Nadja Vietz, autora en Harris Sliwoski LLP Mercados difíciles, abogados audaces Thu, 28 Mar 2024 18:30:04 +0000 es-US por hora 1 https://wordpress.org/?v=6.4.3 https://harris-sliwoski.com/wp-content/uploads/cropped-Harris-Sliwoski-Logo-FinalIcon-White-1-32x32.png Nadja Vietz, autora en Harris Sliwoski LLP 32 32 Cannabis en España: Notas del ICBC https://harris-sliwoski.com/cannalawblog/cannabis-in-spain-icbc-notes/ mar, 22 mar 2022 14:00:57 +0000 https://harris-sliwoski.com/?post_type=cannalawblog&p=107856 This past weekend, I was finally able to attend the renowned International Cannabis Business Conference (ICBC) here in Barcelona, Spain. The event had been cancelled for two consecutive years due to the pandemic. I attended interesting panels on everything from cannabis 3.0, to cannatech, to the current challenges of cannabis clubs in Spain. I want

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This past weekend, I was finally able to attend the renowned International Cannabis Business Conference (ICBC) here in Barcelona, Spain. The event had been cancelled for two consecutive years due to the pandemic.

I attended interesting panels on everything from cannabis 3.0, to cannatech, to the current challenges of cannabis clubs in Spain. I want to focus on that latter issue today, and the related questions of 1) whether cannabis should be available for the public instead of through exclusive licensing and exporting processes; and 2) how Spanish regulation of cannabis would treat legacy cannabis operators and production. I’ll also touch on cannabis legalization in Europe more generally.

New draft bill of Integral Regulation and Control of Cannabis

The new draft bill of Integral Regulation and Control of Cannabis in Adults (122/000169 Proposición de Ley de regulación integral y control del cannabis en personas adultas), was presented on October 15, 2021, for debate and enactment in the Spanish Congress by the Confederal Group of UP-ECP-GEC.

As discussed here on this blog many times (here, here and here), Spain has a thriving cannabis culture with a great commercial potential. There is also much public support for legalization.

Unfortunately, Spain has no organized industry lobby and insufficient political advocacy. Cannabis clubs in Spain have been operating for decades in the grey legal area and last year, a Supreme Court ruling put hundreds of cannabis clubs at risk of closure while the Senate rejected a proposed bill to regulate cannabis clubs at the state level. After all these years of cannabis movement in Spain not only do we have no regulation of medical use or medical cannabis, but, outside of decriminalization there is not even a legal framework for private cultivation and consumption.

This lack of legal recognition of reality here in Spain was heavily criticized by the panel– especially when compared to much faster legal developments in the US, Canada and other European countries. Hence, the overall message from this panel discussion reflected a strong welcome of this draft bill, which would reflect a long expected legal framework.

At the same time, the panel also mentioned the incredibly low likelihood (likely less than 1%) of the new draft bill being enacted. While the outcome remains to be seen, the draft bill clearly reopens a debate that seemed lost and closed, and will hopefully bring us further along on the path of cannabis legalization in Spain.

Possible legalization of medicinal cannabis creates business opportunities

The panel on cannabis legalization in Spain also shed light upon the more likely scenario of legalization of medicinal cannabis through pharmaceutical industry. In this capacity, cannabis would be heavily regulated, but not legalized for recreational or medical use. While activists and club owners here in Spain are not pleased for obvious reasons, it must be said that there will be many business opportunities if and when this happens.

Cannabis markets in Europe and elsewhere

One panel entertained a high-level discussion of cannabis markets in the US, Germany, Switzerland, as compared to Spain. Licensing process and business opportunities in each of those countries were discussed. Despite some very interesting movement in Europe, it seems likely that the pandemic and Ukrainian crisis will slow down further any current legal development.

Finally, Spain’s big CBD market was mentioned and the lack of legalization was once again heavily criticized. Medical growth in Spain is regulated and done by pharmaceutical companies and they generally can only export to markets where medical use is allowed. Time will tell if Spain can move things forward on this opportunity, as well as cannabis legalization more generally.

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Planificación patrimonial y Derecho estadounidense para familias internacionales https://harris-sliwoski.com/blog/u-s-estate-planning-and-law-for-international-families/ mié, 23 feb 2022 15:00:48 +0000 https://harris-sliwoski.com/?p=105590 Thanks to globalization, many of us have family all over the world. If you live outside the U.S., but have relatives in the U.S., you may someday find that you have been named a beneficiary of a will governed by U.S. law. You might also find that even though your recently departed relative lived outside

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Thanks to globalization, many of us have family all over the world. If you live outside the U.S., but have relatives in the U.S., you may someday find that you have been named a beneficiary of a will governed by U.S. law. You might also find that even though your recently departed relative lived outside the U.S. at the time of their death, they have bequeathed to you U.S.-based assets (e.g. real estate, tangible personal property, U.S. company securities).

Under the U.S. common law system – different to civil law that holds in most of continental Europe, Asia, Africa and other places – an estate does not pass directly to heirs and beneficiaries but is held by an executor or court-appointed estate representative who bears responsibility for satisfying the decedent’s debts and distributing the estate’s assets.

For U.S. citizens, most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $11,700,000 in 2021. However, an executor for a non-resident, non-U.S. citizen must file an estate tax return if the fair market value at death of the decedent’s U.S.-based assets exceeds $60,000. This means that privately held assets with fair market value in excess of $60,000 will be taxed at between 18-40 percent.

