Buying a Business in Another Country — The Financial and Legal Framework

Many internationally mobile professionals reach a point in their lives abroad when they want active work rather than passive investment — the challenge and engagement of running something, not just managing a portfolio. Buying an existing business with established customers, staff, and cash flows is, for most people, a more realistic starting point than building from zero in an unfamiliar market.

But buying a business in another country introduces layers of complexity that do not exist in a domestic acquisition. The legal system is different. The accounting standards are different. The tax treatment of business income is different. The cultural context of commercial relationships is different. And the consequences of getting it wrong are direct and personal.

This guide provides the framework for internationally mobile buyers approaching an overseas business acquisition.

Why Buy an Existing Business Rather Than Start One?

The core argument for acquisition over start-up is risk reduction. An existing business comes with:

• Proven cash flows — you are buying a demonstrated income stream, not a financial model
• Established customer base — existing relationships that would take years to build
• Trained staff — employees who understand the operations and the market
• Supplier relationships and contracts — established terms with suppliers that a new entrant cannot replicate immediately
• Market position — brand recognition, online presence, reviews

The price you pay reflects these advantages. An acquisition will typically be priced at a multiple of earnings (EBITDA) that might initially seem high compared to the physical assets involved. That premium reflects the goodwill, systems, and relationships you are buying.

Due Diligence: What You Must Examine

The purpose of due diligence is not to find reasons to walk away — it is to ensure you understand exactly what you are buying. Inadequate due diligence is the primary cause of acquisition failures.

Financial due diligence:

• Three years of audited or reviewed accounts
• Monthly management accounts for the past 12 months
• Bank statements (at least 12 months) to verify that the accounts reflect actual cash flows
• Tax returns for the business entity for three years
• Schedule of debtors (amounts owed to the business) and their age — old debtors may be uncollectable
• Schedule of creditors and any outstanding liabilities
• Inventory valuation at purchase date
• Capital expenditure history — has the equipment been maintained?

Legal due diligence:

• Ownership structure — who owns the business and in what proportions?
• All material contracts — lease agreements, supplier contracts, customer contracts (can they be transferred?)
• Employment contracts for all staff
• Intellectual property ownership — trademarks, domain names, websites
• Outstanding or threatened litigation
• Regulatory licences and whether they transfer with the business
• Any outstanding tax or social insurance obligations (not always visible on the balance sheet)
• Environmental obligations if applicable

Operational due diligence:

• Speak to customers where possible
• Spend time in the business before purchase — understand how it actually operates
• Understand which staff are critical and whether they intend to stay
• Understand what drives the revenue — how dependent is it on the current owner's relationships?

The question about owner-dependence is particularly important. A business where most customer relationships are personal to the existing owner may not survive the ownership transition without a significant handover period.

Structuring the Purchase: Assets vs Shares

One of the first structural decisions is whether to buy the assets of the business or the shares of the company that owns the business.

Asset purchase: You buy the specific assets of the business — equipment, contracts, customer lists, stock, intellectual property. The company itself remains with the seller. This is a cleaner transaction because you are not inheriting the company's history of liabilities. However, it may be complex to transfer individual contracts (some require consent of the counterparty) and employees (who may have employment law rights that are triggered by the transfer).

Share purchase: You buy the shares in the company. You inherit everything — all assets and all liabilities, including any that are not visible in the disclosure documents. Share purchases require more thorough due diligence (particularly around tax and legal liabilities) and usually involve more extensive warranties and indemnities from the seller.

In most markets, sellers prefer a share purchase (simpler and potentially more tax-efficient for them) and buyers prefer an asset purchase (cleaner liability profile). The negotiation between these positions determines the structure.

The Earnout Structure

Where there is uncertainty about future business performance — particularly where revenue is dependent on the seller's relationships — an earnout structure can bridge the valuation gap.

Under an earnout:

• A base price is paid on completion, typically reflecting a conservative valuation
• Additional payments are made over a subsequent period (usually 2-3 years) based on the business meeting agreed performance targets (revenue, EBITDA, customer retention)
• If the business performs well, the seller receives more; if it underperforms, the buyer pays less

Earnouts align the seller's incentives during the transition period (the seller is financially motivated to ensure the business succeeds under the new owner) and reduce the buyer's upfront capital commitment and risk.

