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abroad, local legal counsel should be involved from the early stages of overseas expansion.
There are several reasons US businesses starting overseas operations should secure the services of local counsel sooner, rather than later. In many cases, the reasons for needing local counsel will be the function of the type of activities the US business plans to conduct abroad.
For example, US businesses planning foreign manufacturing operations may need local counsel to comply with foreign labor law and the protection of business intangibles, while US entities that plan only to sell into foreign jurisdictions through distributors may require advice on minimizing foreign taxes or complying with overseas laws that often favor the distributor. Other reasons, such as legal documentation issues, generally are universal to all businesses going abroad.
Securing Advice on Tax and Legal StructuringLocal legal counsel can provide tax and legal structuring advice that generally cannot be provided by US counsel. Because other countries have tax systems that differ significantly from the US system, foreign counsel is often better able to fully assess and convey the foreign tax implications of activities to be conducted by the US business. This is especially true when dealing with local income taxes and non-income taxes, such as VAT and capital taxes, which may differ significantly by city or region.
Without local counsel, US companies may subject themselves to foreign tax burdens that could have been avoided. For example, a US business may wish to operate a foreign distribution arrangement through a buy/sell distributor in a foreign country. This arrangement may be acceptable from a US tax perspective. However, from a foreign tax perspective, the buy/sell arrangement may subject the US business to customs duties, value added taxes or transfer taxes that could have been avoided had a commission agent, rather than a buy/sell distributor been used.
Foreign counsel also can provide US businesses with guidance on tax incentives or holidays that may be available for starting operations in certain geographic locations.
Although the incentives that US businesses ultimately will receive depends on a multitude of factors, such as the number of people to be employed and the profits expected to be generated, local representation can push the process along and help deal with local government and business officials on a more intimate basis. This often improves the outcome for US businesses.
Minimizing the Complexity of Legal DocumentationEven the most basic transactions take on a certain level of complexity when conducted in an international context. The rights and obligations set forth in documents such as purchase orders, insurance agreements, or supply agreements can differ significantly between international and domestic transactions. Even the rules on deciding when or whether an offer has been accepted differ greatly. Local legal counsel can provide US businesses with help in understanding and navigating these differences.
When dealing with legal documentation, language barriers also are frequently an issue. Generally, it is often recommended that all documents be translated into the local language, even if English is designated as the governing language for the agreement and US state law is designated as the governing law. In addition, documents translated into the local language also reduce the chance of misunderstandings between the parties.
Managing Other Legal IssuesMany US businesses think in terms of US corporate law principles when managing oversees operations and, in certain instances, this can create some significant pitfalls. For example, in certain countries, local corporate law states that officers and directors of a corporation can be held criminally liable for the actions of the corporation. This is a departure from US corporate law and can come as an unwanted surprise to the officers and employees that are named as officers and/or directors of a foreign subsidiary.
If US businesses are involved in litigation abroad or need court or government approval for an area of business, they will need detailed information about the local standards, customs, and procedures. Local counsel can interact on a US business's behalf in this process and can follow up with court or government officials until the issue is resolved. Many times what would take just a few days in the US can take weeks in another country, and it is helpful to have local counsel expedite the process as much as possible.
No matter what the extent of planned foreign operations, chances are the US company will be exploiting some or all of its intangible property rights in the foreign jurisdiction. Local counsel can be helpful in protecting these rights in an overseas market.
Additionally, labor laws differ significantly among countries, and employers can face significant penalties if the laws are violated. If US businesses plan to have employees abroad, local counsel is beneficial to ensure that businesses comply with these laws at the country, region, and city level.
Finding a Local LawyerWhere do you find a local lawyer? US businesses first should look to their US counsel to fill their international needs. Many US law practices have foreign offices in major overseas jurisdictions. If not, the firm may be affiliated with a law firm in the appropriate jurisdiction or may be able to recommend a local firm in the foreign jurisdiction.
Another way to find local counsel is through the US business's public accounting firm. Most large public accounting firms have foreign offices in all major business jurisdictions, and may be both law and accounting firms.
Most local bar associations in other countries can also help find an appropriate counsel.