Estate and inheritance taxes imposed by U.S. states

On inheriting U.S.-based assets, non-resident, non-U.S. citizens may incur tax obligations not only to the U.S. federal government, but also to the state(s) where the assets are located, and the state estate tax exemption, if any, may be much lower than the federal exemption. Also, rather than imposing estate taxes on the assets of the decedent, several states impose inheritance taxes on the distributions to beneficiaries (one state, Maryland, imposes both an estate tax and an inheritance tax).

Several states also impose a state gift tax. This means that residents of any other state may be able to significantly reduce or even eliminate their state estate tax by making gift transfers during their lifetimes. And in some cases, inherited assets may include an income-producing component that creates U.S. income tax obligations for non-resident beneficiaries, and as a general rule, distributions to the foreign beneficiaries are subject to federal withholding.

Depending on your circumstances, you may be subject to the terms of one (or more) tax treaties that have been agreed between the U.S. and other countries. Estate tax treaties may provide more favorable treatment than that provided for in the general tax regulations. The U.S. Treasury publishes the text of most tax treaties currently in force, but it is wisest to consult an experienced estate tax attorney.

What can be done to mitigate this tax liability? If you are a non-resident, non-U.S. citizen who may someday inherit U.S.-based real estate or securities that have significant value from relatives or friends, you may want to enquire about their preparedness for the estate tax issue.

Investment can be made through a corporation, limited liability company, or (irrevocable) trust. There are pluses and minuses (e.g. capital gains and income tax considerations) to investment through each of these vehicles that are dependent on the investor’s circumstances, and again, consultation with an estate planning attorney is advisable.

What if you are involved in an inheritance dispute?

The death of a loved one is an emotional time, and sometimes a decedent’s heirs or beneficiaries disagree with the decedent’s bequests, or their interpretation. Disputes can also arise over the validity of the will, or the cognitive capacity of the decedent at the time the last will was written. Further, disputes can arise over the decedent’s choice of executor.

In a dispute, or if there is any uncertainty about the validity of the will or the asset distribution process, it may make sense to apply for probate. Probate is the judicial process through which a will is “proved” in court, and the probate process allows the executor (and beneficiaries) to confirm the legitimacy of the decedent’s will, to confirm the value of the decedent’s assets, to pay any outstanding debts and taxes (which may require selling assets), and to distribute the decedent’s bequests to the heirs and beneficiaries. The probate process also makes public the entire asset allocation and distribution process, and provides court supervision over the executor’s actions, which can be a plus in instances in which there are disputes. It is worth noting, however, that the probate process costs time (it can hold up the distribution of assets) and money.

Especially in an estate dispute, which can be costly for all parties, it is critical to have experienced legal counsel on your side to help you achieve the most favorable resolution, whether via negotiation, mediation or litigation. In addition, having worked in more than 20 countries around the globe, we have found our knowledge of diverse cultures extremely helpful in understanding both sides of a dispute, and in attaining the best outcome.

Different jurisdictions operate different legal systems, and there is no substitute for proven expertise when it comes to challenging legal issues. Our attorneys have deep legal knowledge and experience, fluency in Mandarin Chinese, German, Spanish and French, and a client-first approach that ensures our clients consistently receive the highest standard of service.

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Legalización del cannabis en España: Novedades legislativas https://harris-sliwoski.com/cannalawblog/cannabis-legalization-in-spain-legislative-update/ Thu, 10 Feb 2022 15:00:07 +0000 https://harris-sliwoski.com/?post_type=cannalawblog&p=104304 Adult use cannabis legalization in Spain could be back on track, following a series of setbacks. To move things forward, Congress recently approved the creation of a subcommittee within the Committee on Health and Consumer Affairs. This subcommittee will analyze the experiences of regulating cannabis for medicinal use. Cannabis legalization in Spain: “To raise to

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Adult use cannabis legalization in Spain could be back on track, following a series of setbacks. To move things forward, Congress recently approved the creation of a subcommittee within the Committee on Health and Consumer Affairs. This subcommittee will analyze the experiences of regulating cannabis for medicinal use.

Cannabis legalization in Spain: “To raise to political reality, what at street level is simply normal”

We don’t know what Spanish president Adolfo Suarez had in mind when giving the famous speech quoted just above, but one thing is certain: there has never been more consensus about one topic in Spain than legalization of cannabis for recreational use. Nonetheless, no real progress on a legislative level has been made so far.

Another example of political short-sightedness is the recent rejection by majority of the Spanish Congress of a draft bill aimed at the legalization of cannabis for recreational use. This bill was registered by left wing parliamentary party Mas Madrid and debated in Congress plenary session number 125 on October 19, 2021. The final outcome of the vote presented as follows: 75 Yes (22% of the total votes); 263 No (76% of the total votes); and 9 abstentions (3% of the total votes).

Oddly enough, the proposal was not only strictly opposed by Spanish traditional center right wing party, but also by the main actors of the governing leftist coalition. This joint opposition crushed any short-term hope for recreational cannabis legalization in Spain.

Since that point, several similar draft bills have been registered by other parliamentary groups. Based on experience, we can expect these proposals to fail.

Creation of the subcommittee

Nevertheless, there is some hope for Spain’s legal cannabis landscape. Some real progress was made with the creation of the subcommittee to analyze experiences of regulating cannabis for medicinal use.

The subcommittee has initiated its work already. Its main tasks are:

  • To analyze the experiences promoted by different governments that have programs for the medical use of cannabis in place and to listen to as many actors and experts in the fields as it deems appropriate.
  • To draw up a report with an international comparative perspective on the existing scientific evidence, weaknesses, threats, strengths, opportunities, and results of the experiences analyzed.

The report will be submitted up to vote no later than May 20, 2022 in the Committee of Health and Consumer Affairs. Once approved by the Committee, it will be submitted to Congress for debate and final approval. The Committee of Health and Consumer Affairs constitutes one of the permanent legislative committees and therefore its decisions and reports are binding and mandatory.

