CITD Seminar - Doing Business in Europe IRONBRIDGE, LLP CERTIFIED PUBLIC ACCOUNTANTS September 21, 2004 San Francisco, CA

JOHN GOSCH, CPA CPA CPA Lehigh University (BS), Pennsylvania State University (MBA). Lehigh University (BS), Pennsylvania State University (MBA). Languages -- German and French. Languages -- German and French. Experience Experience –European controller for a US multinational. –Start up CFO. –15 years Europe.

ABOUT US Häckl, Ironbridge, Rayner Essex and Sodip International experts for professional solutions Multilingual accounting and tax professionals in Europe and in the US. International services include: –Tax planning and compliance for individuals and companies. –US expatriate tax services. –Assistance in locating international partners and targets. –Choice of entity considerations for business establishment. –Full service "One Stop" services.

AVAILABLE GUIDES An Expatriate's Guide To France. An Expatriate's Guide To France. Doing Business In France. Doing Business In France. Doing Business In the UK. Doing Business In the UK. Doing Business In Germany. Doing Business In Germany.

YOUR FIRST MAJOR DECISION Where to Locate? Where are your customers? Where are your customers? Where is the talent? Where is the talent? Where are competitors and suppliers? Where are competitors and suppliers? Where will you and your family be comfortable? Where will you and your family be comfortable? What cultures are you comfortable with? What cultures are you comfortable with?

WHAT STRUCTURE DO YOU WANT? Options to consider 1.Shipping from the US to Europe. 2.Sales to Europe via a distributor or wholesaler. 3.Establishing a branch of your US corporation. 4.Form an incorporated subsidiary of your US Corporation.

EXPORTING AND DISTRIBUTION Limited commitment, however: Customers prefer to deal with a local company. Customers prefer to deal with a local company. Need to consider freight and duties. Need to consider freight and duties. Lack of control over marketing and pricing. Your success is in the hands of others. Lack of control over marketing and pricing. Your success is in the hands of others.

BRANCHES AND SUBSIDIARIES Greater commitment, however: Depends on the legal structure and financial position of the US parent as well as your prospects for profitability in the Europe. Depends on the legal structure and financial position of the US parent as well as your prospects for profitability in the Europe. You will also need to consider the relevant legislation and regulations with respect to company law and taxes in each country. You will also need to consider the relevant legislation and regulations with respect to company law and taxes in each country.

BRANCH OPERATIONS - UNITED KINGDOM Must register and treated as a UK entity for tax purposes. Must register and treated as a UK entity for tax purposes. Must pay Corporation Tax on profits and file financial statements where they become public documents. Must pay Corporation Tax on profits and file financial statements where they become public documents. Unlike an incorporated subsidiary, a branch needs to register a person with a UK address who is legally responsible. Unlike an incorporated subsidiary, a branch needs to register a person with a UK address who is legally responsible. After tax branch profits can be transferred to the US. Losses can be surrendered to other UK branches for offset against their profits. After tax branch profits can be transferred to the US. Losses can be surrendered to other UK branches for offset against their profits.

BRANCH OPERATIONS - FRANCE Liaison office (bureau de liaison) Not a separate legal entity. Not a separate legal entity. May only make contacts, collect information or advertising -- no commercial activities. May only make contacts, collect information or advertising -- no commercial activities. Must register as a branch to simplify relations with authorities. Must register as a branch to simplify relations with authorities. Branch (succursale) Not a separate legal entity. Not a separate legal entity. Liabilities are those of the parent. Liabilities are those of the parent. File certified copies of articles (in French) and must be registered in the commercial register and tax authorities. File certified copies of articles (in French) and must be registered in the commercial register and tax authorities.

BRANCH OPERATIONS - GERMANY Independent Branch (Zweigniederlassung) Characteristics of a separate entity except legal entity. Characteristics of a separate entity except legal entity. Unlimited liability. Unlimited liability. Taxed as a separate entity, separate management, capitalization and accounting. Taxed as a separate entity, separate management, capitalization and accounting. Must register. Must register. Dependent Branch (Betriebsstätte) Unlimited liability Unlimited liability Not taxed as a separate entity Not taxed as a separate entity Not an independent entity. Not an independent entity. Typically used as a sales center. Typically used as a sales center.

INCORPORATED SUBSIDIARY - UNITED KINGDOM Formation Limited liability. Limited liability. Director and a separate company secretary, Director and a separate company secretary, Registered office. Registered office. £1 of issued share capital. £1 of issued share capital.Taxation Corporation tax is payable on profits, losses carried forward or surrendered to other UK subsidiaries of the parent. Corporation tax is payable on profits, losses carried forward or surrendered to other UK subsidiaries of the parent. Profits distributed to the parent by the payment of dividends. Profits distributed to the parent by the payment of dividends. No withholding tax or other UK taxes on the payment of the dividend. No withholding tax or other UK taxes on the payment of the dividend.

INCORPORATED SUBSIDIARY - FRANCE Société Anonyme (SA) (corporation) Limited liability. Limited liability. Most common form in France. Most common form in France. Société à Responsabilité Limitée (SARL) (small corporation) Limited liability. Limited liability. Used by smaller companies (sales subsidiaries). Used by smaller companies (sales subsidiaries). Fewer formalities and can be created with a share capital of only 1 €. Fewer formalities and can be created with a share capital of only 1 €. Single-shareholder is OK. Single-shareholder is OK.

INCORPORATED SUBSIDIARY - GERMANY Gesellschaft mit beschränkter Haftung - (GmbH) Limited liability. Limited liability. Most common form. Most common form. One person is sufficient to set up the company. One person is sufficient to set up the company. Contributed capital minimum EUR 25,000. Contributed capital minimum EUR 25,000. Aktiengesellschaft (AG) (Stock corporation) Aktiengesellschaft (AG) (Stock corporation) Limited liability. Limited liability. Minimum of five people is required to set up. Minimum of five people is required to set up. Contributed capital minimum EUR 50,000. Contributed capital minimum EUR 50,000. Shareholders appoint a "supervisory committee." Shareholders appoint a "supervisory committee."

WILL YOUR BUSINESS BE SUBJECT TO TAXES? In each country where you have nexus or where you are incorporated you will be subject to that country's taxes In each country where you have nexus or where you are incorporated you will be subject to that country's taxes

COMPARATIVE TAX RATES AND FORMALITIES

OTHER TAX ISSUES - VALUE ADDED TAX A consumption tax which is levied at each stage of production based on the value added to the product at that stage. A consumption tax which is levied at each stage of production based on the value added to the product at that stage. Germany16% France20.6% United Kingdom17.5% Contrast this to our sales tax (CA 8.25%). Contrast this to our sales tax (CA 8.25%). Must register with the VAT authorities in order to reclaim VAT payments. Must register with the VAT authorities in order to reclaim VAT payments.

OTHER TAX ISSUES - PERSONAL Liability for personal income taxes in each country is generally determined by a residency test (183 day rule.) Liability for personal income taxes in each country is generally determined by a residency test (183 day rule.) The US has tax treaties with most European countries, therefore double taxation is avoided. The US has tax treaties with most European countries, therefore double taxation is avoided. US citizens and “green card” holders must continue to file US income tax returns (and perhaps California returns as well) and are taxed on worldwide income. US citizens and “green card” holders must continue to file US income tax returns (and perhaps California returns as well) and are taxed on worldwide income.

IRONBRIDGE, LLP John Gosch, CPA Ironbridge, LLP Certified Public Accountants Ventura Blvd., Suite 306 Los Angeles (Encino), CA T: F: E: W: