This guide can help you navigate the complex and distracting world of Transfer pricing and Intragroup agreements.

Generally, startups need to move money between their companies for one of two main reasons:

More and more start-ups are structuring their legal entities using holding companies (parent companies, or top companies, however you choose to call it) to take investments.

They then use a subsidiary company to actually operate in, often overseas. Sometimes this is done after the fact, and once a suitable investment firm has been identified.

There are plenty of good reasons for this such as accessing overseas investments, tax incentives and future planning to name a few.

The process of restructuring to do this is known as a "flip" and if you're planning on expanding to the US, you may want to consider doing it through Delaware.

We wrote a post about the Delaware flip if you want to see if it's right for you.

The world is a small place, and the more we advance technologically, the easier it is to trade internationally. Remote working and the demand for highly skilled employees has pushed startups to remove boundaries when hiring, taking applications globally.

We also all use international suppliers, even if it's just Amazon or Google to host our website, it's hard to avoid trading internationally in some respect.

Whilst you can do this all perfectly well from your home country, there often comes a tipping point where you need to create a company in another country to do so.

Perhaps it’s a growing customer base, or to properly structure and plan your tax exposure. You then need to fund that company, at least in the early days.

<aside> ➡️ With startups now being international by default, we've seen more and more startups embark on the process with no idea of how to transfer funds from one company to another, and waste time worrying about this instead of building their product and talking to users.

Tax implications can be scary but shouldn’t take up your valuable time.

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When you are sending funds between your companies, you may have just sent the money that’s needed, without thinking of the implications, because why would we sell to ourselves? Right?

Well, the tax authorities have a different idea, and they want to ensure they can tax on the value created in their jurisdiction, so have agreed on a series of rules for companies who send money between their group.

The tax authorities did this primarily to prevent companies from just pushing all their profit into a low-tax country and therefore avoiding paying what's due.

Things can get more complex and you can do hybrid (combinations) of the below, but the main three ways which a startup would need to document and calculate what to send.

• Intragroup loan

• Capital contribution

• Transfer pricing

We will give an overview of each below so you can get an idea of which is the most appropriate for you.

The parent company transfers money and records it in both accounts as a loan. Technically this should have interest on it to be at “arms-length”, and failure to do so could cause issues with tax authorities.

Add a market rate (good news is that interest rates are super low right now, so the rate will be small), and a simple loan agreement and you are good to go.

<aside> ✅ Can be repaid, so if you plan to work in your home country now and then open an office in the United States in a year or so, you can send money back without worrying about the paperwork too much.

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<aside> 🚨 The interest rate will generate income in your parent company and if you have no plans to repay this, it might be added admin for no benefit.

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The parent company sends the cash and records it as an investment. The subsidiary records the cash as capital (equity).

Consider this an internal fundraise — the sub can then issue shares in itself in return (although it’s already 100% owned by the parent, so no changes in that). A simple board resolution and a notification to your local company register and you’re done.

<aside> ✅ One-off, no further actions needed and no ongoing interest.

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<aside> 🚨 Not reversible, so if you need the cash back in the parent company in the near future, you would then have to consider a separate mechanism to move funds back like dividends or a loan.

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The two options above are for when the parent company is simply an investment-taking shell.

If you need to move funds between two companies that perform services for each other, then you need a services agreement, and you need to work out the correct transfer pricing.