Given the nature of the report, its content is most likely to mold the future regulation of cannabis for medical use in Spain. This presents a unique opportunity to provide patients in Spain with the same access that thousands of cannabis patients already enjoy in neighboring countries.

Possible scenarios of the outcome of the report

Taking account similar reports drafted by the Committee on Health and Consumer Affairs, there are several possible scenarios for the outcome of this report. Below are three.

In a first scenario, the subcommittee completes its mandate without stipulating a clear decision, awaiting further analysis. This would be a poor outcome, although better than a definitive conclusion stating that insufficient evidence exists to support medical cannabis programs. A definitive, anti-medical cannabis program conclusion would bolster opposition shown by the Spanish Government towards previous draft legalization bills.

A second, more realistic scenario would be a subcommittee recommendation to limit the application of medicinal cannabis to CBD and CBD derived products. This conclusion would follow the recent European Court of Justice ruling on the non-classification of CBD as a narcotic drug. (See also: CBD Food Product Approval in the EU). This conclusion would also serve as a Solomonic decision, pending further comparative advances in cannabis legalization– especially in other Member States.

Finally, a third scenario would lead to a complete legalization of cannabis, including THC, for medicinal use. Considering the unstable situation current cannabis club owners face, this would be a wonderful development. But it seems very unlikely given the current political climate.

Analysis of possible treatments and cures through cannabis use

On another note, the mandate set out for the creation of the Subcommittee stipulates that the report must also determine which diseases can be treated with cannabis. As previously stated, input from all stakeholders will be key to determine the access for patients to cannabis.

In conclusion, the approval of this subcommittee may be a small but important step toward complete cannabis legalization in Spain. Stay tuned. We will continue to update on all things Spain and cannabis here on the Canna Law Blog.

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Cómo crear una empresa en España RÁPIDAMENTE https://harris-sliwoski.com/blog/how-to-set-up-a-spain-company-fast/ mié, 19 ene 2022 16:58:11 +0000 http://harris-sliwoski.com/?p=15070 We talked here about the pros and cons of setting up a Spanish subsidiary instead of just opening a branch office. Once you have made up your mind to form a subsidiary in Spain to run your local activities, you might find you need to get that project started faster than you predicted. Your new

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We talked here about the pros and cons of setting up a Spanish subsidiary instead of just opening a branch office. Once you have made up your mind to form a subsidiary in Spain to run your local activities, you might find you need to get that project started faster than you predicted. Your new Spanish client might want to you to invoice it using a Spanish tax identification number and you do not want to lose out on that important Spanish contract. Or your local business contact suggests forming a company to start a big new project.

Chances are you can get a Spanish VAT number (so-called NIF) for the newco within four to six weeks, which is needed to start business activities and invoicing, but there are certain obligations you must keep in mind to avoid typical pitfalls in Spanish company set-ups.

First of all, there are several questions to answer: What type of company will best fit my needs? What steps must I take to successfully establish a Spanish company? What documents do I need to file and where? What documents do I need to bring from abroad to form the Spanish company?

The first step is to choose the right vehicle for your investment. The two most popular types of companies are the Sociedad Anónima (SA), a joint-stock company, and the Sociedad Limitada (SL), a limited liability company. An SA is somewhat similar to a corporation (Inc) under US law and, like a US corporation, its strict formalities and easy share transfers make it well-suited to companies expecting or seeking outside investment. An SL is similar to an LLC (Limited Liability Company) under US law and like a US LLC, it is usually the best choice for small businesses since it has fewer formalities and is easier to form.

Forming a company in Spain usually starts by applying for the company name from Spain’s Central Mercantile Registry. The Registry checks whether the name you picked is already being used by another company. If the name is available, the Registry will issue a certificate stating that the name can be used. Each application must include five possible company names; they will be checked in order if the first one is taken. The Registry’s company name certificate is valid for three months and must be enclosed with the deed of formation.

At the same time, you need to determine who will act on your behalf in the company formation. If you, as the shareholder/owner, cannot physically be present before a notary public when the Deed of Formation is granted, you should have someone (typically your lawyer) appear on your behalf. You will need to grant this person a power of attorney before a notary public for this to be valid, however. In addition, if your Power of Attorney comes from outside Spain, it must also be legalized with a Hague Apostille.

Foreign investors located outside Spain still must come to Spain at least once. This is because Spain’s ultra-strict anti-money laundering laws do not allow banks to accept representatives acting on behalf of foreign investors to open bank accounts. Since a Spanish bank account is necessary to satisfy the minimum capital requirements (EUR 3,000 for an SL and EUR 60,000 for an SA) the foreign company (acting through its representative) or foreign individual/investor will need to come to Spain to open a bank account.

The second step is to apply for a Spanish tax ID (an NIE or Numero de Identificación de Extranjeros) and to register each of the individual shareholders or representatives acting on behalf of corporate investors with the local tax authorities. The formalities are burdensome (the application needs to be presented in person at a local police office) and currently takes between two to three weeks, which can be much longer. It is highly advisable to delegate the application process to your lawyer or to a local agency so as to not waste your time and resources on this. If you grant a power of attorney for company formation, the authority to apply for the NIE can be included in that as well.

If the shareholder of the new company is a foreign company, a Commercial Registry certificate from its country of origin, including its by-laws, must be attached to the notary public’s deed of formation of the new Spanish company. This will be required when registering the Deed of Formation of the Spanish company at the Mercantile Registry.

Companies in Spain basically allow for three different types of governance: A Board of Directors, two directors acting jointly or individually, or a sole director. The personal data of each director must be submitted at the time the company is formed. The company directors also must each have valid Spanish NIEs before their appointments can be registered at the Mercantile Registry – this registration is necessary to act on behalf of the company.

