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Article | 4-minute read

Tapping into industry subsidies when setting up offshore

Business development

If you’re considering setting up offshore, it’s important to consider how you can leverage offshore resources to leverage industry subsidies and reduce your start-up costs.

Overseas governments, non-governmental agencies and private businesses often encourage emerging industries in their market by offering subsidies and other incentives to offshore companies to set up and invest.

Their aim is to:

  • boost emerging markets through international investment
  • create a knowledge economy by sharing ideas
  • provide valuable local employment opportunities

You’ll need to research if any grants or subsidies exist for the overseas market and industry that you are targeting, and who you should partner with to assist your application. You will need to weigh up the balance between the time spent applying and the end benefit.

 

Subsidies

The film industry

Film industries in Asia are comparatively young and less developed than those in the US or UK. Low wage costs are already providing a ‘subsidy by default.’ For example, it would typically be cheaper to film in the Philippines than in the US, purely based on local wage costs.

However, funds do exist from time-to-time as governments look to attract international film crews.

 

Manufacturing subsidies

Countries often provide tax breaks, cheap workspaces or discounted leases on property if a business opens up a local manufacturing plant and employs local staff.

Subsidies are typically possible if you locate some of your business in a foreign country.

 

Research and development grants

Many countries offer tax incentives, such  the ability to claim all of the research costs as an expense instead of a capital or depreciated item. Not only will this increase the chance that the product is developed locally, it also increases the local skills base and transfers knowledge.

 

Partnerships

To be eligible for industry subsidies, you may need to partner with a local business and present a number of mutual benefits such as:

  • both parties investing financially in the business to distribute risk
  • partners bringing a network of contacts (suppliers or government agencies) to help facilitate applications

There are also some potential downsides to partnering. Some of these include:

  • your partner will receive a share of the profits
  • overseas partners may not possess the same work ethic or values as you
  • you could still struggle with compliance obligations if your partner doesn’t have specific permits or licences
  • setting up with a local partner could expose your business to political, legal, regulatory, corruption and exchange-rate risk

Before entering any form of partnership, you’ll need to take a look at the full implications of having a partner. Consult your legal advisor about this. Remember, your partner will become an ambassador for your business, so the partner will need to act accordingly.

Many of the Public Sector Partnership schemes run by Asian countries have partnerships as key criteria to be eligible. For example, the Indonesian PPPs (Public Private Partnerships) have local ownership as mandatory for any application.

Partners will become ambassadors for your business, so choose wisely.

 

Understand the implications of accepting incentives

Make sure you fully understand the implications of accepting incentives from industries. It could put you into a position of conflict, or you could be accused of unfair competition.

As a business, you may not want the negative publicity or brand risk associated with any disputes. There are possible implications for your business in Australia if you are accused of setting up offshore to receive a subsidy, rather than developing the business at home.

It is important to note that incentives can have negative implications for your business such as bad publicity.

 

Next steps

 

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