Legal issues in international business

December 13, 2021

Expanding internationally doesn't happen overnight. It takes time and research to decide which new markets you should enter and you need to be aware of any legal issues that may arise.

Here's our top ten things that businesses can get wrong when expanding internationally.

1. Correct company structure

Are you a company? A sole trader? A partnership? Is your company set up correctly?

If you are not registered as a company or limited liability entity, then you could be personally liable for everything that your business does. 

Some countries require businesses to register as companies, even if they are owned by individuals. 

Additionally if your main company is registered in a foreign country but you have a base in the UK, then it’s likely you will still need to file tax returns to HMRC.

If you are selling to individuals, whether consumers or employees, you need to be aware of the legal status of your business in the country you are entering.

Consumers are commonly bound by the laws of the country in which they buy a product or service.

Your business’ operational requirements like data protection, employee rights or taxes can become major problems for non-compliant businesses, depending on the company structure you have in place. 

2. Employment laws

If you are working with a team in a different country, make sure you have contracts in place, outlining their roles and responsibilities. 

You should also provide them with an employment contract which includes the relevant local information for that jurisdiction.

The UK’s Employment Rights Act makes it clear that anyone who receives a salary or wages is an employee, irrespective of the way the relationship is labelled. 

So if you are hiring someone to work for your company abroad and they receive a salary, then they will most likely be considered an employee and you will be responsible for providing them with:

  • Statutory minimum employment rights such as sick pay and holiday pay
  • The right to join a trade union
  • National minimum wage
  • Employer pension contributions

It’s therefore vital that you check on employment laws in the country you are expanding into.

3. Company share options

Company share options give employees the right to buy shares in your company at a predetermined price. 

The options can be used as part of an employee's remuneration package as they provide additional motivation for employees to perform well and drive future growth of the business.

A big advantage is that they are often tax efficient for both the employer and the employee. 

In general, share options should be treated as taxable benefits by the country where the employee is a resident – not by their country of citizenship or nationality.

If you want to use share options as part of an employee's remuneration package you need to check which laws apply and also consider whether there will be any negative impact on the amount of tax that the company or employee will pay.

4. IP (Intellectual Property)

If you are expanding from the UK to a country like the US, protecting IP can become very important. 

Even if you are not selling there, you can be sued there because it is a large market for IP enforcement. 

It’s important to register any patents, design rights and trademarks in the country that you are looking to sell. IP protection from the UK will not always apply in other countries. 

Find out more about how to protect intellectual property in the UK

5. Contracts

Contracts of employment, B2C contracts and agreements with suppliers in foreign countries all need to consider the laws of the country you are operating in.  

The challenge is not just translating your contracts, but ensuring that the translations are legally binding in all countries you target. 

Start by making sure that an independent legal expert checks that your terms of service or sales contracts are legally enforceable in the countries in which you currently operate and all those in which you plan to do business. 

You will want to tailor your terms to each country in which you do business, and ensure that they are legally enforceable in each jurisdiction. 

In some cases, this may require local lawyers who can translate your standard agreement into their language and make necessary legal tweaks to ensure it is compliant with their laws.

If a customer in a foreign country has a complaint about a product or service, they can seek legal action in their local jurisdiction against a company based in a different country.

6. Acquiring an overseas business

If you are buying another business abroad as part of your existing operation, you may need to assemble a team that includes legal, accounting, tax, HR and IT professionals. 

All will have their own set of issues to address.

You need to ensure that all terms and conditions are localised to make sense under local laws, particularly when it comes to tax.

7. Tax Obligations

Tax structuring advice can help minimise corporate tax obligations and inter-company agreements can clarify responsibilities under global transfer pricing rules. 

Local payroll taxes and social security payments often need to be deducted at source (and can be managed by payroll providers) and many sales need to have sales tax added.

8. Data protection

Any business that transmits data outside of its own country needs to be aware of the issues surrounding the protection of personal data. 

This means it must ensure that any personal data collected or processed is protected and secure. 

If receiving and transferring personal data to and from the EU post Brexit, you are allowed to maintain the free flow of personal data. 

You should double check local laws around handling personal and sensitive customer data. 

9. Real Estate

If buying or hiring office space or other retail space as part of your new operations, you should be aware of the obligations of tenants as well as potential pitfalls of buying and renting property abroad. 

Many UK companies that go global, often take space in the country in which they are expanding, but it is important that you understand whether you have any obligations to the landlord both during your tenancy and once you have vacated that space.

The law differs in every country but here are some of the main issues to be aware of when taking occupancy of office or factory space overseas:

  1. 1.Your rights over fixtures and fittings
  2. 2.What happens when your lease runs out?
  3. 3.If there is a mortgage on the property can the lender call in the loan early?
  4. 4.Can the landlord increase your rent?
  5. 5.What are your obligations on leaving? Is there any damage you need to repair or clean up or does it fall to your landlord? You may also want to leave behind some furniture or equipment for example.
  6. 6.Who will pay for utilities, maintenance, security and other services whilst you are in occupation?

10. Disputes

Disputes can still happen between the business and employees, partners and customers, among others. 

Be aware of the dispute resolution procedures and employment laws in the country you are setting up in, to avoid liability and additional costs further down the line. 

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