Expanding your business globally can be lucrative and exciting, but comes with challenges. When scaling your business to the international market, you must understand key international business law considerations that might affect your overseas venture. 

You will be faced with challenges of choosing the proper corporate structure, familiarising yourself with local employment laws and intellectual property regulations, tax laws and ensuring compliance with data protection policies of your target jurisdiction.

While international business law is not as complicated as expected, you must conduct due diligence and consult with local legal experts to help streamline the legal hurdles of expanding overseas. This article discusses key considerations when expanding globally to help mitigate risks and maximize the opportunity of venturing into a global market.

Choosing the Right Corporate Structure

One of the most important considerations is the type of corporate structure that you choose for your overseas venture. Differing structures from subsidiaries to foreign branches, joint ventures and representative offices involve unique capital requirements, costs, liability exposure and tax consequences.

The ideal approach depends on your target market, cost concerns, business goals, willingness to take risks and global expansion strategy. Here is a breakdown of the most common corporate structures for international expansion:

• Foreign Subsidiary: This is a separate business entity that can conduct for-profit activities in the target local market. Although the parent company owns the foreign subsidiary, the latter answers to its own management teams, has financial obligations to minority shareholders and is independent of the parent company regarding taxes and liability.
• Representative Office: Serves as a general overseas point of liaison for market research, quality control, promotions, product sourcing and other non-transactional operations.
• Foreign Branch: This is an extension of the parent company. If a branch faces litigation in a foreign jurisdiction, the impact can negatively impact the parent company. Unlike a subsidiary, a foreign branch does not offer the parent legal protection since it is not independent from the parent company.
• Joint Venture: This structure allows two or more businesses to combine resources to form a separate corporate structure. Joint ventures share costs, investments and risks.

Labour and Employment Laws and Regulations

Every country has its unique labour and employment legal framework that governs everything from workers’ rights and payroll to employee classifications. Your company must comply with the local labour and employment laws in each target overseas market when expanding globally. Standard labour regulations cover the following:

• Working hours;
• Minimum wage;
• Leave entitlements;
• Payroll cycle;
• Statutory benefits;
• Bonuses;
• Severance pay;
• Employment termination;
• National holidays; and
• Probationary periods.
  

Compliance with labour and employment laws often depends on whether workers are classified as employees or independent contractors. Employees enjoy the complete protection of local labour laws, while independent contractors find legal recourse under contract law and are often not covered under labour laws.

Therefore, you must clarify the details of your work arrangements in your international employment contracts and ensure compliance with applicable collective bargaining agreements (CBA). You should also include any additional terms you agree with your employees, such as fringe and supplemental benefits.

When hiring independent contractors, you should be aware of the potential risk of misclassification. As such, ensure you understand the domestic workers’ classification laws and regulations to avoid benefit arrears, fines, legal injunctions and back taxes.

Compliance with Tax Laws and Regulations

When expanding into foreign markets, it is crucial that you understand local tax laws and regulations. This is one of the most technical and complex aspects of legal compliance in international business law. Tax implications of your global expansion strategy will vary depending on the choice of corporate structure established in the target local market.

Some structures offer a more favourable tax result while still serving the required function within the foreign jurisdiction compared to others. Tax laws and regulations cover various corporate, employment and indirect taxes.

Corporate Tax

If your foreign operation involves a permanent entity, your business will be subject to local corporate tax liability. You must clarify your foreign tax obligations to avoid noncompliance penalties like fines, limited business opportunities and back taxes.

Start by identifying tax treaties between your home country and the target jurisdiction that address double taxation issues. You also want to understand the relationship between your country and the target country due to sanctions, anti-deferral rules and direct taxation.

It is crucial to consult tax experts with international tax compliance expertise to understand tax opportunities and obligations in differing overseas markets. This will help you manage your business’s tax obligations and avoid potential double taxation and penalties.

