More and more, companies of all sizes find themselves doing business in areas outside of the U.S. And they are doing a lot more than just exporting products. I see my clients traveling, sending employees on short-term and long-term assignments, establishing companies and forming partnerships — all internationally.
Some of the daily issues to deal with often include foreign language barriers, time zones, currencies, tax laws, import/export laws, and business and general cultural differences. While a lot can get lost in translation, the benefits of a presence in other countries can be substantial:
A broader market to sell to
More access to opportunities in that market, especially when there is a “partner-on-the-ground” in the foreign country
Import tax savings due to manufacturing and distributing directly in the target country
Ability to source certain components at more competitive prices, while still having primarily U.S. content in products
U.S. tax benefits on export sales through strategic tools such as an IC-DISC
To best maximize these and other potential benefits of doing business internationally, and to offset the inevitable challenges, there are a number of effective strategies to consider:
Practice diligence. Asking the same question a number of times and in multiple ways is valuable in getting a consistent answer. Much can be lost in language translation, and, unfortunately, sometimes a less-than-genuine business partner can hide behind language confusion.
Be cautious with currency translation. The first step is to require that transactions be conducted in U.S. dollars, but even that can leave you open to currency risk. If your partner does absorb a currency loss, he or she will most likely look to you to absorb some of it, regardless of contract terms.
Know the law of the land. Pursuing a claim in another country can be a major battle. Be acutely aware going into a foreign country that its laws may not support your position in a contract, even if U.S. law generally would. Advance knowledge of foreign laws is a must.
Know the business and general culture of the country. Doing your homework beforehand, and having additional, trusted resources on hand will provide a great advantage. Our firm has been successful in reaching out to other accounting firms in various countries to help determine if what we are being told is in fact customary in a particular country. As I was told by a CPA in Brazil: “Do not expect to replicate your business model here.”
Use a mix of “live” and written communications. While I always prefer live communication (phone in most of these cases), I find that we often can get much clearer understanding and answers through written communication. Although, it is true that some things just don’t translate very well whether written or spoken. So, combine plenty of written and live conversations — taking note of important cues from voice inflection, pauses, etc. — to get the most accurate picture.
Understand foreign and U.S. tax laws. Know how these laws will affect your employees (negatively and positively) as they work for your business outside of the US.
Doing business internationally is a way of life for most thriving companies these days. Preparing ahead of time can make a world of difference.
This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.
Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.
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