Question

5. Explain legal issues facing international companies operating in abroad.

Answer 1

When it comes to expansion globally, there are many legal questions to consider – the creation of new businesses, tax implications, recruitment of employees, etc.

1. Subsidiary or not?

Most corporations believe that they are not bound by the laws and regulations of the markets in which they operate by not forming an agency outside of the country. This is almost always incorrect–especially when you sell to consumers. Individuals are generally protected by their own laws, whether under consumer, employee or data security legislation. The access to your website can activate local bonds, and active market transactions that lead to a permanent entity that needs to be licensed and filings, as well as taxes. Failure to establish the correct structure may lead to the filing of US financial information obligations, which is usually kept confidential by private companies.

2. Employees

In most European countries, the law of differentiating between contractors and employees is similar to that of the United States. In general, if a person has office and/or business cards and an email address with your business name under the management and direction of your company, they are probably classified into employees. The employee is covered by the laws of his country of residence in addition to reporting and payroll obligations. You should therefore ensure that you give them a local job contract and certainly not a letter from the United States offering: European labor laws offer employees significant protection and as an employer, the contract is there to protect you and to clarify the conditions under which employees have been hired (and can be hired).

3. Stock Options

You should check local tax laws if you are going to incentivise your staff using inventory options to make sure that you find where you need them and check whether there is a tax-efficient plan for your employees overseas. In the absence of such a measure, the employee and the employer will be exercising options unnecessarily on high tax charges. Some countries have such harsh tax rules that employees prefer not to accept options as part of their remuneration (because they often have to pay their tax on their value on grants and not on exercise–if they may value a lot less!)

4. Intellectual Property

The markets in which you operate should include your IP(marks, patents and design rights), which are not protected by your US files. You will consider applying for EU-wide insurance when planning to sell in three or more European markets, but it is possible to send individual country filings if you intend to concentrate on a limited market.

5. Terms of Service/Sales Contracts

It should be considered the location of conditions. You must ensure that you find the terms lawfully and translate them into local language when you sell to customers. If you fail to do so, you will be able to file and review complaints on terms that you haven't determined (and worse that you haven't limited your liability). B2B contracts do not need to be legally located, even if they need to negotiate with larger customers abroad who insist on local legislation governing your contract.

6. Acquisition

You certainly will take local advice if you want to purchase an existing business abroad–even if you intend to buy it under a US arrangement. A local expert will at least require analysis by due diligence, and many authorities and assurances must be found so that local law makes sense. Market standards may vary widely, so spending time with the seller is definitely worth ensuring that you are both aligned with basic terms of the acquisition.

7. Tax

Taxes vary across countries, but one approach consistent is that each tax authority prefers to maximize the contribution it receives from companies operating within its borders. Tax structuring advice can reduce tax obligations to a minimum and corporate agreements can clarify responsibilities in compliance with global rules on transfer pricing. Local payroll taxes and social security payments must often be deducted at source (and managed by payroll providers) and many sales must be supplemented by sales or VAT (and often price-related).

8. Data protection

Europe has strict data protection laws requiring companies receiving or processing personal data to comply with stringent rules for the collection, retention and use of data. The data owners must receive specific consent or disclosure and may not be transmitted outside the EU without proper registration to ensure their protection and correct application.

9. Real estate

Flexible short-term office space is widely available in foreign countries but guidance should be given if you take more space-whether in office or buildings. Tenant obligations are not equal worldwide, so it is important to understand what your rights and responsibilities are during and after occupancy.

10. Disputes

Everyone obviously hopes to avoid disputes and can minimize the circumstances for wrong things through entering a market with open eyes (and proper advice). But, if you do, you can take advice early to ensure that you do not face undue burden and if a conflict is serious, most international courts have dispute resolution procedures and arbitration options. Dispute settlement procedures. Cross-border judgements can often be enforced, but additional steps or submissions may be required.

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