When to “flip” your company?
When is it worth transferring your company’s headquarters to another country
We have Brazilian DNA. You (and I) who are entrepreneurs know the challenges we go through to have a company in Brazil. Here we were born and we will always have Brazilian companies, correct? Not necessarily. There are some conditions that favor your company to change nationality.
Like what? The headquarters of your company governs your national operation. There are the directors, strategic and corporate decisions are taken at this address. The law and taxation apply to your business address. São Paulo is the city with the most headquarters of national and multinational companies in Brazil.
But when you start looking abroad and studying the opportunities to open your business outside of Brazil, you realize that there are gigantic competitive advantages waiting for you. The most common is for companies to open branches outside Brazil and coordinate everything from here. But there are already some companies moving their headquarters to other countries and treating the operations in Brazil as a branch.
First, look at this curiosity:
Countries and cities compete to be the headquarters of large multinational companies. The argument that They generate highly qualified jobs, bring investment, and tax collection makes city halls mobilize to attract new company headquarters. London celebrated a lot when it managed to bring Google’s new headquarters to the city (even with Brexit), with an investment of £1 billion. Watch the video to understand how the city is positioned. But now the buzz is where Amazon will put its second HQ. The chosen location will receive USD 5 billion in investment and will create 50.000 (yes, 50.000) new jobs. Basically, the company will double its size. The curious thing is to see cities campaigning, offering everything they can, and releasing news celebrating that are listed in the top 20.
Back to this...
The more international your company becomes, the less sense it makes to run your entire operation in Brazil. If you have a portfolio of clients of multiple nationalities or want to raise investment from a Venture Capital fund, “flipping” is an excellent option. Below are the main reasons to consider flipping.
We talk about the creation of international Holdings. In Brazil, it is very popular to open Holdings in Delaware in the United States to attract American investment due to tax advantages and legal security. But the UK is also an excellent home for your international holding. There is a big difference here. In the US, taxation is global, that is, Uncle Sam taxes you in his American operations and he also wants a little bit of all your international operation (even if he “flips” your company). In Brazil, we copy the same model, that is, regardless of double taxation agreements, Law 12.973 exported the cost to Brazil by assuming the same tax criteria. The UK is one of the few countries in the TOP 10 of the World Bank’s Doing Business report to adopt local taxation. In other words, by “flipping” your operation to become the headquarters of your British company, the Queen of England will only tax you for your local operation, not your global operation. That’s why the UK is one of the countries with the most Headquarters in the world (and no, this legislation will not be affected by Brexit).
In conclusion: open the company in Delaware if your goal is to attract American investment. But don’t think that taxation will be much better than in Brazil. A very interesting aspect is that in the United States you can have tax residence in Delaware but your business address is in another city and state, such as New York, San Francisco, or Chicago.
You can still ask me, but what about the Cayman and BVI (British Virgin Islands) tax havens for Holdings? So, these locations also work well as an investment vehicle or for investments by individuals. But if your goal is to have your company truly internationalized, these jurisdictions are not always well regarded by the market and may open questions regarding your company’s reputation.
Well, we can talk a lot about this, but let’s go ahead. If you want to go deeper, you can ask me here or check with an international tax lawyer.
If your company works with customers on multiple continents, time zones are important to ensure you can serve them during business hours. Unfortunately in Brazil, we are unable to talk to Asia (mainly China and Australia) for example, so we need to be closer to GMT (Zero Time Zone) to gain a time window that does not mean late-night conference calls.
To attract international investors (especially American and European) having a company registered outside Brazil is essential. Investors will not invest directly in your company in Brazil, because of our Brazil Risk. They prefer countries with stable, predictable legislation and efficient taxation (because if something goes wrong, they're covered).
The same goes for IPOs. On the London Stock Exchange, the AIM, or in Toronto at TSX Venture Exchange your company can have access to a larger pool of investors, transparent regulation, visibility, and value for your company. We already have some Brazilian companies listed on both exchanges. It's worth considering the flip with your capital opening.
Personal decisions from partners
As an entrepreneur, you can decide to leave Brazil by a personal or family decision. You can continue your business outside Brazil, your life partner can work and your children can study normally at local schools. There are visas for specific entrepreneurs for this for several countries like the US, Canada, UK, Portugal and Colombia. I've seen the entire Board move from Brazil for a better quality of life and be at the center of international business. In some cases, it means less time on the plane and more time with the family. Leaving Brazil is not an easy decision, but it is an option for many who are looking for a better future.
Time in the Sky
If you spend a lot of time on the plane, flipping might be an option for you to stay on the ground longer. Moving your company's headquarters to another country can reduce your travel time and bring more time for business and family. More options for shorter and direct flights. This is also part of your competitive equation.
Are you thinking of flipping your operation or do you know someone who has already done it?
Tell me here. See you in the world,
Sterna is the first Internationalization Boutique in Brazil. We can help you open your company abroad. Shall we have coffee? firstname.lastname@example.org