September 19, 2012
Four costly mistakes NOT to make when doing business abroad
It's pretty simple. Get the basics right, or end up looking like a lemon.
We’ve started to see more and more businesses using TransferWise to pay invoices, salaries and property costs in different currencies. It makes perfect sense. Keeping outgoings under control is never easy when you’re growing a company, so anything that reduces cost, and hassle, is a big plus.
The fact is, it’s easier than ever to start doing business in a new country; the internet, cheap flights and cheap communications have made sure of that. But it’s also easy to get it wrong if you don’t get the basics right. We’ll look at this in more detail in future blog posts, and to get you started here are four big ones you can’t afford to ignore if you’re expanding internationally.
1. Taking taxes to task
Tax is a major factor to consider. There's the issue of double taxation for one thing. That's when your income is taxed in a foreign country as well as where your business is based. Luckily, there are tax treaties to get around this and prevent you from having to pay through the nose, and it's important to look into whether there's any risk of your business being taxed twice, and what agreements are in place between your home country and the nation you'll be working in.
When it comes to VAT, you need to check what conditions your business has to meet to allow you to zero-rate the goods or services you'll be selling to your foreign customer. Be careful: if you don't keep the correct evidence, such as sales invoices and customer correspondence, you may be liable to pay the VAT.
2. Ignorance is not an option
Nothing's as boring as bureaucracy, but if you start doing business in a foreign country without getting up to speed with local regulations you’ll eventually pay the price. Everything from local insurance rules to work permits should be taken into account, depending on what you'll be doing in that country. It's well worth talking to an expert, whether it's a lawyer or accountant, to ensure you don't forget to do something crucial and get hit by penalties as a result.
Another thing to look into is how contracts work in the country you're trading in – drawing up a legally binding contract with a customer in China, say, will be very different to one in Germany. So don't make do with boilerplate contracts, or rely on a quick bit of Googling. Get help from a professional who knows what's required.
3. Learn the etiquette
So you've had a rather fruitful meeting in Turkey and you give a classic "OK" sign by making a circle with your thumb and forefinger. Congratulations – you may have just lost the deal, because it's one of the rudest hand gestures you can make. Learning cultural etiquette is essential for forging business links abroad, so make sure you do your research first. No back slapping your client in China, please.
4. Moving money can be an unnecessary cost
If you need to send money abroad
to expand your business, watch out. If you do it the traditional way, through a bank or organisation like Western Union, you'll be hit with big and completely unnecessary expenses. That's because they'll slap on fees and also charge a hidden mark up on the exchange rate, which directly hits your bottom line.
Say you're transferring £1,000 – a high street bank may charge around £45 for this. If you're savvy and move your money with us it'll cost you less than a fiver.
By Taavet Hinrikus