The directors of the new company need not be present with the notary at the granting of the public deed of formation so long as a representative is there on their behalf with a valid power of attorney. The Mercantile Registry, however, can only register the Deed of Formation for a director that has accepted his or her position, which itself needs to be done with a notarized signature, either at the time of formation or with any foreign notary public, and should be attached to the formation deed.

Spanish law allows foreign persons to hold leading positions in company management and, depending on the type of activity, you will need someone on the ground to run day-to-day operations. That person can act with a power of attorney granted before a notary and (again) registered with the Mercantile Registry.

Depending on the company business, special licenses may be required before it can start any commercial activity (e.g. construction work).

You have probably realized by now that things here in Spain are done very formally and can take considerable time. It usually takes four to six weeks to establish a company in Spain, plus another two to four weeks for it to be registered at the Mercantile Registry, which is obligatory before your Spanish newco can legally employ anyone. Add to that any issues arising out of shareholder negotiations, work permit requirements for any directors, and/or problems with foreign documents not fulfilling formal Spanish requirements, and you can see all the opportunities for delay and why it usually makes sense to prepare as much as you can in advance.

If you want to win the race to get your Spain company up and running as fast as possible, read on. The following ten recommendations should help you get your company in operating condition so that you (and it) do not lose out on that important Spanish contract:

  1. Good connections are what moves everything in Spain; hire a local attorney and CPA;
  2. Reserve your company name in advance;
  3. Do not forget to apply for an NIE, even for the CEO of your foreign holding;
  4. Find a trustworthy local Spanish bank (your lawyer can help with this);
  5. Have your paperwork ready;
  6. Have someone on the ground in Spain to run your company and check to see whether that person needs a visa and work permit;
  7. Protect your IP. Spain follows the first-to-register, not first-to-use rule;
  8. Be prepared for problems;
  9. Be prepared for everything to eventually work out just fine;
  10. Be patient!

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Aprobación de productos alimenticios con CBD en la UE https://harris-sliwoski.com/cannalawblog/cbd-food-product-approval-in-the-eu/ Tue, 18 Jan 2022 15:00:05 +0000 https://harris-sliwoski.com/?post_type=cannalawblog&p=102825 The legal landscape in the Cannabidiol (CBD) sector is changing quickly, especially for CBD-infused food products. Companies looking for business opportunities involving CBD-infused food products are well advised to keep an eye out to new developments. In the European Union one can notice a change in perspective regarding CBD, its danger and use. This can

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The legal landscape in the Cannabidiol (CBD) sector is changing quickly, especially for CBD-infused food products. Companies looking for business opportunities involving CBD-infused food products are well advised to keep an eye out to new developments. In the European Union one can notice a change in perspective regarding CBD, its danger and use. This can be traced back to a long-awaited judgment by the Court of Justice of the European Union (ECJ) in 2020.

ECJ rules on the classification of CBD as narcotic drug

In November 2020 the ECJ concluded that CBD extracted from the Cannabis sativa plant in its entirety — and not solely from its fiber and seeds — cannot be regarded as a narcotic drug. Corresponding to currently available scientific data it “does not appear to have any psychotropic effect or any harmful effect on human health” (Case C-663/18).

This decision conflicted with the earlier classification of CBD by the United Nations (UN). Until recently, the UN placed cannabis and cannabis resin in the highest danger class of narcotic drugs established by the 1961 UN Single Convention on Narcotic Drugs. Following the ECJ ruling and a recommendation of the World Health Organization (WHO), the UN Commission on Narcotic Drugs downgraded cannabis and cannabis resin from the highest to the lowest danger class in December 2020 (to see how the sausage was made here, check see our earlier posts: The United Nations is FINALLY Taking a Hard Look at Cannabis and The World Health Organization Steps Up on Cannabis).

CBD in Europe after the ECJ ruling

The European Commission (EC) also reacted to the ECJ ruling and signaled that it will no longer classify CBD as a narcotic drug in the future. It stated:

“in light of the recent Court’s judgment in case C-663/184, the Commission has reviewed its preliminary assessment and concludes that cannabidiol should not be considered as drug within the meaning of the United Nations Single Convention on Narcotic Drugs of 1961 in so far as it does not have psychotropic effect.”

These developments are expected to open the European market to CBD. However, prior to selling a CBD-infused food product in the European Union, each product requires pre-market authorization under the EU novel food regulation.

Pre-market authorization 

The EU novel food regulation (Regulation (EU) 2015/2283) lays down rules for placing novel foods on the market in the European Union. These rules provide heightened protection for human health and consumers’ interests. CBD is classified as a novel food and therefore falls within the scope of application of the regulation. Any food product containing CBD therefore needs authorization by the EC before placing it on the European market.

The procedure under the EU novel food regulation is time consuming and involves several institutions. Primarily responsible is the EC as competent EU authority. Here are the steps:

  1. An application for approval of a novel food is submitted to the EC.
  2. The EC assesses whether the product meets all requirements set out by the regulation, e.g. no safety risk to human health based on available scientific data or no misleading of consumers by the intended use of the food.
  3. The EC then assigns the application to the European Food Safety Agency (EFSA) to conduct a scientific evaluation of the product, which concludes with a recommendation on whether the product should be approved.
  4. The EC submits its final evaluation regarding the approval of a novel food to the Standing Committee on Plants, Animals, Food and Feed (PAFF Committee).
  5. If PAFF Committee approval is granted, the product is added to the list of approved products within the EU Novel food catalogue.

For further information on the novel food application process see our latest post on European CBD Sales: Securing a Novel Food Authorization.

