Exporting is a complicated business, especially with different tax traps waiting in every country. The most common mistakes include failing to protect Australian assets, lack of compliance with local country tax rules, and entering into an arrangement with an unreliable local agent, says Merv Burton, William Buck tax services director.
“Many businesses are not aware of the laws in the new country they are trading in and can easily get caught out,” says Burton, explaining consequences can range from paying excessive taxes, receiving fines, restrictions on business activities, to litigation against Australian business assets.
“The key commercial decision a company must consider before going global is asset protection,” says Burton. “This involves deciding whether to set up a subsidiary of your company in a foreign country, to open a branch office or a representative office.”
Setting up an international branch or representative office is a cost-effective approach to overseas trade, but can open Australian assets to litigation risks. While an international subsidiary business is more costly and time consuming, it reduces risk.
Careless choice of international partners can also lead to numerous problems, but again, there are safer options. “There are independent agents who get a commission for arranging the sale of your products or sometimes you’ll find an importer who will effectively take a percentage of the product,” explains Burton. “Getting paired with the wrong agent can be disastrous.” The same applies to logistics, and using a reputable distribution agent is wise.
Exporting to countries that have an International Tax Agreement with Australia is also helpful. These transactions aren’t monitored as closely by the ATO, and dealing with such countries removes double taxing. Australia currently has agreements with 47 countries.
When researching, Austrade and the Department of Foreign Affairs and Trade make good starting points. Otherwise, your accountant should have a list of international taxation laws and rules.
“The key is to start planning early, and speak to an expert who can identify all the issues you will need to consider before entering a new market.”
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