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Legal Barriers Startups Encounter When Growing Internationally (And How To Get Around Them)

by Leila Dorari, on Nov 28
Businesses are rapidly growing, and the need for covering new markets in order to beat the competition is simply a part of the deal that you cannot ignore.
Francisco galarza 110053 unsplash

Back in the day, it wasn’t really a problem for the majority of businesses to keep working within the limits of their own area. Today, the situation is quite different. Businesses are rapidly growing, and the need for covering new markets in order to beat the competition is simply a part of the deal that you cannot ignore. And once you decide to grow your business internationally, you will come across a variety of barriers and issues. A lot of it depends on what industry and niche your business fits in, what countries you have chosen to expand your endeavors to, and of course, what new ideas you can bring to the table that others can’t or haven’t yet.

Besides legal obstacles, there is also the fact that you need to get well acquainted with the country’s culture, find a proper way to communicate in spite of language barriers, come up with the right approach to comprehend and meet the needs of this new market, and also, get to know the competition that you will be facing here. Any of these obstacles can be the very thing that turns your business into a global enterprise, or breaks you and sends you back home with your tail between your legs.

In this article, we are specifically going to discuss legal barriers that startups face when they grow onto international grounds, and how to find a solution to them.

Making local connections

The main thing that you are going to have to figure out once you expand your business into a new country is how to properly deal with its residents. Next to the aforementioned language and cultural barriers, you are going to have to learn about how people come up with business strategies in this area. The best way to do this is to find local connections that can help you begin managing your business and get acquainted with local laws and regulations.

In case that you don’t have any local acquaintances, find some via referrals. It is pretty important to have someone you can trust with these matters. Furthermore, you can contact your embassy in the particular country that you are in, and rely on the help of the commercial officer or attaché. However, make sure that you don’t put all your trust into a single connection. At first, they will help you get your business on your fit, but then, you should start networking and gaining as many connections as possible.

Getting to know the government laws and regulations

Of course, the main legal obstacle that your startup needs to deal with as soon as it touches foreign grounds is getting acquainted with and dealing with local government rules and regulations. Your business practices are going to be highly dependent on these laws, so you have to do your best to cover every possible aspect and avoid getting into trouble just because you were unaware of a certain business legal aspect.

If you are merely expanding state-wide within the US, you can choose the law for your contracts. However, if you are expanding overseas, things get more complicated. You will have to get to know all the legal intricacies and adapt your business accordingly. For example, while a great number of countries relies on similar civil rights for the people that you employ, this isn’t necessarily always the case.

It is essential that you properly register your company and get the necessary approvals and certificates. Keep in mind that this not only takes a certain amount of time but also a considerable financial investment. This would be a very good moment for you to consider looking for a business agent, in order to have an expert that can help you get through all the steps much easier.

Consider a deferral strategy

When it comes to the profits that your company is going to make thanks to your business operations in your foreign branches, you need to have a proper plan in place. Specifically, you need to decide whether you are going to bring the money back home, or decide to keep the money overseas for now. This is called a deferral strategy, and the answer to the question above is what determines how you are going to organize your foreign business operations.

It is good to think about a deferral strategy in the case that you intend to keep your money offshore for some time, particularly due to the fact that foreign tax rate is lower than the one in your country. In the case of the US, if you want to defer its taxes, the foreign branch of your company has to be regarded as a corporation for United States tax purposes. Basically, your idea is to keep as much money as you can offshore in order to defer your home country’s tax until it’s time to transfer the profits back to your HQ.

However, a deferral strategy can come with its own obstacles too and requires proper planning. For example, you must be careful about Subpart F rules, because this makes your foreign profits taxable in the United States, even if you haven’t decided to send them back to your HQ. If you don’t pay attention to this, you will end up paying a higher tax than you intended to even before implementing a deferral strategy.

Once you have dealt with all the legal barriers in your way, it is also very important for you to know that once you decide to expand your business internationally, you will basically have to rebuild your whole brand reputation from the get-go.

Things that may have worked at home will now have to be represented to a whole new audience, which means – a different culture, mindset, values, and so on. So, your next question will be how to start over with incorporating all of this into your strategy. As usual, prepare for an adaptation process where you are going to make some mistakes, gain feedback, and learn how to meet the needs of your new customer base.

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