Sale of a CBD food product remains prohibited until approval as novel food

To date, CBD has not been approved as a novel food. All applications had been halted to await the above mentioned ECJ’s decision. The EC has now resumed the application process, and several applications for approval of synthetic CBD are pending.

In the light of the EC’s re-evaluation, it can be expected that CBD will be added to the list of approved products. However, it is uncertain when a final decision will be issued in the pending cases. Generally, it takes 3 to 4 years for an ingredient to gain novel food status.

Note that the approval of one CBD-infused product does not mean authorization of all CBD-infused products. Any product that differs from the one(s) approved will need to go through the novel food application process. Moreover, any approved novel food must comply with general and special labeling requirements the EC may impose on the approved substance.

Without approval, it is prohibited to place a CBD-infused food product on the European market. Still, enforcement is up to each EU member state. Enforcement is not uniform, with some countries being more stringent in the process than others. However, several European countries such as Spain, Belgium and Austria have taken enforcement actions against CBD products on the basis of being novel foods.

Despite the change in perspective regarding CBD within the EU, the formal requirements to market a CBD-infused product are being tightened. Businesses interested in marketing CBD-infused food products on the EU should carefully consider these new developments and risks prior to offering their products.

Further considerations for CBD food products in the EU

The new Common Agricultural Policy (CAP) was adopted on December 2, 2021 by the European Council. This introduces the possibility for farmers to receive Direct Payments for hemp varieties registered in the EU Catalogue. Critically, the CAP also elevates the authorized THC level for hemp varieties from 0.2% up to 0.3%. The new legislation takes effect in 2023.

This decision incentives a potential development of more specialized varieties of fiber, grain and flowers for CBD production. Eventually, this may translate in new CBD-infused food products.

We will continue to update as to the European Union and CBD here on the Canna Law Blog. In the meantime, check out these prior posts:

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¿Sucursal o filial en España? https://harris-sliwoski.com/blog/spain-branch-office-or-subsidiary/ Wed, 22 Dec 2021 16:28:05 +0000 http://harris-sliwoski.com/?p=11251 You’ve taken the first steps in expanding your business into Spain, perhaps by forming distributor relations. Now, you’re ready to put down deeper roots by renting office space and hiring staff. With these pieces in place you will be considered a “permanent establishment,” and it’s time to go beyond simply registering your foreign business. Foreign

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You’ve taken the first steps in expanding your business into Spain, perhaps by forming distributor relations. Now, you’re ready to put down deeper roots by renting office space and hiring staff. With these pieces in place you will be considered a “permanent establishment,” and it’s time to go beyond simply registering your foreign business. Foreign companies at this stage in their Spain operations usually benefit from forming one of two types of entities: a subsidiary or a branch office.

Spanish subsidiary and branch office formation share very similar processes, costs and formalities. Both result in granting a public notary deed of incorporation and registration in the corresponding Spanish Commercial Registry, and in both cases you will need to obtain a Spanish NIF number (Foreign Identification Number) from the Spanish Tax administration to register for quarterly VAT payments. Also, Spanish tax, accounting and employment law will apply to your Spain activities in both scenarios.

However, there are a number of differences to consider when choosing which type of entity to form. The most significant is that whereas a subsidiary is an independent local entity, a branch has no legal personality and it is dependent on the parent company. This means your US company will be wholly responsible for the activities of your Spanish branch, including all liabilities and claims.

In addition, opening a Spanish branch office makes tax matters more complex. The branch office qualifies to pay Non-Resident Income Tax, and tax returns must be filed annually. To do this, the foreign parent company must file all relevant foreign tax documents for tax returns in Spain. You will need those documents in certified translation and legalized with a Hague Apostille. With a branch, your parent company will also need to disclose part of its foreign accounting information in Spanish tax filings, which makes the process even more complicated. A subsidiary, on the other hand, will pay corporate income tax in Spain but can deduct payments made to its foreign parent company in the form of royalties, interest or management commissions.

Daily operations are generally much smoother with a Spanish subsidiary. This entity will be completely different from your parent company, handling its own accounting and taxes. Running a Spanish branch, on the other hand, can be quite burdensome. For instance, for any decision to be made for the branch, the board of the parent company will need to formalize the decision via notary public deed. To be recognized in the Spanish registry, this document will need to be translated, notarized and then apostilled pursuant to the Hague Convention. You can avoid this and other time-consuming processes by opting to form a subsidiary company in Spain instead.

Though it has numerous benefits, opening a Spanish subsidiary isn’t without its own drawbacks. First, you will need someone on the ground in Spain – a resident with a tax ID and green card or a local employee – to run your Spain business. This individual will be your appointed Spanish CEO, and will be able to make decisions quickly for the Spanish company. Spanish subsidiaries also have minimum capital requirements, which is not the case for branch offices. However, these formerly high requirements have been lowered to only 3000€ for a limited company. These funds must be paid into a bank account when setting up the entity, but can be used afterward for company operations.

After weighing these pros and cons, around 90% of our clients determine that forming a subsidiary is the best fit for their business needs. Between issues of liability, taxes and overall convenience, it’s easy to see why branch offices are becoming less and less common for foreign companies seeking to grow their businesses in Spain.

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España para nómadas digitales y emprendedores https://harris-sliwoski.com/blog/spain-for-digital-nomads-and-entrepreneurs/ Fri, 17 Dec 2021 16:28:39 +0000 http:/?p=2555 Spain has enacted various laws to bring in talented people who want to start a business or invest in Spain. Spain now allows foreign investors and skilled individuals to apply for extended visas. Most importantly for our firm’s clients, Spain now has loosened up its visa and tax policies for foreign entrepreneurs and digital nomads.

