When selling into a foreign country where I have a local legal presence, how I decide which entity should contract with the end customer
Answers
Depending on your industry, there may be specific requirements that only a local entity can contract in country. This is often true in fields that affect the state of the country or potentially sensitive areas of information (public works projects, government contracts, medically regulated fields, etc.). To the extent that there is not a requirement for a local entity to contract in country, the choice of which entity should contract comes down to a business decision. Often times the expectations and demands of local customers will dictate this decision. Many companies choose to enter into a country initially having their local entity function purely as an intercompany service provider, and having the parent (or some other intermediary out of country related party) transact with local customers. Over time, as the business grows, the parent can weigh the cost and benefit of transitioning to a “buy-sell” arrangement where the local entity transacts with local customers. Note that this transition generally makes for a more complicated flow from a
When selling into a foreign country where the company has a local legal presence, it depends on how involved the local legal entity is with the sales process. If it is a sales entity, participated in the major aspects of the sales process, and the contract was signed in their name in the country, it will most likely be a local sale. The local entity is said to have economic presence in the local country. Some companies make sure that they have economic presence in foreign countries that have lower tax rates. It is an integral part of international tax planning.
If the entity is a administrative entity, didn't participate in the sales negotiations, and the contract was signed in the another country, it most likely will not be taxed in the country. Of course, you'll have to prove that to the local taxing authorities.