Going international is one of the most exciting times in the life of any start-up. It opens growth opportunities from new markets, allows start-ups to enjoy multiple revenue streams, and improves your competitive stance. However, with the new markets come the costs and complexities of operating on a global scale. Some of the most pressing concerns you should consider when planning to expand internationally are Value Added Tax (VAT), any additional international taxes you may have to pay and how to convert currencies when conducting business in multiple currencies.

In these three areas if you do your homework on how to handle these issues early on, the chances are you’ll feel confident expanding into new regions of the world without having to worry about the fallout of making a mistake that could delay your expansion or place your company out of compliance.

 Risks of permanent establishments from international operations  and employees

When international operations (subsidiaries) are created, employees hired in another country, or third parties engaged in a transaction, there will likely be permanent establishment risks and/or additional filing obligations.

Start-ups should closely evaluate how their operational structure affects both tax residency and profit distribution, to maximize their capacity for revenue recognition each year while avoiding double taxation or tax disputes.

This level of diligence is necessary for start-ups that are expanding rapidly (internationally) and/or have multiple simultaneous international operations.

The importance of multi-currency accounting

If you are operating in several currencies, your organization will face additional challenges related to accounting for revenue, expenses, payroll and intercompany payments in multiple currencies, as well as being subject to fluctuations in exchange rates.

Multi-currency accounting allows start-ups to accurately gauge how they are performing and understand the underlying profitability of individual markets, as well as produce reliable financial statements. Moreover, it allows for enhanced cash flow planning and forecasting, which are mission critical for developing companies and maintaining transparency with investors.

Poorly designed systems and processes may lead to distorted financial results and hinder your ability to make informed decisions.

Your Financial Infrastructure Should Align with Your Expansion Plans

It is imperative that international growth initiatives have an underlying financial infrastructure that can support the scalability of the business model, including an accounting system that can handle multiple currencies, processes for managing tax compliance based on the jurisdiction(s) in which the business operates, and internal controls that provide assurance that accurate financial reporting is being rendered.

Financial readiness should be viewed as a strategic element of your international growth strategy, as opposed to merely a back-office function. Forward-thinking in tax and accounting will facilitate an ease of entering the market, while minimizing the potential for interruption as operations expand.

Avoiding A Costly Correction

Many start-ups commence their international growth strategies with a focus on the sales process and entry into a new market, while the financial aspects of their plans are often pushed into the background until a later date. Unfortunately, rectifying tax and accounting issues after starting an international expansion is often a far more costly and time-consuming process than when compared to properly planning for the expansion in advance.

Establishment of potential VAT obligations, understanding foreign tax liabilities, and implementing appropriate accounting policies and procedures will eliminate any potential surprises and maintain the momentum of the company’s growth.

How ERB Can Help a Start-Up Extend into International Markets

ERB assists start-ups as they navigate the complexities of establishing international operations by merging its technical tax expertise and practical knowledge of global business operations. Having provided advisory services to several rapidly growing companies, ERB assists founders by effectively addressing potential VAT obligations, foreign tax liabilities, and multi-currency transaction challenges in a proactive structure that permits them to expand into international markets, while maintaining clear and accurate financial records.

Keeping Investors Confident in Their Ability to Manage a Global Business

Investors expect start-ups to be responsible in managing their global operations. Accurate financial reporting, compliant tax structures, and transparency in the company’s accounting practices, are all key elements of maintaining credibility with investors throughout the periods of fundraising and growth. A well-developed plan for international growth demonstrates to investors that you have a higher degree of financial maturity than others and, in return, reduces their perception of the risk involved with supporting your efforts.

Conclusion

There are enormous opportunities for growth by taking a start-up into international markets; however, further complexities arise about the financial and operational responsibilities of the organization. It is critical that you understand VAT obligations, foreign tax obligations and multi-currency accounting practices to build a scalable and compliant global business.

By preparing for future success and working with knowledgeable advisors who are experienced with international growth strategies, founders can spend their energy focused on growth while ensuring that their financial foundations will support continued success in the international market.