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Spain has enacted various laws to bring in talented people who want to start a business or invest in Spain. Spain now allows foreign investors and skilled individuals to apply for extended visas. Most importantly for our firm’s clients, Spain now has loosened up its visa and tax policies for foreign entrepreneurs and digital nomads.

1. Foreign Entrepreneurs in Spain

If you want to start a business in Spain, you need little more than a government-vetted business plan, health insurance and enough money to support yourself while living in Spain. It is quite easy for entrepreneurs to secure initial one-year Residence Visas to carry out the preliminary formalities required to engage in entrepreneurial activity. Entrepreneurial activity includes just about anything that would create jobs in Spain.

After their first year, entrepreneurs can apply for authorization to live in Spain for an additional two years, renewable for another two years. You need to live in Spain only six months out of the year to be able to secure visa renewals.

Compared to most other European and North American cities, Spanish cities such as Madrid and Barcelona have fewer competitors while offering excellent talent and technical expertise at a much lower cost. On top of this, various local and national Spanish government entities offer unsecured lending programs and Spanish law is considerably more favorable to new businesses than the legal codes of other European nations. Just by way of one example, Spain does not require a minimum investment in new businesses.

2. Digital Nomads in Spain

Earlier this month, Spain adopted new tax and law measures that will (soon) allow digital nomads to use non-resident tax status with lower rates for five years.

Per a tweet from Spain’s Ministry of Economics and Digitization, the goal of this new legislation is to attract and retain international talent by encouraging digital nomads to set up in Spain. Spanish expatriates who have been abroad for more than five years are also eligible for this same program.With a great climate, beautiful cities (Madrid, Barcelona, Seville, Valencia, take your pick!), long coastlines, world class beaches, great food, fast and reliable Internet, plus safe and affordable living conditions, Spain has always been a great place to live and visit. And with the government focused on making Spain easier and cheaper for foreign entrepreneurs and digital nomads, Spain has become one of the best places in the world for businesspeople in those categories as well.

3. Spain Real Estate

If you want to learn about Spain Real Estate as a Foreign Investor, I urge you to go here and listen to our webinar replay on what that involves. If you want to know why now is a great time to buy real property in Spain, I urge you to read Spain Real Estate: Now is the Time. And if you want to rent, I suggest you go here to search for available rental properties throughout Spain.

Bienvenido a españa.

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Ley de Secretos Comerciales de España https://harris-sliwoski.com/blog/spain-trade-secret-law/ mié, 15 dic 2021 16:28:53 +0000 http://harris-sliwoski.com/?p=14107 Trade secrets became explicitly protected under Spanish national law when EU Directive (2016/943/EU) became part of Spain law in 2019. A trade secret in Spain is now defined as secret information, unknown to those who usually handle such kinds of information and not readily accessible. This information also must have commercial value precisely because it

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Trade secrets became explicitly protected under Spanish national law when EU Directive (2016/943/EU) became part of Spain law in 2019. A trade secret in Spain is now defined as secret information, unknown to those who usually handle such kinds of information and not readily accessible. This information also must have commercial value precisely because it is secret. Lastly, the party asserting its trade secret rights to the information must have done what it could to reasonably keep its trade secret information a secret. In other words, Spain’s trade secret law now lines up with much of the rest of the developed world. See e.g. the United States’ Uniform Trade Secrets Act.

Spain’s trade secret law creates economic value for companies that hold trade secrets and it has already helped to promote and increase innovation by Spanish companies. Investments made by Spanish companies in research and development will not only be protected, they will be a factor in company competitiveness and value. This is also true for foreign companies that pursue innovation in Spain or in tandem with Spanish companies.

As mentioned above, for a company to be able to invoke the protection of Spain’s new trade secret law, it must have made reasonable efforts to keep the information secret. Fulfilling this “reasonable effort” requirement will be important for companies and they must set up policies and procedures and engage in best practices for doing so.

Spain’s trade secret law also impacts employee contracts as the failure to have trade secret protection provisions in your employee contracts may be construed by Spanish courts to mean that you did NOT make reasonable efforts to protect your trade secrets. If your existing employee contracts with your Spain employees do not explicitly make clear that they are never to reveal (or even put at risk) your company’s trade secrets, you should consider revising your employment contracts now. You should also consider adding trade secret protection language to any of your other contracts — especially your vendor agreements — with any company that may gain access to your trade secrets.

Spain took a big step in establishing a strong system for protecting trade secrets. Your company now must take the next step to ensure that it does not fall prey to it.

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Reconocimiento de sentencias extranjeras en tribunales de Estados Unidos https://harris-sliwoski.com/blog/recognition-of-foreign-judgments-in-united-states-courts/ Fri, 10 Dec 2021 16:58:13 +0000 http://harris-sliwoski.com/?p=7274/ This post is on the recognition of foreign judgments in United States Courts. More particularly, it is on the law U.S. courts look to when deciding whether to enforce a foreign court judgment, the foreign judgments they will enforce, and the procedures they use to determine whether to enforce. Winning a foreign lawsuit is one

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This post is on the recognition of foreign judgments in United States Courts. More particularly, it is on the law U.S. courts look to when deciding whether to enforce a foreign court judgment, the foreign judgments they will enforce, and the procedures they use to determine whether to enforce.

Winning a foreign lawsuit is one thing, but collecting on that judgment in the United States is another.

Successful litigation depends not just on winning a judgment, but also on enforcing it. Enforcing a foreign court judgment usually requires assistance from a court, and sometimes law enforcement within the court’s jurisdiction, to ensure compliance with the court’s decision. Before a US court will enforce a judgment issued by a foreign court, the US court must first recognize the judgment. To “recognize” a foreign judgment means to make it equal to any other judgment issued by a US court. A foreign judgment recognized by a US court—a domesticated judgment—has the same authority as a judgment first issued in the United States. Foreign judgments cannot be enforced in the US before they are recognized.

