Can I Go Into Business With A Foreign Partner?

Starting a business (whether it be local or overseas) is always exciting news! In fact, having a foreign business partner could actually be better for your business’ reach. 

But like any other international business venture, you have to consider all the rules around setting up a business overseas, your tax obligations and whether your foreign partner is still bound by your local business laws.

We can help you answer these questions before you take next steps.

My Partner Lives Overseas – Can We Start A Business Together?

The simple answer is yes! There’s nothing stopping you from engaging in a business venture with someone who lives overseas. However, this also depends on what business structure you’ve chosen. 

You’ve got three main structures to choose from:

1. Sole trader
2. Partnership
3. Company 

Since we’re focusing on starting a business with someone overseas, we’ll look at partnership and company structures. 

Partnership

When people start a small business, one of the most common structures is a partnership (2-20 people). Entrepreneurs usually opt for a partnership because it’s cheaper to set up and relatively easy to maintain. 

However, this also means your business is not a separate entity from you as the owner. In other words, if your business is liable for something, so are you (and your partners!). 

If you and your foreign partner want to enter into a partnership, you can conduct business either in Australia or overseas, so long as you:

• Fulfil your tax obligations
• Apply for the appropriate visa/s

What Are Our Tax Obligations?

Let’s say you’re running a business and you reside in the UK. If you’re receiving income from overseas, this will be taxed alongside your local income. However, your foreign partner will not be taxed on overseas income. 

There are some strict rules around this, but generally, the non-UK partner will only be liable for tax for:

• Profits that arise in the UK
• Their share of partnership investment income (provided it arises in the UK)

So, in the early stages of your partnership, you want to discuss and clarify your residence status as this will affect your tax obligations.

You can read more about international partnership taxes here.

Does My Partner Need A Visa?

Your foreign partner will most likely need to apply for a visa. For example, a common one is the UK Expansion Worker visa (Global Business Mobility). This allows foreign businesses to set up a branch in the UK .

The general idea is that you can apply for a visa if you plan on representing an overseas business in the UK.

Company 

If a partnership doesn’t look like the right option for you, you may want to consider a Company Structure. This can involve a more complex set up and higher fees, but it’s much more secure. 

You also get the benefit of limited liability, so if the business is liable for something, it doesn’t affect you personally (subject to breaching director duties, of course). 

A company structure might be more suitable for you and your overseas partner as you can operate with only one director.

Technically, We’re A Foreign Company – What Are Our Options?

It’s not uncommon to have a foreign company operating in the UK, but perhaps you’ve wondered how this works from the legal side of things. 

If this sounds like something you want to pursue, you need to have either:

• A local subsidiary company (wholly or partly owned), or 
• A branch office

Subsidiary Company

If you opt for the subsidiary company setup, you’ll need the following things:

• A business address
• Resident directors 
• Company Registration Number (CRN)
• An office
• Regular tax filings 

The main benefit of a subsidiary company structure is that its activities are relatively separate to those of the foreign company. If something goes wrong with the UK subsidiary, the legal issues that stem from this will not always extend back to the foreign company. Further, the business’ obligations will only apply to activities conducted in the UK. 

Branch Office

Unlike a subsidiary company, branches are not entirely separate. If they run into trouble, the foreign company can be sued and held liable. However, it is easier to run and maintain than a subsidiary, and taxes only apply to UK-sourced income (with subsidiary companies, overseas income is also taxed). 

It’s important to familiarise yourself with these differences before deciding which structure to undertake.

Hiring Overseas Workers

If you’re considering hiring overseas workers, you might be asking yourself how this might work in relation to UK employment laws. 

The answer to this question really depends on whether you’re considered an employee or worker under UK laws. To determine whether your workers fall under UK employment laws, ask yourself some of the following questions:

• Is our company based in the UK or another country?
• Where are our employees based?
• Which country’s laws govern our contracts?

Whether the Employment Rights Act 1996 extends to your overseas workers depends on a range of factors, but the main takeaway from this is that it can apply to them. If this is the case, you need to make sure you’re compliant (for example, ensure you’re meeting minimum wage standards).

Hiring contractors overseas is another option (the requirements are different to those of employees), but there are also a number of rules around this kind of arrangement. You can read more about engaging overseas contractors here. 

What Else Do I Need To Know?

We’ve covered the general rules around running a business with an overseas partner, but it’s important to remember the basics. Running any business in the UK comes with certain obligations. 

• Director duties
• Privacy (e.g. Non-Disclosure Agreements, Non-Compete Clauses)
• Contracts (e.g. Company Constitution, Founders Term Sheet)
• Employer obligations (Work Health and Safety)
• Insurance

If you need help with the legal requirements for starting your own business, we’ve put together a simple guide to help you hit the ground running – you can access it here. 

Can My Contracts Be Enforced Overseas?

When dealing with overseas partners, it’s good business practice to ensure your contracts are internationally enforceable. In other words, you want to make sure you can act on the terms of your contract no matter which country you’re in. 

When drafting your contract, consider two things:

1. Which country’s laws will apply? (This is your governing law)
2. Who will hear the disputes? (This is your jurisdiction)

Your contract needs to be 100% clear on both of these, otherwise you may need to consider a uniform international convention that both the UK and the foreign country are party to. 

Key Takeaways

Before you dive into a business venture with an overseas partner, ask yourself:

• What structure will work best for me?
• What does my partner need to do?
• Where will my employees be based?
• Do I need to review my contracts so that they’re compliant with another country’s local laws?
• Will my tax obligations be any different?

If you need help sorting out your legals, we’ve got you covered. You can reach out to us at [email protected] or contact us on 08081347754 for an obligation-free chat.

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