Acquiring overseas – Managing the complexities of exchange rates and taxation

Expanding through an overseas acquisition can be a powerful route to growth for UK businesses, providing access to new customers, resources and competitive advantages.

Since the UK’s departure from the EU, the Government has struck out to acquire new free trade deals and there seems to be a growing desire about not only trading with but acquiring businesses overseas. As a result, cross-border acquisitions are becoming an increasingly common strategy for UK companies looking to expand internationally.

However, international deals bring additional financial complexities that can materially affect value and long-term returns. Two of the most significant challenges are managing exchange rate risk and navigating differing tax regimes. Addressing these issues effectively is central to due diligence and deal structuring in any overseas acquisition.

Exchange rates and valuation risk

One of the most immediate challenges in an international acquisition is the impact of exchange rate movements on deal value.

A cross‑border acquisition typically involves converting funds from one currency to another, exposing the buyer to foreign exchange risk.

If the acquirer’s home currency weakens against the target’s currency between signing and closing, the cost of the deal can increase substantially. This risk extends beyond the transaction price to post‑deal financing costs, profit repatriation and debt servicing in different currencies, all of which can erode expected returns.

Currency volatility also plays into the valuation of the target. A strong buyer currency can enhance purchasing power, potentially enabling better negotiation leverage.

Conversely, adverse currency movements can reduce the relative value of future earnings when translated back into the buyer’s reporting currency.

To manage these risks, buyers often use hedging tools such as forward contracts or currency swaps. However, careful planning and ongoing monitoring are still required to protect deal value throughout the transaction lifecycle.

Taxation differences and compliance

Tax considerations in cross‑border acquisitions are multifaceted and can significantly influence deal structure and net outcomes.

Each jurisdiction will have its own tax laws, rules on capital gains, withholding taxes and transfer pricing, all of which can affect the cost and attractiveness of a transaction.

Without careful tax due diligence, buyers may not uncover unexpected liabilities, double taxation or unfavourable compliance obligations that diminish returns.

Another key tax concern is double taxation, where the same income or gain is taxed in both the seller’s and buyer’s jurisdictions.

The UK has double taxation treaties with many countries to alleviate this, often allowing taxes paid abroad to be credited against UK tax liabilities.

However, the precise relief available depends on treaty terms and the nature of the income or gain involved, so this needs to be reviewed to avoid substantial tax bills across the group.

Business should be aware that many jurisdictions enforce strict standards to prevent profit shifting and ensure intra‑group transactions reflect arm’s length pricing

Looking overseas

Acquiring overseas presents significant opportunities for buyers but also introduces financial and tax complexities absent in domestic deals. Exchange rate volatility can alter deal economics, whilst differing tax systems and compliance requirements can add unexpected costs.

A structured approach that integrates currency risk management and meticulous tax planning into the acquisition strategy and due diligence is crucial to safeguarding value and realising the strategic benefits of international expansion.

As founding members of Russell Bedford International, the award-winning global accountancy network, we have access to local expert advice in many of the worlds’ major financial centres.