Although the process can be complicated, it is almost always faster and cheaper to domesticate a foreign judgment in a United States court than to obtain a new US judgment by filing a complaint and litigating the merits de novo in a US court.

What laws apply to the recognition of foreign judgments in United States Courts?

Many people are surprised to hear that there are no international treaties governing U.S. court recognition and enforcement of non-US court judgments. The US is a party to multilateral conventions that apply to enforcement of foreign arbitration awards, but it is not party to any multilateral treaties on the enforcement of foreign court judgments. Rather, recognition and enforcement of foreign judgments in United States courts is governed by individual state laws. Even if a case is brought in federal court, that court will apply the relevant state law in reaching its decision.

What foreign court judgments will United States courts enforce?

Although the law varies state-by-state, there are major similarities among states. Most U.S. states have adopted the Uniform Foreign Money Judgments Recognition Act (UFMJRA), drafted by the National Conference on Uniform State Laws. The UFMJRA provides a standard framework for courts to recognize and enforce non-US money judgments. States that have not adopted the UFMJRA (either in its original or amended form), generally recognize foreign judgments under common law and principles of comity. Likewise, non-money judgments ordering or prohibiting a specific act may also be recognized under state laws, with similar results.

In states that have adopted the UFMJRA, a foreign judgment granting or denying recovery of money will be recognized only if the judgment is (1) final; (2) conclusive; and (3) enforceable where rendered. If any of these three criteria are missing, the US court will not recognize the judgment. A pending appeal of a foreign court judgment does not necessarily mean that judgment is unenforceable where rendered. A US court may, however, stay US enforcement proceedings pending the foreign court appeal.

In addition, under the UFMJRA, the United States court cannot recognize the foreign judgment if the foreign court (1) was not impartial; (2) did not offer due process of law; or (3) did not have personal jurisdiction over the defendant. The judgment holder must prove that each of these requirements are met. Number two has become the go-to argument of late for opposing China court judgments.

In addition to these mandatory requirements, courts in most states have discretion to deny recognition for many other reasons. For example, the law in most states gives courts discretion to deny recognition of a foreign judgment if the judgment was obtained by fraud; if there was insufficient notice of the foreign proceedings; if the judgment goes against the state’s public policy; or if the foreign judgment runs contrary to US constitutional principles.

A few US states have also adopted a reciprocity requirement. This means that if the foreign jurisdiction that first issued the judgment would not recognize a judgment from the US state, that US state’s courts will not recognize a judgment from the foreign jurisdiction. Accordingly, attorneys must consult individual states’ laws as well as the laws of the foreign court that issued the judgment. Seeing as how China is so bad at enforcing U.S. court judgments, this is another basis for opposing the enforcement of Chinese court judgments in U.S. courts. See China Enforces United States Judgment: This Changes Pretty Much Nothing.

Procedures for getting a foreign judgment recognized by a United States Court must be followed.

Each state has its own procedural rules for enforcing a foreign court judgment. In most states, the procedure for recognizing a non-US judgment requires starting a new action in a US court to obtain jurisdiction over the US defendant or his property. Often, a summary proceeding — such as a summary judgment motion — may commence the action, rather than a complaint.

To support the claim, the foreign court judgment holder must prove that its foreign judgment is valid and authentic. To make that determination, the US court typically requires a certified copy of the judgment from the foreign court that issued it, along with an English translation. The translation must be certified by an approved translator or consular agent.

Notice of the recognition and enforcement proceeding must be properly served on the adverse party, and the adverse party must be given an opportunity to be heard. The adverse party may contest the proceeding and generally has a set time — such as 30 days — to do so.

Once the procedural rules for starting the action are satisfied, the foreign court judgment holder must prove that the final judgment rendered against the US defendant meets the state standards for recognition, as set forth above. If the foreign judgment meets the requirements to be recognized in a US court, a US court will convert the foreign judgment into a US judgment, which then becomes a domesticated U.S. judgment enforceable in the United States.

For more on United States Litigation, check out our United States Litigation Guide.

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Hacer negocios en Estados Unidos: Las leyes que debe conocer https://harris-sliwoski.com/blog/doing-business-in-the-united-states-the-laws-you-should-know/ Thu, 09 Dec 2021 16:08:58 +0000 http://harris-sliwoski.com/?p=6801 As the country with the world’s largest economy, the United States offers some of the best business opportunities in the world. However, the US legal system can also pose complex regulatory hurdles for foreign enterprises. Navigating these legal intricacies is crucial for foreign companies seeking to minimize risk and operate successfully in the expansive US commercial

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As the country with the world’s largest economy, the United States offers some of the best business opportunities in the world. However, the US legal system can also pose complex regulatory hurdles for foreign enterprises. Navigating these legal intricacies is crucial for foreign companies seeking to minimize risk and operate successfully in the expansive US commercial landscape.

This guide is intended to equip foreign companies with a working understanding of the US legal framework and key laws that frequently impact foreign business activity in or even with the United States. It does this by highlighting the areas of US law that foreign companies regularly encounter when establishing and conducting operations in the United States. Having strong familiarity with topics like business entities, contracting, taxes, IP, immigration, employment, and product liability can help foreign businesses steer clear of legal pitfalls as they grow in the US.

Though securing local counsel is imperative when doing business in the US, having baseline legal knowledge empowers foreign companies enables foreign businesses to efficiently communicate their needs to their US legal counsel, grasp the importance of the advice provided, and make better commercial decisions aligned with US legal realities.

