Expanding your business into international markets can be a great opportunity for business growth, but it also presents numerous legal challenges. In this article, you'll read about five key legal issues you need to consider if you're considering international expansion.

The article was created in cooperation with our partners: Expandeco and Time4Ecommerce .

Expansion into foreign markets – what does it involve?

Expansion into foreign markets is the process by which an entrepreneur expands their business operations into other countries or regions beyond their own domestic market. Expansion is primarily associated with an attempt to acquire new customers or business partners abroad in order to increase turnover, profits, and broadly defined company development. It can also result from a decrease in demand in the domestic market, in which case the only solution enabling the company's continued operation may be to diversify its offerings into foreign markets.

The decision to expand into foreign markets requires the selection of a strategy. Due to the multitude of possible strategies, a detailed research process and thorough analysis are necessary. Such efforts are aimed at finding solutions that will result in, for example, lower transportation or labor costs, or easier access to raw materials. Analysis of the external and internal factors influencing the decision to expand encompasses a wide range of business, economic, and legal aspects. The legal complexity of this process is difficult to encompass comprehensively, but it requires a discussion of five key issues, the consideration of which determines the effective expansion of operations into foreign markets.

1. Preparation of documents in accordance with the law of a given country

Once the expansion process begins, the first key legal issue is the preparation of documents, in particular regulations and agreements that are to be binding in a given country.

Translating documents drawn up under the law of another country is a challenging task, often failing to adequately protect the interests of both businesses and consumers. This is primarily due to the difficulty of accurately translating a document without altering its meaning. In this case, a general understanding of the original text is not enough – it is necessary to delve deeper into it and convey its meaning using appropriate phrases from the target language.

Legal systems differ from country to country, most often to a large extent, which allows us to conclude that such a translation would require not only knowledge of the language in which the document was originally created and the target language, but also of the legal provisions in force in both countries.

It is much safer and, above all, more convenient for consumers to draw up regulations and contracts in relation to the provisions with which they are more familiar and perhaps even familiar with them.

Drafting documents in accordance with the laws of a given country helps avoid misunderstandings and increases credibility and builds trust in the company. Every potential customer wants to feel that the company is ensuring the smooth and secure execution of the sales agreement between them.

It also happens that adapting the documents and interface of an online store to the regulations in force in a given country may provide the entrepreneur with additional opportunities (e.g. due to the fact that more restrictive regulations apply in the domestic market).

2. Recommended communication in the customer's language

Last, but certainly not least, is customer communication. Good communication helps avoid misunderstandings and conflicts, but to be satisfactory, it should be conducted in the customer's native language. This not only helps ensure the easiest way for new customers to communicate, but also allows for the ability to tailor the message to the culture and customs of a given country. Customers are more likely to trust companies with which they can communicate in the language they use daily , and they expect to be considered in their communications.

We asked Paweł Bilczyński, Country Manager at Expandeco , about the issue of communication in the customer's language:

"A good example of cultural differences between societies that often seem culturally close is the willingness to shift from formal to informal communication. The question of how to quickly transition from communication using polite phrases like 'Mr.' or 'Mrs.' to the direct form of address by name is best answered by someone who has spoken the language since birth, lives in the country, and is familiar with the customs of the target group with whom we are communicating.

"Therefore, it's worth having someone who knows the country and its people's customs help us make decisions, for example, about when to switch from "vykanie" (i.e., addressing people in a polite manner) to "tyk" (ticking) in the Czech market. It's worth mentioning right away that automatic translators currently can't handle this issue; they translate all statements, including those addressed directly to the recipient, into Czech in the seemingly safe form of "Vy." As a result, instead of direct communication that shortens the distance, we get the opposite, which creates it. Missteps like these can hinder or sometimes even prevent us from achieving the desired effect: building trust with new customers in a foreign market. Therefore, from the very first day of entering a new market, it's worth ensuring that our customer service team has people who speak the local language and, if possible, live in the country. The problem with staff availability can be solved by outsourcing these services to an external company, which will usually be able to provide us with competent customer service in the local language within a dozen or so days," points out Paweł Bilczyński.

Essentially, the language aspect of communication with customers is tied to drafting documents in accordance with the regulations of a given country. Taking into account such an important issue as the language barrier will certainly be appreciated by customers. The ability to fully express doubts or potential problems in a simple manner, without the use of online translators, whose quality of results usually leaves much to be desired, gives customers a sense of security and encourages them to make purchases.

3. Establishing a company or sole proprietorship in the target country

Considering a company's legal structure is an essential element of research before expanding into foreign markets. The decision to establish a company or sole proprietorship in a given country can bring tangible benefits, provided that a thorough analysis is conducted beforehand to precisely identify the potential benefits and drawbacks arising from taxation, obligations, and potential legal risks.

