Legal, Tax, and Financial Issues for Going Global
July 1, 2010
With 96% of the world's consumers residing outside the U.S., there's a huge market potential for foreign sales. Before you expand your horizons, be sure to understand some of the legal, tax, and financial issues that could impact your activities.
Registered your trademark in the U.S.? Patented your product here? This doesn't give you any legal protection abroad. You'll need to register in foreign countries to obtain protection there.
As a practical matter, it's too expensive for a small company to register in numerous places. It's advisable to seek protection where you plan to:
- Sell your goods. If you are focusing on sales within a particular country, look into registration there.
- Manufacture your goods. For example, if you are using facilities in China, then register for protection there.
Best strategy: Talk with an IP attorney knowledgeable about overseas protection to determine where and how to proceed.
When selling abroad, currency fluctuations can impact your sales and your profits.
- When the dollar is cheap compared to a foreign currency, this tends to make the sale of your products more attractive, which can boost sales. Conversely, when the dollar is strong, sales can lag.
- Because you must report your sales and pay taxes on transactions translated into U.S. dollars, selecting when to make this translation can impact the amount on which you'll pay taxes.
Best strategy: Recognize that currency fluctuations can add tremendous uncertainty to your revenues and after-tax profits. Work closely with an accountant who can help you time transactions to optimize the effects of currency translation.
Shipping and duties
Getting your goods abroad may be more costly than domestic shipping. What you ship can affect the carrier of choice. For example, the U.S. Postal Service, for example, has limits on insurance for shipments to certain countries. Such limits could bar you from using this carrier if you are sending more costly items to these locations.
Duties (tariffs) are taxes levied by a foreign country on items imported there. To determine what these amounts will be, you need to know your items' Harmonized System (HS) or Schedule B numbers, which you can learn from a free online tool.
Best strategy: When overseas sales become substantial, it pays to work with a shipper that can offer fee discounts and help you handle the duties.
American businesses are taxable in the U.S. on their worldwide income. (Taxes can become very complex with foreign subsidiaries, but small businesses don't have foreign subsidiaries as do large multinational corporations. Most small businesses don't even have offices or other facilities abroad; they conduct all their activities from the United States.) In effect, it doesn't matter which country your sales come from; you'll pay tax here (after translating your sales abroad into U.S. dollars).
Best strategy: Work with a tax advisor who understands the tax issues of selling abroad.
If you need money to make exporting happen, you may find what you're looking for through one of these SBA loan programs:
- Export Express for loans and lines of credit up to $250,000.
- Export Working Capital Program for loans up to $2 million.
- International Trade loan program for loans up to $2 million for businesses adversely affected by competition from imports.
Best strategy: If you want to export and need financing, first talk with your own banker. If you need additional help, try some of the resources below.
• SBA's Small Business Guide to Exporting.
• SBA's Introduction to Exporting, which is a free online video course.
• SBA podcasts and videos about exporting.
• Export.gov for market research, trade leads, and other information about export finance.