Thanks to the globalized financial system, fintech businesses can function efficiently even if some of their branches are located far away from their headquarters. With this in mind, it can be tempting to think about moving the central office out of the UK and into a jurisdiction with lower maintenance costs and a more friendly tax regime. However, administrative realities are clouding the picture and making such a move more challenging, especially in an industry as heavily registered as finance.
Let’s run down some of the biggest hurdles standing in the way of globe-trotting enterprises looking to change their home base:
Company Restructuring
Separating your HQ from other parts of the company carries great administrative and operational complications. In a formal sense, you essentially need to dissolve your company and re-open it in a different jurisdiction, which could prove to be both costly and time consuming. After that is successfully done, the company can enter the re-domiciliation process that allows for the legal control of UK-based entities through the newly established HQ. That means more hoops to jump through.
On top of that, a company has to deal with operational disruption stemming from changes in communication channels, decision-making chains, etc. If the HQ is moved to an offshore destination located in a different time zone, coordinating all the moving parts in real time becomes even harder.
Meeting Regulatory Requirements
Any fintech company operates in a tightly regulated space and is expected to meet a wide array of conditions to stay within the confines of the law. By changing the home jurisdiction, a company commits to a new set of requirements and must demonstrate full compliance before it can hope to get the necessary licenses.
This is where things can get messy in a hurry if you are not careful. You can’t just assume that your obligations will be the same as in the United Kingdom, and must check the local regulations very carefully. In practice, that probably means consulting with local compliance experts, which comes at a cost. If your firm offers some form of digital finance, it may prove to be difficult to keep some of the services aligned with the legal framework that exists in the destination country.
Reestablishing Tax Residency
Taxes introduce a whole new level of complexity into the equitation. Presumably, any move to relocate your fintech company should be motivated by lower tax expenditures. However, any direct gains could be negated by the need to go through a complex procedure and establish a clear tax status in the new jurisdiction while fully settling any outstanding tax bills in the UK stemming from the earlier period.
Given how diverse tax laws around the world are at the moment, it’s very easy to make a mistake. Failure to choose the most favourable tax status or apply for all available deductions are issues that occur far more often than you would expect with an offshore HQ. However, with good guidance and a disciplined approach, they can be avoided.
Securing Permits for Key Personnel
Having an office in a foreign country is just the first step. People working there also need to have clean paperwork, and that means a lot of dealing with bureaucracy. If the company wants to relocate some of its UK workers (a common practice in this setup), it has to secure a UK apostille for each license and professional certificate they have so they can be approved by the regulators in a new location.
All those workers will also need work permits, accommodations, additional compliance training… the list goes on and on. That’s why moving your HQ while keeping the workflow intact is riskier than it might look and why many companies might be better off staying put.
