Privately held businesses (PHBs) need to pay more attention to local tax regulations when deciding where to invest overseas, suggests the latest research from the annual Grant Thornton International Business Report. The survey of over 7,400 business owners in 36 economies reveals that 17% of PHB owners globally do not consider the local tax regimes when investing in another county. Businesses in northern Europe were among those least likely to focus on taxation in their investment decisions with over 30% of PHBs in Poland, France, Denmark, Finland and Belgium saying they would not consider the tax regime of the target country in their decision to set up an operating base.
Said Ian Evans, global leader - tax services for Grant Thornton International, "PHBs are prepared to take economic risks with a new venture but do not always consider the tax risks, which can be minimised with suitable forward planning. The message to PHBs is that they need to move tax issues higher up the agenda when making investment decisions in both their home markets and in foreign jurisdictions in order to reduce their tax costs."
In contrast, tax considerations are a significant factor in southern Europe, Latin America and Asia Pacific. Less than 10% of respondents in Spain, Greece, Brazil, Argentina, Taiwan, Japan and mainland China said taxation would not affect their decision to invest.
Amongst PHBs who did consider tax in their overseas decision making, the most popular tax incentives were a tax free period of five years (41%), low tax rates on business profits (39%) and a stable tax regime (38%) (see figure 1).
A stable tax regime is a key factor that PHBs look for in the target country. In every geographical region an average of 34% or more of the PHBs surveyed said they would be influenced to invest by the degree of stability in the local tax regime.
Ian Evans comments, "Businesses across the globe want stability from the tax systems in which they operate. Governments around the world are recognising that globalisation demands a simpler, more streamlined global tax system. Change is inevitable as tax regimes around the world become more co-ordinated - but that uncertainty increases the tax risk for PHBs. Not least, the instinct of all politicians is to protect their own tax base as opposed to moves that would instil long term simplicity and stability in the tax regime. The clear message is that PHB owners need to pay more attention to the tax systems of the countries they operate in, as tax is a real cost for their business."
Respondents were also asked which domestic taxes they find most burdensome with taxes on business profits (25%) topping the list. This is a slight decrease on last year's response (27%). Employment taxes paid by the business (23%) and personal income tax (22%) come a close second and third (see figure 2). An emerging pattern this year is the shift in the perceived tax burden from taxes on business profits to employment related taxes. Employment related taxes are now seen as the greatest burden by PHBs in 12 of the 36 economies surveyed. Businesses in Europe feel the most pain from payroll related taxes, with 38% of PHBs reporting this group of taxes as their greatest burden.
For the third consecutive year, Asia Pacific based businesses report tax on business profits as being the most burdensome with 32% of businesses in the region citing this as the greatest burden, compared to just 11% of PHBs in Latin American economies.
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