International expansion: Tips for the top 3 target countries for German companies

Sandra Ehlers, partner at Forvis Mazars, has been supporting German companies with their global growth strategies for years and knows that foreign markets offer both great opportunities and significant challenges – especially when it comes to global compliance reporting (GCR), which is becoming increasingly important for sustainable success and a strong reputation in international competition.

Well-implemented compliance not only strengthens the trust of investors, customers and business partners. In an international context in particular, it also provides an opportunity to position yourself as a reliable and responsible market participant. 

For internationally active companies, compliance with and reporting on global regulations is a demanding and resource-intensive challenge. Each country has its own, often complex and constantly changing regulations that companies must keep a constant eye on. In order to operate legally and efficiently worldwide, it is therefore necessary to have not only in-depth local expertise, but also clearly structured processes and intelligent, cross-border coordination with the help of modern technologies.

Our experts Thomas Chen, partner at Forvis Mazars in China, Phil Laminack, partner at Forvis Mazars in the USA, and Vassily Zvonov, partner at Forvis Mazars in France, explain what you need to consider when expanding.

Top 1 expansion country: China – promising, but complex

Obstacles:

1. Regulatory complexity and local differences: China is a large country with varying levels of development, cultures and local adaptations of laws. Although corporate, labour and tax laws are applicable across the country, local peculiarities can be decisive.
2. Capital and currency regulation: The financing of Chinese subsidiaries is strictly regulated. There is no traditional "current account"; instead, debt financing is subject to fixed quotas based on the registered capital and approvals. Funds repatriation is possible, but only in strict compliance with the regulations.
3. Intellectual property protection: Trademark and patent rights must be secured at an early stage, as the protection of intellectual property (IP) in China poses a particular challenge.

Tips:

1. Location selection with regard to talent pool and authorities: Choosing the right location is crucial – access to skilled workers and experienced local authorities facilitates market entry.
2. Careful planning of the business case and capital resources: The amount of registered capital should be calculated realistically in order to cover operational requirements and avoid subsequent refinancing.
3. Early registration of IP, trademarks and patents: Intellectual property should be protected before market entry to avoid later conflicts.

Top 2 expansion country: USA – tax jungle and structural questions

Obstacles:

1. Complexity of state and local taxes (SALT): The United States consists of 50 states, each with its own tax rules and countless local regulations. These range from income tax to franchise and sales tax to local licence tax.
2. Transfer pricing and global minimum taxation (Pillar 2): The US tax landscape is characterised by complex customs and transfer pricing regulations, which are further complicated by international initiatives such as Pillar 2. Aligning customs valuations with transfer prices adds complexity, and unpredictable customs regulations require flexible, rapid adjustments.
3. Choice of legal form and risk of permanent establishment: Choosing the right legal form is crucial to minimising tax and legal risks. Mistakes can result in an unintended US permanent establishment and thus comprehensive tax and compliance obligations.

Tips:

1. Early involvement of SALT experts: Local tax advisors should be consulted before entering the market to analyse tax obligations and opportunities. In this context, it is also advisable to clarify which suitable systems are necessary, e.g. to collect the required data or determine the tax liability of your customers in real time.
2. Coordination between German and US tax advisors: Close cooperation ensures consistent transfer pricing documentation and avoids surprises. Therefore, trade, tax and supply chain strategies should be closely interlinked to ensure successful expansion.
3. Coordination between US solicitors and certified public accountants: The corporate structure should be optimised from a legal and tax perspective – this is best achieved through a combination of legal and tax advice. This is because the interactions between US and German tax treaties, local laws and business objectives must be understood in advance.

Top 3 expansion country: France – attractive, but administratively demanding

Obstacles:

1. Labour law and social conditions: French labour law is complex and strongly employee oriented. Collective bargaining and restructuring are challenging, and labour costs are among the highest in Europe.
2. Tax uncertainty and administrative complexity: Despite improvements in corporation tax and R&D subsidies, the tax burden remains high and legislation is rather unpredictable. Applying for subsidies and permits is often a lengthy process.
3. Regulatory complexity: The multitude of national, regional and industry-specific regulations makes it difficult to plan and implement projects. Energy and environmental regulations in particular are undergoing change and require ongoing adaptation.
    

Tips:

1. Involve local experts at an early stage: Working with local legal, tax and HR advisors helps to avoid pitfalls and implement projects efficiently.
2. Use public funding and regional networks: Many regions offer targeted support programmes and strong ecosystems, for example for AI, agriculture or energy. Collaboration with regional development agencies and local networks, for example, can be helpful.
3. Flexibility and long-term adaptability: Business models should be prepared for regulatory changes. Investments in training, digitalisation and ESG compliance are essential for sustainable success.

Where can you get the support you need for your expansion plans? 

No matter which markets you want to expand into with your business, Forvis Mazars supports companies worldwide and has a direct presence in over 100 countries and regions. Whether you need help with global compliance reporting or other challenges, our experts are here for you. Our strength lies above all in our interdisciplinary approach: we work hand in hand internationally – from tax consulting and legal issues to HR and technology. With our global network, we provide personal contacts and smooth coordination across national borders. This means that measures such as GCR in the context of international expansion are not just an obligation, but an opportunity with a real competitive advantage.