You are an importer based in Europe or the US. You are purchasing goods from Asian Suppliers (India, China, Thailand…) and reselling them to your clients in your home country (to retail chains or through your own store(s).Your business is growing and you are wondering whether you should restructure your business.
Current Business Structure
Basically you have existing suppliers in Asia and existing clients in your home country. You are importing the goods into your home country and then resale those goods to your customers. Your profits margin is done in your home country and subjected to local income tax.
What are your options in terms of growing your business? By definition you know your business better than we do and it is not for us to tell you what to do, only to show you the options available.
The fact is that you have over the year acquired a valuable know how under the form of doing business with Asian suppliers you know to be reliable. Now they are a lot of clients out there looking to purchase good in Asia that do not have access as you do to proven reliable suppliers as you have. Therefore we would suggest you to set up a separate structure which purpose would be to handle those potential international customers.
International Trading Structure
The international structure we recommend you to adopt would be as follows:
The International Trading Company could be a Hong Kong or a Belize company with a bank account with HSBC in Hong Kong. We recommend Hong Kong for banking because you are doing business in Asia so banking in Asia makes sense. Also HSBC is a bank represented in 80 countries and that will come handy when dealing with international customers when comes the time to open letter of credits. The new structure would be as follows:
The Missing Link
You may have noticed that a link is missing on my graphic. Indeed I did not put an arrow between the Existing Local Trading Company and the New International Trading Company. Why did I not link the two companies? The answer is simple. The international clients business will be completely handled out of your home country therefore you may want to completely separate those two businesses. Indeed if you’re existing company become a shareholder of the new company then it may have to consolidate the accounts of both companies and may have to include in its income the dividends received from the New International Trading Company.
May you Use the New International Trading Company to do Business with your Existing Local Clients?
Do not use the New International Trading Company with your current clients. Indeed this would reduce your margin in your home country (because part of the margin would be at the level of the New International Company. And the tax administration that sees that you are still receiving well from the same suppliers might wonder why you are not purchasing anymore directly from your suppliers
May you Use the New International Trading Company to do Business with New Local Clients?
You may but only if one of the two conditions below are fulfilled:
- The new local client order directly from the New International Company and the goods are shipped to him directly by the suppliers (your existing company is not involved in the transaction at all, or
- The new local client order from your Existing Company who then order from the New Trading Company who orders the goods from new suppliers. In the case where you want to do business with new local clients this way it is imperative that you used new suppliers for the deal (for the reason already mentioned above that is to say that the tax administration might wonder why you are not purchasing anymore directly from your suppliers anymore.
Do not hesitate to contact us if you have any question in relation to this matter
Originally posted 2012-04-21 10:13:40. Republished by Blog Post Promoter
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