Although the United States, Asia, and Europe may be at the top of your list when considering international expansion, another territory is becoming considerably more popular to foreign investors that want to add new revenue streams to their bow and reduce their reliance on a single market. As the world becomes increasingly interconnected and companies take global attitudes towards growth, New Zealand is becoming a firm favourite, thanks to its strong GDP, its attractive foreign direct investment policy, and a range of lucrative trading agreements.
According to an NZIER report for Export New Zealand, FDI in New Zealand has close to doubled since 2001 from $55 billion to more than $100 billion by 2015, with more than half of all foreign investment coming from neighbouring island Australia. Additional FDI comes from the United States, the United Kingdom, and Canada, although investment in the country is volatile and is heavily dependent on market performance in other international economies.
Rather than a company incorporation in New Zealand and going through the process of setting up a new business from scratch, it may be an option to open a branch office in the country that acts as an extension of your existing organization. Indeed, such an option allows you to do business in the country, whilst keeping your business lean and assuming overall control.
Below, we’ve put together some of the benefits of establishing a branch office in New Zealand to give you some food for thought and share advice on maximizing your investment.
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Extension of Business
One of the biggest reasons why entrepreneurs choose to incorporate branch offices rather than new businesses is that their branch offices are not considered separate legal entities, but extensions of overseas parent companies. This can reduce the level of risk and the costs associated with accounting, management, and paperwork.
However, you should note that all New Zealand branch offices must be on the Registrar of Companies, and are required to pay corporation tax on all New Zealand profits, as well as file an audited financial statement for both the parent and New Zealand branch operations to ensure transparency and to reduce tax avoidance. Working with an experienced back-office team will ensure your business remains compliant in the country, regardless of your size.
It’s also important to note that dividends paid to non-residents are subject to 30% withholding tax, though this can be reduced if you pay tax on your earnings, a parent company holds 10% of your share capital, or you’re based in a country with a double taxation treaty.
You should also be aware of the fact that transfers between New Zealand branch offices and foreign entities are subject to transfer pricing rules. These include determining the cost of cross-border supplies and transfer pricing adjustments to create fair and equal competition.
Access to New Zealand and its People
Perhaps the most obvious benefit of establishing a branch office in New Zealand is that you get to take advantage of its market and people. With a GPD of US$205.9 billion, strong jobs market with unemployment at just 4.6%, and growing middle-class citizenship in the country, New Zealand is a top choice for those looking to sell luxury products to consumers and build products and services to sell to New Zealanders and to export to markets around the world.
With a strong agricultural background and growing demand in the fishing, mining, forestry, and financial services sectors, there are a whole host of unique opportunities for businesses who want to open a branch office and sell to its citizens, and those who want to take advantage of New Zealand’s free trade agreements (the New Zealand–China Free Trade Agreement, the Malaysia–New Zealand Free Trade Agreement, the New Zealand/Thailand Closer Economic Partnership, the Trans-Pacific Strategic Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, amongst others).
Trust and Image
Having a presence in New Zealand allows you to sell your products and services to clients and act in the same way as any other New Zealand-based business. Indeed, both firms and individuals will feel that they can trust a Kiwi-based firm much more than an international business, and having a presence in the country also builds credibility and improves your brand image. Even if you only have one member of staff in New Zealand, the branch office allows you to portray your business as a ‘global enterprise’ with offices around the world.
Prepare for Full Expansion
Whilst there is little difference in the price between incorporating a new company and setting up a branch office in New Zealand, the latter allows you to ‘test the waters’ and assess the level of demand for your products and services. Indeed, incorporating a new business from scratch requires market expertise, an understanding of your audience, a significant budget for marketing and business development, and the ability/willingness to take business risks.
Unlike incorporating a new business from the ground up, a branch office allows you to trade as an extension of your core business, allowing you to transfer years of experience into the country and trade as if you’ve been there for decades. Branch offices and subsidiaries can be wound up in record-speed, allowing you to leave the market if you don’t get the expected demand and attention, or they can be converted into companies and trusts so they can operate as standalone businesses or be wound off or sold to third-party organizations. By launching a branch office, you’ll save time, money and reduce your levels of risk, all whilst knowing that a full market expansion and company spin-off is possible in a couple of weeks.
Establish a Branch Office in New Zealand
As New Zealand becomes an increasingly attractive spot for foreign investors looking to add a new revenue stream to their bow, take advantage of free trade agreements and expand into new markets, it makes sense to open a branch office in New Zealand when starting out.
If you’re ready to get started and incorporate a New Zealand branch office, we recommend that you work with a professional business support firm, such as the team at Biz Latin Hub. To find out more, get in touch with us and we’ll get back to you with a personalized business support strategy designed to ensure profitability.