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A BAM Practitioner’s Thoughts on Taxes

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Once a month, our panel of mentors answer your practical business questions. Send us your questions!

 

Dear BAM Mentor,

What are some guidelines you could pass on from your practical experience of paying taxes? I am in a challenging environment for business, and while I don’t want to evade tax, I do want to minimise company taxes to give my business the best chance of survival.

~ Taxed

Dear Taxed,

In short, it is critically important that BAM companies do their tax and legal work in a “world class manner.”

What does this look like? You find and retain good tax people who will keep you within the laws while also minimizing taxes. Plan ahead and stay current.

Be wise as serpents and innocent as doves – Matt 10:16

The mature…have their powers of discernment trained by constant practice to distinguish good from evil – Hebrews 5:14, ESV

Some Background

Since 1990, our BAM-focused holding company has had partial or full ownership in over 25 companies with another 20+ companies being “management-supported” by us, with total workforce around 5,000. These legal entities have been in eight different countries, with five of those countries among the least reached of the world – China and four Islamic countries. We have holding companies in three other countries primarily for tax purposes: Hong Kong, USA and Mauritius

We have had situations where we were trail-blazing operating a foreign-owned company in a place. We were the very first foreign company registered in a certain Central Asian country when it was still part of the Soviet Union. We were the second foreign company registered in that same country, under the new system, when it when it became independent. Read more

Navigating Legal and Tax Challenges in Southeast Asia

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We interviewed the founders of a group of retail companies that started in 1999 and now operate in three countries across Southeast Asia. We asked them what their greatest legal and tax challenges have been and how they have overcome them.

One of our first and biggest challenges was figuring out how to set up and operate our businesses in Vietnam. Although the law has changed since we first started out, at the time it wasn’t possible for a retail business to be owned by a foreigner. We had a production company there which we fully owned, but for the retail side we had to be creative. We followed a well-used route at the time that involved setting up an agreement with a trusted Vietnamese partner to establish the company, with written contracts to back it up. Although this route was legal, it wasn’t clear cut and wasn’t always easy to know how to navigate the situation.

Each time we have registered a new company in one of the countries we’ve hired a local law firm or business consulting firm to help us go through the business registration process. This has been essential because where we operate, this is not something you want to do on your own. We use a lawyer and we check with consultants locally about the process. We got our Vietnam registration completed in six months, whereas others have taken years. Getting that expert input is essential – if you don’t have everything right, it can really come back to bite you.

In Vietnam it is difficult to process anything without paying extra ‘fees’. We don’t pay bribes (i.e. offering money to receive a service we are not entitled to), but we do occasionally get extorted for money (i.e. being forced to pay extra for a service we are entitled to). Although we do try and resist being extorted, it does happen from time to time. Read more

Paying Taxes with a Mountain of Cash: A Taxing Story!

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Death and taxes, though often said to be the only sure things in life, are not often a source of amusement. However, here is a funny story from one tourism business in Asia that had to pay their taxes the hard way.

Three years after opening their tourism business, the department of tourism finally created the proper paperwork for filing the tourism tax. In developing countries systems and processes are a work in progress. The company paid their other government taxes when due but with the tourism tax, they set aside money in the bank until the government processes were in place. Three years of taxes added up to approximately US$25,000.

Due to risk of corruption, the tax office required that the payment clear the account on the same day it was received. No money could be left in the account overnight. There was no guarantee that a check would clear or a wire transfer go through in the suitable amount of time prior to the end of a day’s work, so cold hard cash was the only acceptable form of payment.

On the morning of paying the tourism tax, the owners parked the company car in front of their bank and walked in with backpacks and duffle bags to make the withdrawal. Not knowing how much space US$25,000 in local currency would require, they tried to plan accordingly. Read more

6 Resources for BAMers Looking for Legal or Tax Advice

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Here are six useful resources for BAM practitioners seeking legal or tax advice.

Tax and Legal Professionals

Professional tax accountants or lawyers can be necessary for some legal processes and specialist advice. Getting good advice and guidance through important business processes can save weeks or months of work. Some legal firms locally may specialise in business registration services. Likewise for accountancy firms that specialise in tax requirements for foreign owned businesses, for instance. Ask in your network for recommendations for reliable accountants or lawyers. See our ‘BAM Guide to Finding Good Legal and Tax Advice’ for further recommendations.

Government Business Advice

Many governments provide local business advice bureaus or guides to doing business in their country. These bureaus may offer handbooks or guides, copies of legal code for businesses, generic forms or standard documents for adaptation, and business advisors. Look up what may be available to you in-country. Some BAMers have reported that approaching local government officials for advice has resulting in them building friendly working relationships with local government departments. Read more

How to Approach Company Taxes in Challenging Situations

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Once a month, our panel of mentors answer your practical business questions. Send us your questions!

 

Dear BAM Mentor,

What are some guidelines you could pass on from your practical experience of paying taxes? I am in a challenging environment for business, and while I don’t want to evade tax, I do want to minimise company taxes to give my business the best chance of survival.

~ Taxed

Dear Taxed,

Jesus was very clear about giving Caesar what is Caesar’s and God what is God’s. He also once told his disciples to go fishing and to pay the temple tax with the coin they’d find in the fish’s mouth. Jesus lived and worked in a pretty tough context where neither Roman nor Jewish tax officials were known for reasonableness, but he taught us to pay taxes and to respect governmental authority. So the core principles are straight forward. It’s just the practical application that hurts!

Tax evasion is illegal, but in some settings is virtually inevitable. Tax avoidance can be either clever or immoral based on circumstances. Much of the world is angry with large corporations which legally avoid taxes by moving their headquarters to tax havens and while making massive profits pay little to the countries in which they really operate. It’s legal, yes, but it’s not very honourable behaviour. On the other hand, paying unneeded taxes is simply wasteful. Read more

The BAM Guide to Finding Good Legal and Tax Advice

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Following on from our series on BAM in Hard Places, we are delving deeper into how to deal with legal and tax issues, especially in challenging or cross-cultural situations.

It is absolutely critical to get the best advice for legal and tax issues. It’s easy to get caught up in the busyness of business life and push issues of legal compliance away. However, neglect these areas at your own peril, they can bring your business down.

Why You Might Need a Lawyer or Accountant

There can be many areas of legal compliance that will require your business to seek advice from a lawyer. Different lawyers tend to specialise in different areas, so if possible find a specialist in the area of the law relevant to your need. For tax issues, you will either be engaging a tax accountant or specialist tax lawyer.

Here are some areas of doing business that may require legal advice:

Registering a Business
Advice on requirements for properly structuring and incorporating a new business. You may need a lawyer to guide through the process of registration, such as helping to put together the required documents, obtaining licenses or talking to government departments on your behalf.

Annual Reporting
Help with fulfilling obligations that companies have to submit accounts for tax purposes, or for annual company registration or reporting in the legal jurisdiction. Read more