Key aspects in entering into contracts with foreign companies

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Co-operation with foreign partners is now becoming a common practice for many enterprises. This provides enterprises with an opportunity not only to expand the geography of their activities, but also to make the latest discoveries in the markets, increase the efficiency of production and improve the quality of products. Nevertheless, in order for established co-operation to bring success and security, it is important to prepare and negotiate carefully when entering into international contracts. In this publication, we will look at the key points to consider when engaging with foreign companies

What types of international contracts exist and what are the main provisions to consider

International contracts cover different areas of activity and can be of different types depending on the subject matter of the transaction. Let us consider the main types of international treaties:

  1. Contracts for the supply of goods: here we are talking about the import and export of goods.
  2. Contracts for the performance of work or services: these cover a wide range of services, including construction and consultancy activities.
  3. Contracts for the transfer of intellectual property rights: these include licensing and technology transfer.
  4. Leasing arrangements: involve the temporary grant of the right to use equipment or vehicles.

When entering into an international contract with a foreign company, it is important to pay attention to the following key provisions:

  1. Terms and definitions: it is important to clearly define specific terminology, if used.
  2. Payment arrangements: it is necessary to specify the currency of payment, methods and terms of payment, as well as the terms of penalties for delay.
  3. Force Majeure: the conditions under which the parties are released from liability for failure to fulfil obligations.
  4. Confidentiality: rules on the protection and handling of confidential information.
  5. Applicable law and dispute resolution: jurisdiction and methods of resolving possible conflicts should be defined.

When developing an international business, it is important to consider the tax consequences that may arise when entering into contracts with foreign companies. Russia has a complex taxation system which requires careful analysis and understanding. The key issues to consider are:

  1. Profit tax: when entering into a contract with a foreign company, profits derived from the transaction may be subject to taxation in Russia. It is important to consider tax rates and tax payment rules.
  2. VAT: value added tax may be applicable when importing goods or services from abroad. It is necessary to take into account VAT rates and specifics of its payment when concluding contracts.
  3. personal income tax: if a contract with a foreign company involves the payment of income to individuals, for example, for the provision of services, it is necessary to take into account the taxation of such income in Russia.
  4. Property tax: if there is property abroad, questions arise as to the taxation of that property in Russia.

Taking into account the above tax aspects, when entering into contracts with foreign companies, attention should be paid to the following criteria:

  1. Check tax residency: determine in which country the income from the contract will be taxed.
  2. assess possible tax benefits: find out what tax benefits may apply when doing business with foreign companies.
  3. Tax compliance: it is necessary to follow the requirements of Russian tax legislation when entering into contracts with foreign partners.
  4. Consultation with tax experts: if necessary, contact tax experts for professional support when concluding international contracts.