With a huge range of nuance in contract law overseas, setting up shop isn’t always that easy. We look at the main points to keep in mind.
Whether you are a business looking to employ local staff abroad or a UK employee being seconded to a new country, it is important to understand the potential pitfalls.
It is an area that fashion brands and retailers need to get to grips with if they are to successfully expand into overseas territories.
The problem is rules vary greatly between different territories and each case needs to be looked at on an individual basis.
Richard Wood, senior corporate tax partner at accountancy firm HW Fisher & Co, warns: “You will need specialist advice, and it won’t be cheap.”
Employees in particular need to be aware of so-called ‘double taxation’. When you have income in one country but are resident in another, you may end up paying tax in both nations.
The UK has negotiated double-taxation agreements with many countries. Contact HM Revenue & Customs before getting on the plane, especially if you are heading to tax havens such as the United Arab Emirates.
“The whole topic is very complicated, but it is important to understand why it is so complicated,” says Constanze Moorhouse, a partner at law firm Eversheds. “Why can’t you just set up shop abroad and follow UK law?”
It is mandatory in many countries, even in the EU, to abide by local rules such as minimum wage and pension costs when the place of work is in the foreign country, she explains. Retailers with staff in stores and concessions around the world obviously fall into that category.
Moorhouse recommends using local contracts and employing native legal and tax specialists to advise on the subtleties.
She also warns retailers not to make assumptions about the legal framework of certain countries. Brazil, for instance, inherited its legal system from Italy and is therefore highly protective of staff.
A final tip from Moorhouse: “Don’t attempt to roll out one HR policy across all territories. It is simply not necessary.”
For instance, offering health insurance may be seen as an incentive in the UK but it is not a priority in Germany, where the state health system is very well funded and highly regarded.
Retail spend in the US is predicted to surge 17.5% to £2.3bn between 2012 and 2016, according to research by Barclays, making it an attractive prospect for many. However, it is one of the toughest countries to crack.
Anna McCaffrey, senior associate at international law firm Taylor Wessing, says by European standards the US has much less legislative employee protection: “There is no unfair dismissal, no statutory severance pay.”
Laws also vary from state to state. California, home to big-name fashion brands such as Gap, is more regulated.
As contracts are the main source of protection for employees, they tend to be more detailed. Holiday allowance is typically 15 days a year, maternity leave is around 12 weeks and working hours are long compared with the UK. Visa requirements are stringent: companies must prove there is no one in the US that could do the same job.
German employment law is very much in favour of staff and salaries are typically higher than in the UK.
Although there is no minimum wage at present Germany is thinking of introducing it next year, at around £7.50 an hour. Social security payments, pension costs and maternity benefits are also more generous than in the UK.
Some companies may be bound by collective bargaining agreements, which regulate various aspects of employment law, so retailers should check whether one applies in the region they operate in.
It is practically impossible to fire someone for poor performance, Eversheds lawyer Constanze Moorhouse says. German law states that the reasons for dismissal must be linked to social criteria instead of commercial ones. Age, family circumstances, length of service and disability are taken into account; the older the person and the longer they have worked for you, the harder it is to get rid of them.
It is relatively easy for EU citizens to work in Sweden as there is no need to apply for a work or residence permit in advance.
However, McCaffrey warns there is one major drawback of living and working in the country: it has one of the highest tax rates in the world.
British firms operating in Sweden might offer seconded staff a ‘tax equalisation package’, in which their net income remains the same as it was in the UK. Lee Hamilton, head of international mobility services at accountancy firm Crowe Clark Whitehill, says: “Introducing policies such as tax equalisation can help encourage employees to work overseas.”
That said, the benefits in Sweden are superb. Highlights include parental leave, which amounts to 480 days of payment per child up to their eighth birthday. Employees also have the right to collective bargaining.
Companies can enter the Dubai market fairly easily with a franchise partner and demand for British brands is increasing. Staff enjoy tax-free income, a dynamic lifestyle and rapid career progression.
Esther van Veen, senior consultant at recruitment firm Talisman Fashion, says: “UK fashion executives are very much in demand.”
It is important to be aware of the region’s Islamic traditions. Businesses are often closed on Fridays. Muslims are traditionally obliged to pray five times a day, and many do this during business hours. During Ramadan, most companies remain closed and getting business sanctions and permissions is not easy.
Richard Wood, corporate tax partner at HW Fisher & Co, points out that there is no double tax protection in Dubai: “If you are still resident in the UK, you may be liable for tax.” He adds that staff and employers should hire local tax specialists for advice.
Despite restrictions including the language barrier and strict visa requirements, China has an abundance of opportunity. Brands including Cath Kidston and Marks & Spencer have a presence in the country, and many others have sourcing offices there.
Helen Taylor, associate director of recruitment firm Fashion & Retail Personnel, says Brits should not be put off by the culture shock of living in China: “Many companies will help you find accommodation and the facilities in some cities are really good.”
Networking underpins all transactions - the term for networking in Mandarin is guanxi, and it is how business is done in China.
Retailers need to find local partners to help them expand and many use the franchise model to grow in the region. Employees need to make the most of their connections if they are to succeed.