Running a business with ongoing border uncertainty
Tax Alert - September 2021
By Emma Marr & Stephen Walker
Running a business when you can’t travel overseas
Seventeen months after the World Health Organisation declared the COVID-19 outbreak a pandemic, it is clear that travelling the world, and running an international business from New Zealand, isn’t going to return to 2019 patterns of behaviour any time soon, if ever. It’s impossible to say what the future holds, but for now New Zealand business owners are finding ways to run the existing international arms of their business from New Zealand, and to push further into other international markets without leaving home.
It’s exciting to see creative-thinking Kiwis find innovative ways to get into markets and support their overseas operations from New Zealand. At the same time, it’s useful to check in with local tax rules to make sure that you understand the tax obligations and costs of running your business remotely.
When you can’t get in-market, your solution might create tax costs
Pre-2020, entrepreneurs with brilliant businesses travelled the world to promote their product, and meet potential and existing customers. Fleeting visits to other countries didn’t create tax issues, or if they did they were minor enough to be overlooked. In March 2020 the borders slammed shut, and the globe-trotting came to a halt. After a brief pause, those same entrepreneurs found workarounds, often by finding great people in-market to do the sales and marketing, logistics, product demonstrations and after-market support that they had once been doing themselves. Those people live and work permanently in those markets, and they undeniably create tax issues.
Whether your in-market presence is an employee, a contractor, or an agent, you should be considering how to identify and manage any tax issues that this creates. You might need to register as an employer and pay payroll taxes. In many countries a person’s presence, even if working from a home office, might create a permanent establishment for your New Zealand company in that other country. In that circumstance, you will need to consider the tax cost that this creates, and whether you need to do more to manage it. Often setting up a branch or a subsidiary in the other country is the best option to keep tax obligations and costs separate across borders.
How to employ someone in another country
Unfortunately, there’s no one-size fits all solution to managing tax risks when looking to employ someone in another country. Each individuals’ personal facts and circumstances differ and could have a bearing on the tax outcomes for their employer. Similarly, each country has differing tax rules and exemptions that may or may not apply and each may operate their tax regimes differently in light of COVID-19. There are also non-tax issues to consider, such as immigration, employment law, access to technology and systems, and the protection of intellectual property, just to name a few.
Managing and keeping track of these issues is no small task and can cause a bit of headache. The good news is that Deloitte does have a technology tool that can be used to provide a high-level assessment and flag key areas of risk across these issues, given a set of inputs and country combinations. If you would like to know more about this and how it could be used within your organisation, please get in touch.
Managing companies from another country
In the past you might have travelled to another country to run your business there. If you had a company in that country, you could hold board and management meetings, and make strategic decisions in-country. Now that you can’t travel, you’re probably doing all of that from New Zealand. Similarly, you might have directors in another country who, in pre-COVID times, travelled to New Zealand for board meetings, who now cannot get into New Zealand.
Running a company from another country can create tax problems for that company, as it might become tax resident in more than one country. Some tax authorities (including Inland Revenue) are being understanding about the position that puts the companies in. If the reason a company is being run in New Zealand is because of COVID-related travel problems, they may be willing to overlook that – for now. Many other countries are offering the same concessions. However, that position isn’t universal, and even if a revenue authority is being tolerant of unusual situations, that won’t last forever. If COVID has caused the way you manage companies across borders to change, we recommend you check the rules applying in both the country where the company is incorporated, and the country where the people run it from.
Being tax resident in more than one country isn’t necessarily a big problem – unless you ignore it for long enough that it becomes one. Many companies file income tax returns in more than one country. That might mean that no, or only a small amount of income is taxed in one country, and most or all of it is taxed in another. Double tax agreements can help reduce the tax cost.
What you can do now
The biggest expense from having tax obligations in another country, or from changing the way you manage your business cross-border, usually arises from failing to understand what your tax obligations are, particularly when several years have passed before this is picked up.
Picking up the phone to check with your accountant or tax advisor will give you the information you need to make a decision about the best way to manage your risk. Deloitte can draw on its international network of member firms to find an advisor in almost any country in the world. Give your usual Deloitte advisor a call if you’d like to discuss how you are managing your business.
September 2021 Tax Alert contents
- COVID-19: What government support is available for businesses
- Objective and subjective factors to consider before claiming a wage subsidy
- Managing tax filings, payments and cashflow in light of COVID-19
- Running a business with ongoing border uncertainty
- COVID-19 Tax considerations for a locked down workforce
- How confident are you in your transfer pricing?
- Snapshot of recent developments