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International tax planning: an option or a necessity?
All business people tend to understand the modern globalized economic environment and the challenges it entails. For instance, if a trade company aims at a very specific and limited clientele within the frontiers of a country, this choice significantly increases systemic and credit risk. The existence of a common internal market within the EU and the potential capital movements worldwide may contribute to the expansion of business activities, to the increase in sales turnover and reduce risks undertaken.
However, the transfer or the start up of activities in other countries is not without pitfalls. First of all, the compliance with the legal and tax framework of the destination country is a must. Many companies get obliged to pay heavy fines due to insufficient compliance with the laws of a country, consequently the further analysis of the requirements imposed by a state against the firms, constitutes a necessity.
Additionally, other social and cultural factors should be placed under evaluation. More analytically, every people has a specific code of ethics and certain habits that may be “compatible” or not with the main activity of an enterprise, which usually define the success of failure of a company.
More specifically, international tax planning includes many subcategories which concern the executives of a firm. Firstly, the taxation of corporate profits (income taxation) and dividends are considered of high importance, because it determines the final shareholders’ return. Both the invoicing of management fees and royalties and their tax treatment constitute other issues that should also be discussed. In addition, the acquisition of tax residence certificate constitutes an important issue for the effectiveness of Double Tax Treaties.
To sum up, the economic system provides considerable opportunities for adventurous entrepreneurs seeking their business growth. From the other hand, the legal scheme governing business activity differs significantly between countries, as a result a trusted partner should be considered more than a necessity for the next step of even the most experienced entrepreneur.