Benefits, challenges and opportunities of moving offshore
Key points in this article
- Knowing what tax you’ll need to pay
- Lower freight and material costs
- Challenges of setting up overseas
Considering taking your business offshore? It’s often a great way of growing your business, expanding your knowledge base and boosting emerging markets.
There are multiple opportunities if you are looking to set your business up offshore.
Paying GST in Australia after setting up offshore
It’s a good idea to engage a good accountant or business adviser to learn about your financial obligations when working offshore.
If an Australian-owned company controls a foreign subsidiary, any profits made by the foreign subsidiary could be assessable and taxed to the Australian parent company.
In some circumstances, you may still need to pay GST in Australia. The GST legislation lists certain categories that are generally treated as GST-free. However, a product or service that falls into one of these categories may still be subject to GST if it:
- has a tangible connection with Australia, and
- wouldn’t normally be GST-free in Australia.
Claiming back tax credits
If you pay tax overseas, a foreign tax credit is generally applied to ensure you don’t need to pay again in Australia. You’ll need to maintain records of any taxes paid overseas to support your claim to tax credits.
If you’re unsure about offshore tax implications, get professional tax advice early on
Benefits of setting up overseas
Here are the main drawcards of taking your business overseas.
Access to the latest thinking
Local employees in overseas markets are often highly skilled, university educated and fluent in English. People on the ground:
- know the market better
- have existing networks and contacts
- enable you to be seen as being a ‘local’ business.
Some countries offer tax breaks (such as enabling research costs to be claimed as an expense instead of a depreciated item). This reduces barriers to developing new products, increases local skills and promotes innovation.
Lower freight costs
If you are currently shipping large volumes of product to Asia or vice versa it may be far cheaper to set up a production base in that country and freight directly. This could:
- boost your margins
- speed up delivery
- reduce freight risk.
Lower material costs
Often offshore businesses give you access to lower material costs. This is potentially the biggest advantage over Australian-only businesses. If your dollar goes further, you have more cash to reinvest in your business.
Lower freight and material costs are key considerations when looking at moving offshore
The challenges of setting up overseas
There are challenges when deciding to set up offshore.
Setting up your business overseas can expose you to political, legal, regulatory, corruption and exchange rate risk.
An ANZ Foreign Currency Account is a good solution for managing your day-to-day foreign currency transactions. Easy access to your funds makes this account attractive for businesses managing pending payments and foreign currency receipts.
The OECD’s 31 member economies in the Asia-Pacific region have committed to action against corruption jointly developing the Anti-Corruption Action Plan for Asia and the Pacific.
More information is available on the Initiative's Information Sheet.
The costs of setting up
You may need to build production facilities (for manufacturers), employ full-time staff, and commit to leases and other contracts. You’ll generally need to commit to a two to three year plan, but realistically, you may need to stay even longer to generate an adequate return on your investment.
You’ll need the capital to go the distance.
Cultural and language barriers
The challenge will be to find the right people on the ground in your new export destination that can offer advice while also handling language and cultural issues.
Establishing good hiring practices and fostering good support networks to locate suitable recruits are two ways you can overcome this issue.
You’ll need to gather the necessary human resources (possibly with new, specific skills) as well as the financial resources needed to set up.
Intellectual property (IP)
Protecting any intellectual property (IP) your business generates is another issue.
Find out more about protecting your IP with IP Australia. However it’s common for Australian IP to not be recognised in other countries. For specific advice on international property protection you are best to contact an intellectual property specialist.
It is especially important to protect your IP when exhibiting at international trade shows.
Resources, costs and risk are just some of the challenges when setting up overseas
- Find out if you’re eligible for any assistance from Austrade
- Review these IP Fact Sheets on a number of Asian countries from the ASEAN IPR helpdesk
- The World Intellectual Property Organization has information across all countries on IP