Sometimes, the ability to create an account or set up a store on local sales platforms will even depend on establishing a business in a given country – tax authorities may impose a similar requirement. Researching the regulations in force in the target country is a fundamental step towards starting to expand your business.

An entrepreneur who operates through an entity registered in a given country is also usually better perceived by local consumers.

Choosing the form of business that can deliver the greatest benefits and carries the least risk is no easy task. Making such a decision requires time, detailed analysis, and integration into your business strategy.

4. Thorough analysis of local regulations

Analyzing the regulations in force in the target country is a crucial issue that affects all aspects of expansion – legal, economic, commercial, and tax. Familiarity with foreign commercial, civil, tax, and fiscal law, as well as regulations governing specific industries, provides only the foundation for business expansion, requiring continuous updating of existing knowledge. Outdated knowledge can lead to legal problems and pose a significant risk to the company in the form of severe sanctions.

It is essential to familiarize yourself with the requirements for registering a business, obtaining the necessary licenses and certificates, and to be proficient in the regulations that protect local consumers.

The issue of analyzing local regulations requires cooperation with a lawyer familiar with international law and the law applicable in the target country of expansion - this is the only sure remedy for this nuisance related to expansion into foreign markets.

5. Taking advantage of marketplace opportunities

Entrepreneurs developing their businesses have the opportunity to leverage foreign marketplace platforms for expansion. This form of sales allows access to markets worldwide, but before launching, it's worth investing time in understanding the mechanisms of foreign marketplaces and conducting analysis to assess whether this form of expansion is profitable for the entrepreneur.

We asked Szymon Ciba, founder of Time4Ecommerce , about expansion into foreign marketplaces:

"When observing the market in 2023, it is impossible to ignore the clear trend of e-commerce expansion from Poland towards global trading arenas. This strategic maneuver stems from the need to diversify in the face of rising inflation, aggressive competition, and a significant recovery in the offline retail sector, which makes the domestic playing field much more challenging than during the unprecedented boom during the pandemic.

An analysis of events from 2020-2021 reveals that many companies successfully accelerated their operations, achieving impressive revenue growth. However, the unexpectedly rapid return to relative normality after the pandemic created a scenario for which they were unprepared, leading to destabilization of sales results.

In the context of ambitions to return to pandemic-level results or strive for dynamic scaling, the strategic use of marketplaces is crucial. International marketplaces, in particular, offer unprecedented access to a global consumer base. It's important to emphasize that while marketplaces can charge commissions of up to 10 percent per transaction, traditional online stores often entail significant marketing expenses, with uncertain profitability.

Another strategy is to explore opportunities to partner with niche or specialized platforms. These are often more open to personalized partnership terms. Furthermore, limited competition among sellers on these platforms can translate into more attractive terms, making them an excellent alternative to giants like Amazon.

Such a multidimensional, well-thought-out strategy of expansion abroad not only opens up new horizons, but also builds business resilience to the volatility of the domestic market," emphasizes Szymon Ciba.

Tax issues

With the introduction of the so-called VAT e-commerce package, regulations aimed at simplifying tax settlements came into force. One of the tools for this solution was the implementation of the EU procedure VAT OSS (One Stop Shop) , which allows for VAT settlements without the need to register sellers for VAT in each buyer's country separately. If a company sells to multiple countries, a single OSS VAT registration is sufficient, simplifying tax procedures.

Is it worth using VAT OSS?

This depends, among other things, on whether the company exceeds the sales limit. For sales to private individuals in another European Union country, the limit under this mechanism is €10,000. What does this mean for Polish entrepreneurs? After exceeding this limit, entrepreneurs are required to tax the transaction at the VAT rate appropriate for the destination country. Until this limit is exceeded, they apply the Polish VAT rate.

Tax choices can have a significant impact on a company's future success, so it's essential to consider all available options. To achieve this, it's worth partnering with a law firm that employs a tax advisor specializing in international law. Their expertise will help you make the best choice.

Summary

Expanding into foreign markets is not only an opportunity to expand your business but also presents legal and business challenges. Due to the complexity of this process, it's advisable to seek the help of lawyers and tax advisors specializing in international business to avoid potential legal issues.

If you're looking for specialists to help you develop your business and expand internationally, contact us. You can find all the necessary contact information here .

This article was created in cooperation with our partners:

Paweł Bilczyński, Country Manager at Expandeco.

Expandeco provides local customer service in more than a dozen European languages ​​and manages e-commerce returns in new markets. It also handles the translation and localization of online stores to meet local customer expectations.

Szymon Ciba, founder of Time4commerce.

Time4Ecommerce , Shopify & Performance Marketing agency.