By Bonnie Buol Ruszczyk

Stafford Huff, Marc Schwartz, Ryan “Redhawk” McPherson & Bonnie Buol Ruszczyk

Expanding internationally is an exciting opportunity and a fond hope of many businesses these days. With global digital networks and easy shipping, access to vast international markets acts as a siren song for enterprising leaders in almost every industry. But is the dream realistic?

Bonnie and her co-host, Ryan “Redhawk” McPherson, interviewed two ­­­­­­well-known and highly respected local experts during their Atlanta Business Radio show “Atlanta’s Most Trusted Advisors” in April to explore some of the common pitfalls and learn effective strategies for success in conducting business internationally. Their guests were Stafford Huff, a partner with accounting and consulting firm Babush, Neiman, Kornman & Johnson, LLP with over 20 years of service in public accounting, and Marc Schwartz, founding partner of Schwartz International, a boutique international tax advisory firm serving businesses and individuals.

The show covered a variety of topics and is well worth listening to if your business has plans to expand across borders. To give you an idea, here are a few of the highlights from the experts.

Cultural blindness and lack of preliminary groundwork

Marc: People read about the size of populations in, let’s say, China, or India, or Brazil and their eyes get as wide as saucers. They’re like, “Yeah! We’re going there!” And they don’t stop to think about cultural differences, thinking that the U.S. culture is going to dominate wherever you go. How do I get my money in? How do I get my money out? Certain countries have foreign exchange controls – Brazil, for instance. If you don’t register your initial equity contribution, you’re not getting that money out. German companies come to the U.S. and say, “Our products work perfectly well. We don’t need a customer service department.” That’s been a big issue. Cultural understanding is the number one issue that we need to educate companies about.

Tax differences

Stafford: Typically, someone will think, “Okay, their tax system works like our tax system,” and it doesn’t. Some people coming into our country have a perception of how their tax system works, but when we say, “No, it doesn’t work that way. You actually have to tell the truth on your tax return,” it throws them for a loop. In some countries, it seems like the tax system is suggestion, whereas here it’s actually law. That’s probably the main thing I see.

Marc: The U.S. is – I think there may be one addition to the U.S. – the only country that taxes on the worldwide income based on citizenship, not residency.

Stafford: Yes, that’s something that’s hard to explain to people. For example: I’m a South African resident, but I am a citizen of the U.S. I earn income in South Africa from various sources. I have a bank account in Greece that earns just a little bit of interest, and I have some U.S. pension income. Why am I having to pay tax on the income I earn in South Africa and Greece and the U.S.? It’s because I’m a U.S. citizen. When someone wakes up to that situation they say, “Okay, well, how do I exit the U.S.?” Well that’s a very complicated process.

Ryan: Where would be a good first step for them to go?

Stafford: I would start with the Treasury Department. The Treasury Department and the IRS actually have pretty good websites.

Realistic business decisions

Marc: It’s the business that’s the driver not the tax. What Stafford and I will do is we’ll wrap a tax solution around the business. So our tax solution is not going to be administered to be burdensome. It’s not going to get in the way. But tax is not the driver, and that’s the key. How is your business going to be successful? In other words, if you want to go to Italy or France or Zimbabwe or Japan or wherever you’re going today, why are you going there? What’s your profit going to be? How is your business going to be successful?

Stafford: What’s the structure? What’s the compensation? What’s the return? All those questions and many more have to be answered.

Bonnie: And even things like demand. A product that may be huge here in the United States may not be much of anything in Europe. You think about things like our houses and yards and everything are so much bigger here. They probably don’t need riding lawn mowers in Rome.

Marc: Again, it’s about knowing the needs of your potential customer and knowing how you as a business are going to meet those needs.

The right advice

Marc: We always tell our clients and potential clients that it’s much easier to get set up correctly the first time when you take your time to get all the facts than it is to get out of trouble when you get yourself in trouble, because you will get in trouble if you don’t get yourself set up.

Stafford: In the U.S., tension for international inbound/outbound type of transactions and the tax reporting around those has gotten very, very punitive if it’s not done right, and firms that are ignoring that are doing so at their peril.

Marc: Right. And what I tell people all the time is, “If you’ve got an international tax question and you think that your answer is easy, make sure you really understand ALL the facts.” I’ll get a call and get asked, “Hey, what’s the withholding rate on interest from the U.S. to another country?” We’ll start asking questions to get the the real question. Anyone can look at the tax treaty and see the rate but has anyone checked to see whether you get treaty benefits? What are the facts? Is it really a dead instrument?

The takeaway

Conducting business across borders has never been easier, from a logistical perspective. However, it’s still an immensely complex and demanding task to identify and comply with all the business, tax and regulatory issues that exist in your markets. Don’t be afraid to explore your international business dreams but do be sure to get the information and advice you need from a highly qualified professional before making a mistake that can cost you money and diminish your success.