Early Stage Questions for Every Global Start-up
A Start-up wants to “pinch” everyone penny, only spend on “value added” endeavors like technology and marketing and postpone administrative matters until later in the life cycle. BUT, it is at the beginning “formation stage” that Start-ups need to begin working with legal, accounting (domestic and international tax specialists) who can ask the right questions and guide them through the labyrinth of federal, international and state tax rules and regulations.
Plan Now. Save Later.
There are a myriad of domestic and international issues, that if not understood and planned for appropriately, could impact the ultimate value of a Start-up when a due diligence investigation is undertaken, the profitability of the business is determined and finally, when an M&A or IPO occurs.
Issues such as those below are critical and should be considered by every Start-up CEO:
(1) What should I be? A corporation or a transparent entity? What are the issues that will most greatly impact my fellow owners/investors and me, as well as our key employees?
(2) Where should I base my operations? In the United States? Somewhere in Europe? In a low-tax rate jurisdiction? In which States?
(3) Tax jurisdiction: Who has the right to tax my future profits? Who will provide me with tax benefits for my current tax losses?
(4) Foreign tax credit: How can I avoid double taxation and stay out of the “100% Club” where my taxes equal or exceed 100% of my profits?
(5) Efficient tax management of intangibles: Who is the tax owner of the intangibles? Who will enjoy the economic benefits and bear the risks and burdens of loss? Which jurisdiction(s) will be entitled to tax profits generated by these intangibles?
(6) The concept of “Arm’s Length Standard”: Why do I have to set a price and charge my affiliates? We are all family and friends!
(7) Revenue characterization: My lawyer calls my user agreement “a license” but why does my international tax expert call it a “sale of goods? How can my customer agreements help me to pay less aggregate income tax and more efficiently utilize foreign tax credits?
(8) Unexpected taxable presence: As an owner of an enterprise, how do I make sure that my employees working abroad do not create a taxable business presence for my company in multiple and unexpected jurisdictions?
(9) Foreign withholding taxes: What are my duties to governments as a tax withholding agent?
(10) US federal and state withholding obligation: When do I need to withhold tax and when am I considered to be a withholding agent?
If you are an entrepreneur thinking about starting a business – domestic or global – you are well-advised to seek the assistance of a full service accounting firm with international expertise that can work with your legal team and help guide you through the process.