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Doing international business – The legal considerations

Business owners who operate an international business need to be aware of both the legal aspects of doing business locally, and the legal aspects of doing business internationally.  Although, there are some commonalities, most businesses that operate internationally have additional considerations over and above those that apply to businesses that operate locally.

Tax

There is a common misconception that what happens overseas stays overseas.  When it comes to tax this is far from the truth.

Generally, Australian tax residents and foreign entities controlled by Australian tax residents are taxed on their worldwide income, regardless of whether it is earned in Australia or overseas.  Just because a business is in a foreign country and only trades overseas does not mean that it escapes the Australian tax net.  However, if a business is liable to taxation both in the foreign country in which it is based and Australia then it is likely that there will be a double tax treaty between Australia and the foreign country that sets out the tax position in each country.

It is always wise to seek tax advice both in Australia and in the relevant country overseas when establishing a business overseas and when undertaking transactions overseas that may have tax consequences in Australia, particularly if they involve changes in ownership or transactions with related parties.

Foreign Exchange

If you operate an international business then you will likely be trading in more than one currency.  This carries with it foreign exchange/currency risk if you hold any funds overseas or enter contracts overseas as you will be exposed to changes in exchange rates over the period between when the funds are initially received and when they are remitted to Australia and converted to Australian currency.

There are a number of financial products that enables businesses to protect (or hedge) against foreign exchange risk, but these products can be complex and the consequences of getting it wrong can be disastrous.  You should seek financial advice if you are considering such products.

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Conflict of Laws

Ignorance of the law is no excuse.

If your business operates internationally then you need to be aware of the laws in the countries in which your business operates and how they interrelate.  This includes laws relating to import/export, licences, customs and tax.  You also need to ensure that you obtain any licences necessary to operate in a foreign country before you commence operations in that country!

If you need advice, then get it.  It is better to be informed at any early stage than to be ignorant of the law and run into problems down the track that could be easily avoided.

Sales and Distribution

If you’re doing international business then you need to have an international sales and distribution network.  Will you setup offices overseas?  Will you enter into distribution arrangements with businesses based in the countries in which you wish to operate?  Will you only sell via the internet (in which case setting up offices overseas may be unnecessary)?

If you do not have experience dealing in certain international markets then there may be some benefit to you in dealing with someone who knows the local market, at least until you feel comfortable doing it yourself.

Contracts and International Business

It doesn’t matter where your business operates, it is essential that you enter into contracts with customers, suppliers, distributors and anyone else with whom you deal in running your business that set out the rights, obligations and responsibilities of the parties and how to deal with disputes.

Ideally, each contract should use “Incoterms”, which are standard trade definitions used in international contracts.

Conclusion

Doing international business can be complicated. Make sure you get your legal ducks in a row. To find a lawyer who can help, contact LegalVision’s team on 1300 544 755.

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Lachlan McKnight

Lachlan McKnight

CEO | View profile

Lachlan is the CEO of LegalVision. He co-founded LegalVision in 2012 with the goal of providing high quality, cost effective legal services at scale to both SMEs and large corporates.

Qualifications: Lachlan has an MBA from INSEAD and is admitted to the Supreme Court of England and Wales and the Supreme Court of New South Wales.

Read all articles by Lachlan

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