes more difficult to achieve, international expansion becomes the logical next step.
Home or away?
Faced with international opportunities, it may be tempting to try to service them from the UK. After all, it’s simpler and less demanding than establishing a foreign operation.
But there will be limits to how much business you can do from your headquarters in the UK.
As every creative knows, relationships are everything in this business. The purchasing decision-makers for your services will be based in the local market, and may feel more comfortable dealing with a locally based supplier.
You’ll also encounter more formal barriers: restrictions on foreign trade; import tariffs; government incentives to buy from local suppliers; and currency controls, like those currently in place India.
What’s more, with Brexit looming, and the US administration striking a protectionist tone, exporting your service from the UK looks set to become increasingly difficult to do.
Ultimately, then, you will find you need a local subsidiary to take full advantage of the international openings available to you.
Going local
When establishing a local presence, you’ll need to identify its optimal structure from a financial perspective. Taxation can be one of the more challenging aspects in this regard. In the UK, we currently enjoy a low rate of business tax, now at 19% on business profits for companies. One of your objectives should be to achieve the lowest possible real tax rate on your international dealings.
For this, you’ll need expert technical advice on two crucial – and complex – issues:
1. Transfer pricing: Designing the most tax-efficient terms of trade between your foreign entities and UK headquarters.
2. Tax regimes: Making best use of the tax treaties in place between the different countries you trade in, to find the most tax-efficient way of treating your international profits.
Getting your international structure right could save your business tens or even hundreds of thousands of pounds.
But how do you make it happen?
It’s essential to have a primary adviser in the jurisdiction in which you’re headquartered. You’ll need the technical input of an expert who can:
• understand the intricacies of international tax treaties
• recommend how to structure your overseas operations
• know how to repatriate your profits as tax efficiently as possible
Of course, you’ll also need a network of local accounting partners in each of the territories where you have subsidiaries. Without these, it won’t be possible to incorporate, meet local financial reporting requirements, and so on. Your primary adviser should be able to recommend suitable practices.
In my experience, businesses that get their international structures right create far more value than those that simply export their services from the UK – which can lead to more valuable exit events.
Goodman Jones has extensive experience of assisting creative businesses with their international trade. As well as advising on international tax matters, we can help support your strategic decision-making when considering entering a foreign market. We can also recommend in-market accountancy partners via the GMN International association of accounting firms.
