As the world becomes ‘smaller’, international work is part and parcel of business today. While expansion undoubtedly provides fantastic business growth and diversification opportunities, it does create difficulties of a different kind in terms of legal compliance or tax obligations. In this article, we elaborate on the key things businesses need to consider when they start dealing with international clients.
Legal Considerations
1. Contract Law
Contract law in both your jurisdiction and the country of your client is paramount when working with international clients. Things to Look at Before Starting
Governing Law: You should specify the country law to be applied to this Contract This can change the way that disputes are resolved greatly.
Jurisdiction: Find out where any litigation might be brought. Which can subsequently change how lengthy or costly a proceeding is.
Language: If there is an issue of a language barrier you might want to have the deal in both languages and specify which version prevails when there are disparities.
2. IP protection
It is far more complicated to defend your IP in an international market:
International Treaties: Get to grips with the major international IP treaties, such as the Berne Convention (copyright).
Domestic Registration: Even if a patent can be filed in the US, other countries may require domestic registration. Read up on your client’s requirements
Non-disclosure agreements (NDAs): Have strong non-disclosure contracts in place, to ensure that important information remains confidential.
3. Laws establishing monopolies and oligopolies in data protection / Privacy laws
Global attention on data protection regulations is increasing, and you need to comply:
GDPR: is a legal guideline on data privacy and protection if your clients are located in the EU or their citizens reside there
Local Data Laws: Many countries have local data protection laws. Know one of your clients
Data Transfer Agreements; Implement appropriate legal frameworks for governing international data transfers (e.g., Standard Contractual Clauses) of EU Data.
Tax Considerations
1. Permanent Establishment
Understand what a “permanent establishment” (PE) is:
A PE is a stable establishment that can be subject to tax in the client’s country.
Examples of activities that could give rise to a PE include having an office or employees present in the client’s jurisdiction over extended periods.
Seek tax planners, and professionals to advise you how best (not) form a PE.
2. VAT, GST (Value Added Tax), Goods and Services Tax
Australians pay the Goods and Services Tax (GST) on services supplied to them rather than their supplier:
Find out if you have to register for and collect VAT/GST in your client’s jurisdiction.
However, it is worth noting that the requirement for compulsory registration may differ from country to country.
Deploy appropriate international VAT/GST tracking and reporting capabilities.
3. Withholding Taxes
In other countries um 10-15% of fees due to a foreign service provider have to be withheld by the payer and outros.
Find out the research withholding tax rates for your service in their country
Include withholding taxes in your fees as a gross-up.
Tax treaties Your country withholds tax, but an exception may apply if your client’s country has a tax treaty at the withholding level.
4. Transfer Pricing
Consider Transfer Pricing rules if working with related entities from one country to another:
All the transactions between related parties should be at arm’s length.
Document your related-party policies correctly
For complex cross-border structures, seek the advice of professional transfer pricing experts.
Practical Tips for Success
I covered this in my Due Diligence section: Conduct comprehensive research on their country’s legal and tax environment before starting to work with any new international client.
Levers of Distribution: Local Expertise – engaging local legal and tax professionals in the jurisdiction of your client Their experience can be extremely beneficial in navigating multiple layers of regulation;
Clear Communication: Begin establishing clear channels of communication with your client to help immediately address any legal or tax issues.
Periodic Reviews: Establish periodic auditings for your international interaction to ensure ongoing continual conformity along with triggering rules and also policies.
Risk Management: Adopt strong risk management practices, including adequate insurance for overseas operations.
Cultural Sensitivity: Another challenge can be the clash of cultures which influences business and legal interpretations.
Conclusion
Dealing with the legal and tax environment in international client relationships can be challenging, but through careful planning (not to mention professional guidance); it is completely feasible. However, by staying updated and informed, and investing in professional advice – if necessary-, you will manage to open the bond with your international clients who may find it enlightening to learn how things work differently elsewhere on this planet. And, keep in mind that the best defense is a good offense; it requires continuous monitoring and strategic planning to continuously outpace competitors and protect your industry leadership.