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This article was written by
Certified Tax Advisor, Partner, Tax & Legal, International Tax Services & Transfer Pricing
Certified Tax Advisor, Partner, Tax & Legal
Certified Tax Advisor, Partner, Tax & Legal
In today's globalised and fast-paced economy, companies face a multitude of challenges that often transcend national borders. For many German family businesses and medium-sized companies in general, internationalisation is a key strategy for responding to the dynamic changes in global markets in an agile way. It also enables companies to tap into new and necessary growth potential, thereby maintaining their market position. However, internationalisation is not only an opportunity that companies should definitely seize, but also a process that should be well planned and a significant step that requires courage.
In view of the often intense competition on the domestic market and economic uncertainties, companies are looking for new growth opportunities. Expansion into new countries is attractive for many German companies because it enables them to increase sales and diversify their markets, thereby helping to reduce risks. In addition, tapping into international markets opens up access to new customers, talent and technologies. Especially in times of shortened innovation cycles, companies can increase their competitiveness through international activities and benefit from different economic conditions.
The process of internationalisation requires a clear strategy and comprehensive planning. First, companies should conduct a detailed market analysis and carefully examine the legal framework in the target markets. Each country has its own laws and regulations that may affect business activities. These range from labour law provisions and tax regulations to import and export regulations. In particular, the international tax framework, which is determined both by local tax laws and by international agreements such as Pillar 2, needs to be clarified. In addition, it is important to keep an eye on subsidies, also taking tax conditions into account. We have picked out a few selected aspects below.
Case study:
Our medium-sized client wanted to expand into South America by acquiring a target company. A partner was sought who could enable a start-up in Brazil without the need for in-house administrative staff, act as a central point of contact and handle all administrative tasks, from postal addresses and accounting to customs addresses.
Together with colleagues from BDO in Brazil, we were able to offer a wide range of services, such as payroll and financial accounting and reporting, which are particularly necessary when starting up abroad, especially in the early stages. This enabled our client to get started very quickly without their own administrative staff on site.
When internationalising, value added tax is a crucial aspect that companies should prioritise. The introduction of new business models often entails specific registration requirements abroad. Companies must ensure that they comply with VAT requirements in their respective target markets in order to avoid legal and financial risks.
It is crucial to set up the accounting system correctly for recording and processing incoming and outgoing services. Particularly with mass data, a systematic error can quickly lead to existential additional burdens and high administrative costs. Incorrect VAT rates or faulty invoicing can not only lead to additional payments, but also to penalties from the tax authorities.
Global minimum taxation, also known as Pillar 2, is a significant international tax reform project. Pillar 2 aims to reduce tax competition and create a fair tax environment by requiring companies to pay a certain minimum tax rate in every country they operate in. Global minimum taxation can have a significant impact on companies. It entails additional compliance requirements that companies must take into account in their operational and financial planning. In addition, Pillar 2 introduces new, sometimes highly complex tax calculations based on a completely new calculation system. Furthermore, the calculations to be performed must be used to assess whether there is an actual tax risk. This leads to increased administrative burdens and additional costs. Overall, Pillar 2 is a significant step towards a fairer and more transparent international tax system, but its implications cannot be ignored by companies. The political debate regarding Pillar 2 is still in full swing worldwide, and companies should keep a close eye on the latest developments.
Research grants are highly attractive to companies at both national and international level. They support companies in implementing innovative projects, developing new products and increasing their competitiveness. Especially at a time when technological advances and digital transformation are rapidly changing markets, such subsidies can play a decisive role in encouraging companies to invest in forward-looking technologies and solutions.
Research allowances are common in many countries and offer companies a wide range of opportunities to promote their research and development activities. While some countries rely exclusively on tax credits, others grant a cash payment of these credits. In addition, many countries offer so-called ‘super deductions’, which allow companies to deduct more than the actual research and development costs incurred.
When importing goods, customs duties and expenses for registration and payment may be incurred. The impact on the total cost of the products must be taken into account. The level of customs duties varies depending on the country, product category and trade agreement, which is why it is crucial to find out in advance about the specific customs regulations and tariffs in the target market. Furthermore, these regulations are subject to continuous change due to shifting trade policy conditions.
Companies should also consider the possibility of benefiting from free trade agreements or customs concessions that can reduce import costs. However, this requires careful planning and a thorough knowledge of the relevant regulations. Incorrect handling of customs declarations or incorrect classification of goods can not only lead to legal problems and high additional costs, but also, in particular, to delays in the release of goods and onward transport.
Logistics are also crucial in this context. The efficient organisation of supply chains and ensuring the timely delivery of products are essential. Companies should address the logistical challenges that can arise from international business at an early stage and develop strategies to overcome these challenges. This includes selecting suitable transport service providers, optimising inventory levels and implementing effective supply chain management. Modern technologies, such as digital platforms for monitoring supply chains, can also help to increase transparency and efficiency.
Conclusion
Internationalisation requires courage, careful planning, decisiveness and a willingness to learn from experience. In today's globalised economy, companies face numerous challenges, which is why internationalisation is an essential growth strategy for many German family-owned businesses and medium-sized companies in general. This strategy enables access to new markets, customers and technologies, but requires careful planning and clear market analysis to take legal and tax conditions into account. When internationalising, aspects such as sales tax, compliance with local laws and international regulations such as Pillar 2 are of great importance in order to minimise legal and financial risks. In addition, research allowances at national and international level are attractive as they can promote innovation and increase competitiveness. A sound and sustainable internationalisation strategy is therefore crucial for
long-term success.