Employment Taxes and Contributions

In most jurisdictions, employers must comply with payroll or employment tax regulations. Contributions and payroll taxes in most countries include healthcare insurance, pensions, workers’ compensation and income taxes.

Payroll contributions and taxes vary drastically worldwide, and some countries manage employment taxes and contributions at the federal level, while others do it at regional and local levels.

As an employer, you must calculate employee contributions and withholding taxes as a percentage of your employees’ gross monthly earnings and remit them promptly. Delays and inaccurate remittances to the authorities can result in penalties, cause employee churn and lower your business’s value.

International Trade Compliance

When trading internationally, your business invokes at least two sovereign nations’ economic and national security interests. If you export or import goods and/or services, you must classify your product, acquire proper trade licences and pay applicable taxes and duties.

International business law also requires that you complete customs declarations and keep track of bills of lading and invoices, as well as packing lists for smooth clearance. Some countries have treaties and bilateral agreements that can eliminate or reduce tariffs; therefore, you must understand tariff rates in your target country to develop a competitive pricing strategy for your foreign products.

In other instances, trade with some regions and markets is forbidden or restricted by sanctions. Assess the overseas market and consider how existing sanctions could affect your business. In today’s world of globalisation, sanctions can have adverse effects across the global market. For example, commodity export restrictions on one of the target foreign countries can disrupt your supply chain, affecting prices.

Intellectual Property Protection

Intellectual property (IP), including patents, trademarks, copyrights and trademarks, have become valuable assets for most companies as the business world evolves. If your enterprise owns IP, consider the legal framework for IP protection in your target foreign markets. This is vital because IP protection helps maintain your trade secrets and competitive advantage.

IP laws vary significantly from country to country, posing a major challenge for businesses looking to expand globally. Some countries offer robust IP protection and enforcement regimes, while others don’t. It is also worth mentioning that your home country’s IP laws and regulations cannot protect you in overseas markets.

Before venturing into a foreign market, consult a local IP law expert to understand the host country’s IP protection framework. Here are other key considerations:

• Catalogue all your IP assets to establish an overview of what you need to protect;
• Audit these IP assets to determine their value, identify opportunities for protection and clarify vulnerabilities; and
• Collaborate with local lawyers to gain insight into local laws and identify effective ways to protect your IP.

Foreign Exchange and Financial Regulations

If it’s your first time venturing overseas, operating in a foreign currency can present various challenges for your business. Understanding local banking regulations, handling cross-border payments and managing exchange rates is critical for an international business operation.

Fluctuations in exchange rates can affect your business’s profitability, and it’s thus crucial to have strategies to mitigate these risks. Additionally, each country has financial laws and regulations that your enterprise must comply with. These regulations can affect how fast you can access capital or transfer money between countries.

Working with local financial experts can help ensure compliance and ease the process of setting up payment systems that align with host and home country laws.

Data Protection Regulations

Data protection has become a significant concern for businesses, consumers and regulators as the world becomes more digitised. While digitisation has made global trade easier, it has also resulted in the mass processing of consumer data. In response, regulators worldwide have created data protection laws and regulations to limit data processors’ use of consumer information they collect.

Most countries have data protection laws that allow businesses to collect consumer data on the condition that they obtain lawful consent to use it in a specific manner. In most cases, data privacy laws also limit the free flow of consumer data across borders. For example, the UK Data Protection Act limits the transfer of personal data to legal entities outside the UK.

Take the Proactive Approach to Global Expansion

In a business world that is constantly in flux, business leaders are looking to the future, recognising that keeping a long-term focus is suitable for business success. When done correctly, global expansion is a long-term business strategy that can offer an excellent opportunity for growth and innovation.

However, expanding overseas markets requires a proactive approach to understanding and leveraging favourable international business laws and markets. By adequately addressing the above-mentioned considerations, you can effectively comply with legal requirements, mitigate risks and position your foreign business operation for growth.

References:

UK Data Protection Act 2018

European Union Official Website

UK Government Official Website