Finally smelling the scent of success? Congratulations, it’s nice that your startup has finally made it to the big leagues. However, as a business thrives, it should also prepare accordingly.
Once you decide to grow, a meticulous business plan is necessary to achieve international success. These strategies usually entail many ways to overcome new and exciting obstacles, especially in the complex financial field. Since it’s challenging to understand domestic taxation, foreign taxation is an intricate and elaborate task requiring expert knowledge and research. Many times, startups find that they are liable only after the fact, which at the time of discovery could cost the company a lot of money, mostly paid for interest and late fees.
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To successfully climb this hurdle, conducting a Nexus Study is crucial. In short, conducting a Nexus Study helps every business and startup understand its taxation liabilities abroad. Thus, you can rest assured that your books are up to order, avoid surprise billings, and prepare foreign taxation fees accordingly.
What is a Nexus Study?
A Nexus Study is a comprehensive process led by CFOs and accountants. It determines the business’s relation to a foreign country and if this relation constitutes taxation and liability. This kind of relation is called a “Nexus”.
By carefully analyzing the businesses’ physical and digital endeavors and comparing them with the regulations of applicable countries, you receive a clear-cut assessment of your liabilities. Moreover, this analysis supplies a baseline guideline of the foreign policy your business will have to comply with now and in the future to keep its books in order.
Why is a Nexus Study so Important?
The Nexus Study is crucial for establishing sales tax in many countries, provinces, and states, mainly the USA. Starting 2018, to determine whether your business is liable, five criteria must be met:
- Physical presence of your business abroad – leasing, renting, or owning property in foreign areas represents a physical presence.
- Economic activity – annual earnings of over 100K, made in a foreign country.
- Affiliates – profitable cooperations with businesses based abroad.
- Referrals (Click-throughs) – the number of clicks and leads your business happily welcomes from customers abroad. Thanks to your operations abroad, those usually lead to conversions, meaning extra funds.
- Cookies – while usually not enforced, this criterion examines if your business implemented cookies on devices used abroad.
In summary, within itself, a Nexus is a connection made to establish tax obligations. It helps businesses, startups, and organizations determine whether their operations abroad require taxation fees by estimating five different criteria and assessing the businesses’ profits and involvement in each foreign country.
By upholding a Nexus study every business quarter, you can easily get ahead of your fiscal fees, rest assured that all your books are in order, and prepare your budget accordingly.
If you happen to find yourself in a bind and dealing with sales taxes you weren’t aware of, now is the time to determine the liable amount, register for a proper sales tax permit, and tax your past buyers. If taxing past buyers is impossible, you might have to consult a sales tax expert, a CFO, or an accountant to surpass the issue and expand your business overseas. While it may initially cost you, it will help your business maximize its local and international potential in the long run.
ERB is well-experienced in foreign taxation, mainly in the USA, and is intimately familiar with every Nexus criterion. We’d love to use our expert knowledge in your favor and lead your business towards well-established, regulated international fiscal relationships.