The complexity lies in drafting the earnout provisions carefully. Disputes over earnout calculations are among the most common sources of post-acquisition litigation. Revenue targets, accounting methodology, the seller's obligations during the earnout period, and what happens if the buyer changes the business materially must all be carefully specified.

Financing the Acquisition

Cash purchase. The simplest structure. Reduces complexity and creates a clean balance sheet post-acquisition. Requires sufficient liquid capital.

Bank finance in the target country. Local banks sometimes finance acquisition of established businesses with strong cash flows. Loan-to-value ratios for business acquisitions are typically lower than for property, and terms are often 5-7 years. Borrowing in the local currency eliminates currency risk on the debt service.

Seller finance. The seller provides a loan for part of the purchase price, repaid from business cash flows over 2-5 years. This reduces the buyer's upfront capital requirement and provides strong evidence of the seller's confidence in the business's future performance. The seller is effectively backing their own representations about the business. Seller financing is common in small business transactions, particularly in tourism-oriented markets.

Working capital facility. Even where the acquisition itself is funded by cash, establishing a local working capital facility for operational needs (before revenues cover costs in a seasonal business, for example) is important.

Tax on Business Income Abroad

The business's operating income is taxable in the country where the business operates. This is straightforward. The complications arise from your personal tax position:

UK-resident buyers are subject to UK tax on worldwide income. Business income earned through an overseas company may be attributable to the UK under Controlled Foreign Company (CFC) rules or offshore income gains rules if the company is not genuinely commercially run in the overseas jurisdiction.

Genuinely non-UK-resident buyers (under the Statutory Residence Test) are generally not UK-taxed on the overseas business income while non-resident. The income is taxable only in the country of operation (and potentially the country of residence, depending on its tax rules).

Repatriating profits from the business — either as salary, dividends, or loan repayments — has tax implications in both the operating country and your country of residence. Structuring these flows efficiently requires advice from advisers qualified in both jurisdictions.

Exit Planning from the Start

The business's eventual saleability should be a planning consideration from the moment of purchase. This means:

• Keeping management accounts to the standard a future buyer will expect
• Reducing owner-dependence (the business should be able to operate without you present)
• Building documented systems, processes, and customer contracts that are transferable
• Maintaining clean legal and tax compliance throughout the ownership period

A business sold after three years of good management accounts, clean books, and demonstrable owner-independence will command a higher multiple than one that has been run informally.

Sectors Popular with Expat Business Buyers

Internationally mobile buyers tend to concentrate in sectors where their personal interests, market knowledge, and the lifestyle context of the location align:

Tourism and activities (guided tours, adventure activities, water sports) in markets with strong inbound tourism. Thailand, Bali, Spain, Portugal, and Greece are active markets.

Food and beverage — restaurants, beach clubs, and cafes are perennially popular and perennially challenging. Exit multiples can be low; the lifestyle appeal often outweighs the financial returns.

Language schools and education — English-language tuition businesses in non-English speaking markets can be highly profitable and have strong exits.

Health, wellness, and fitness — yoga retreats, dive schools, surf schools — markets with growing demand and strong lifestyle alignment for buyers.

Property management — short-let management businesses in popular rental markets (Bali, Spain, Portugal, Greece) generate recurring fee income and can scale.

Professional services — accountancy, legal, or consultancy practices in markets where the buyer has relevant qualifications and language capability.

How Global Investments Can Help

Global Investments advises internationally mobile clients on cross-border business acquisition — from the initial feasibility assessment through due diligence coordination, structuring, tax planning, and post-acquisition financial management. We bring together local and international expertise to ensure that the financial, legal, and tax dimensions of an overseas acquisition are properly addressed.

Buying a business abroad can be one of the most rewarding decisions an internationally mobile professional makes. The key is doing the preparation properly.

This article is for information only and does not constitute financial, legal, or tax advice. Business acquisitions are complex transactions with significant financial and legal implications. Always take qualified professional advice in both your country of residence and the target country before proceeding. Investments and business ventures can fail as well as succeed.