A while ago we wrote about corporate inversions, a process in which the controlling shareholders of a local company establish a company in another country, transfer their shares to it, and thus the foreign company becomes the parent company of the original local company.

As the external finance department for many organizations with international activities, we often recommend corporate inversions to our clients. There are several reasons that may lead us to recommend executing a corporate inversion. Here are the main ones:

1. The company markets to an international market or aims to expand there: Often, entrepreneurs establish a local company early on, which they use during the product development phase or for marketing the product locally. Over time, the company may receive inquiries from customers abroad and expand its activities overseas, or it may aspire to expand to other countries. In such cases, we may recommend a corporate inversion, where the local development or marketing center will continue to operate, but the company’s headquarters will be registered in the key target country.
2. Tax benefits: Every country has its own tax regulations. Sometimes even within the country, tax laws vary from region to region – a clear example of this is the United States, where each state has its own tax regulations. Depending on the nature of the company’s activities, we may recommend that management pursue a corporate inversion and establish a company in a foreign country to maximize tax benefits.
3. Investor’s interest: A corporate inversion can sometimes help in capital raising from investors (venture capital funds, private investors, etc.). For instance, some countries impose difficulties on the transfer of investment funds abroad, which may lead to a corporate inversion to complete the funding round. In other cases, the request for a corporate inversion may come from the investor, due to familiarity with the tax laws of their own country or a desire to be closer to the center of operations.
4. The company is acquiring or merging with a local company: An interesting situation where a corporate inversion may be the solution is when the company is about to acquire or merge with a company registered in a foreign country. Depending on the nature of the merged/acquired company’s activities, the logical solution in terms of tax relief and operations might be to execute a corporate inversion and establish a new company in the foreign country that will become the merged company, or the parent company of all the companies under the control structure.
5. Favorable corporate laws: In addition to varying tax laws across countries, there are also differences in corporate laws across different regions of the world. A clear example of this is the state of Delaware in the United States, where the commercial laws are very favorable to companies. Sometimes, it may be worth considering a corporate inversion to Delaware or other regions so that the company can operate in a legal environment that is more beneficial to it.

Thanks to these reasons, and many others, corporate inversion can be an optimal solution for many of the companies we work with. If you are also considering executing a corporate inversion and are interested in a leading financial management company to handle it for you, contact us.