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Overseas markets present a huge growth opportunity if you have successfully proven your product in Australia. However, there are several elements to consider before you start jet-setting. Expanding overseas is not as simple as replicating what you have done in Australia. Different laws apply in different countries. As a result, there are different legal hurdles to navigate. This article will outline the legal issues you should consider before expanding overseas, including your tax, employee and customer obligations. 

What Business Structure Will You Use?

For most businesses, the primary consideration when expanding overseas is whether the unit economics make sense. Will you make more money selling your products or services overseas rather than expanding nationally? To make this decision, you need to know your expected profit. To do so, you will need to know how much you will be taxed. How much you will be taxed depends on which business structure you choose.

What Are the Options?

Different countries tax businesses differently. Therefore, different business structures suit business operations in different countries. The table below outlines several options you should consider when expanding your business.

Business structureWhat will be taxed?
Foreign company (e.g. subsidiary of your Australian company)If you set up a company in another country, everything the company does will likely be taxed. Overseas taxation can be a great outcome if that country’s tax rate is lower. However, if the tax rate is higher in that country, you might prefer a different business structure. 
Permanent establishmentDepending on your type of operations, you might create a permanent establishment in a foreign country. For example, you might have an office or a warehouse in a foreign country. Ultimately, what amounts to a permanent establishment depends on the circumstances. 

However, if you have a permanent establishment in a foreign country, it is unlikely that Australia will tax all things attributable to your business. Instead, the country of permanent establishment will likely tax your business. Therefore, you need to have processes to determine what is and is not attributable to the business in that foreign country. Ultimately, these processes can include high administrative costs. 
No foreign company or permanent establishment.Whether this is possible depends on your operations. For example, suppose you have a warehouse or use a contractor in a foreign country. In that case, it might not be possible for you to avoid having a permanent establishment in that foreign country. You should speak to a tax lawyer about your operations to determine whether this is possible. 

If you do not have a company or permanent establishment in a foreign country, you will have more options to limit taxed profits in that foreign country.

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Do You Have to Localise Your Product or Service?

Not all consumers are the same, especially consumers in different countries. Depending on what is popular and culturally acceptable in that country, you may have to modify your product or service offering. If you change your product or service, consider whether you need to make any changes to your legal documents.

What Legal Documents Do You Need?

If you change your product or service to suit the local market, you may need to change your customer documents. These include your terms of use, terms and conditions or client service agreements. You should tailor these documents to suit your product or service. They will also likely contain provisions that address specific Australian laws. For example, such documents may contain provisions dealing with GST or Australian consumer laws. You should also speak to your lawyer and ask whether you need to make any changes before making these documents available to customers in foreign countries. 

How Will You Deliver Your Products or Services?

One of the most significant hurdles when expanding overseas is organising your supply chain. Supply chains may be less of an issue if you are a wholly online service. However, you must consider the execution if you need to deliver any physical product or service. 

If your business physically delivers products, you might need to engage distributors in a foreign country. You might even need to set up a warehouse in that country which can have tax implications, as explained above.

Additionally, you will need contracts with people who can assist with transport and delivery. It is not simply a matter of having those foreign distributors sign your Australian contracts. You should update these contracts to address the local legal risks and requirements. 

If your business involves physical service delivery, will you be engaging employees or contractors in a foreign country? If so, you will need employment or contractor agreements for those people. Again, you should update your Australian template documents to reflect the risks and laws of the relevant country. 

Employment laws vary in different countries. It is best practice to get legal advice before you engage workers in foreign countries. Legal advice will ensure you do not violate any particular legal requirements.

Key Takeaways

Before expanding overseas, you should consider what business structure you will use. Ultimately, different business structures suit different countries and business operations. Additionally, you should consider whether you need to localise your product or service offering. If so, you might need to update your customer documents. Finally, you should consider how you will deliver your product or service. You will need different contracts in place with your distributors and workers. Ultimately, how you deliver your products could also have tax implications.

If you have any questions about expanding overseas, LegalVision’s experienced business lawyers can help. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What business structure is best suited for overseas expansion?

Your business structure will depend on the country, business operations and how different countries tax businesses. Therefore, the business structure you choose for your overseas business will depend on your goals for expansion, the nature of your business and the type of operations.

Will I need to update my business contracts?

It is best practice to update your business contracts, including any consumer and employment contracts for your overseas business. You should avoid cutting corners, such as simply letting foreign distributors sign your Australian contracts. Ultimately, expanding business overseas requires updating your business contracts to address the local legal risks and requirements.

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