With the proper mix of preparation, partnerships, and compliance, foreign companies can capture the full range of opportunities the US has to offer while avoiding unnecessary legal risks. This guide serves as a starting point for gaining the legal acumen to make that possible.

avoid unnecessary business risks

The United States Legal System

The United States has a federal system of government. This means that laws are made at the national (federal), state, and local levels. “Local” laws are those made by cities and counties that apply in those geographic regions. All 50 states (along with US territories and the District of Columbia) have their own state and local laws that apply in those jurisdictions. Some areas of law, such as patent and copyright, are governed exclusively by federal law. Many other laws, including laws governing contracts, employment relationships, and sales transactions, are primarily set by individual states. And many other areas of law are governed by both federal and state law. When doing business in the US, foreign companies should be aware that they are subject to these parallel systems of laws, which often differ from state to state.

Business Entity Choices

A foreign company entering the US must decide on the form of business entity it will use to conduct its US operations. The most common types of domestic business entities are corporations, limited liability companies (LLCs), and partnerships. Each business form has its own benefits, and the choice of form depends on case-specific legal and business factors. Each type of business entity must be formed according to the laws of the state in which the entity is formed. All entity types other than partnerships require organizing documents to be filed with the state government.

Branch Office

A foreign company is not required to conduct business in the US through a US entity and can instead open a branch office. Doing so, however, is generally not advised for tax and liability reasons. A branch office, unlike a subsidiary, is not a separate legal entity from the parent company. A branch office is considered to be the foreign company operating in the US. If a foreign company establishes a branch office in the US and conducts business in the US, the entire company is considered to be “doing business” in the US. This can subject the company to taxation on all income earned, rather than limiting taxation to the income of the branch office. Furthermore, liability of the foreign company is not limited to liability incurred at the branch level. Accordingly, foreign businesses coming to the US generally do not elect to open a branch office unless specifically advised to do so by a US attorney. Selecting one of the entity forms discussed below is typically more advantageous than opening a branch office.

a branch office is considered to be a foreigh company operating in the US

Corporations

Many foreign companies do business in the United States as corporations. Corporations are organized under state law and each state has its own rules for creating and operating corporations. In the US, a corporation may be created under the laws of one state and have its principal place of business in a different state. A logical choice is to incorporate in the state where the business intends to locate its operations. The state of Washington is popular choice for business to incorporate in due to predictable and business-friendly laws. The Washington Uniform Business Organizations Code and the Washington Business Corporation Act govern the formation of a Washington corporation.

To form a corporation, a certificate of incorporation must be filed with the Secretary of State—typically online—in the chosen state. In most states, the owners (also called “shareholders”) of a corporation elect directors, who set company policy and elect officers, such as a company president, vice president, secretary, and treasurer. The directors of a US corporation can be foreign nationals and must be natural persons and not foreign companies. The rules for operating the corporation are commonly included in the company’s written bylaws. The internal structure and bylaws of corporations are similar across jurisdictions but can be customized to meet individual company needs.

The most common corporate form is called a C-corporation. C-Corporations are taxed at the corporate income tax rate separately from the company’s owners. This means that profits distributed as payments to the owners are taxed twice—first at the corporate level and second at the owner level. This double taxation can be avoided by US companies by electing to be treated as an S-Corporation, which is a “pass though” entity for federal tax purposes. A foreign company, however, cannot elect to be treated as an S-Corporation.

C-corporations are taxed at corporate income tax rates

US law treats corporations as legal persons, meaning that a corporation can enter into contracts, sue and be sued, and carry its own liabilities as a natural person does. In general, individual owners can avoid personal liability for the actions of the corporation and, in the event of insolvency, the corporation can declare bankruptcy without putting the owners’ personal assets at risk. It is, however, important for the owners to maintain corporate formalities and keep separation between the owners’ personal affairs and company business in order to prevent creditors from imposing liability on directors and owners personally. Protection from personal liability for directors and owners is among the most important features of a corporation.

Limited Liability Companies

Another choice of entity is a Limited Liability Company (LLC). Like a corporation, an LLC is formed by registering with the Secretary of State in the state in which the company is to be created. As with a corporation, an LLC is governed by the laws of the state in which the LLC is formed. An LLC must have at least one member, and members do not need to be natural persons.

LLCs offer flexibility with respect to how the company can be financed and managed. The owners of an LLC—called “members”—typically design and create an “operating agreement” that governs the operation and organization of the LLC. While most companies elect to create an operating agreement, doing so is optional. For example, under Washington law, members are not required to adopt a written agreement, but without an operating agreement, the LLC will be governed by default provisions set forth by Washington state statutes. Likewise, if the operating agreement leaves out certain provisions, the default provisions of Washington’s LLC law will apply.

Unlike corporations, LLCs can elect either to be taxed as a corporation or to have income “pass through” to members and be taxed at the member level. Many foreign companies prefer to be taxed at the corporate level to avoid having distributions to members reflected on their personal tax returns.

Foreign companies taxed at the corporate level

Like a corporation, an LLC has a legal identity separate from its members. Members’ personal liability is therefore limited to their investments. As with corporations, creditors may only reach members’ personal assets in limited circumstances where the members disregard the separate corporate identity of the company or use the LLC as a shell to avoid liability for a parent company.

Partnerships

A foreign company can also form a partnership by agreeing with another party to do business together in the US. While a written agreement is not required to form a partnership, it is advisable to formalize the arrangement through a written agreement. General partnerships do not offer the same liability benefits as corporations and LLCs. Foreign companies should also know that partnerships can be formed by oral agreement or by conduct without filing any documentation with the state. In some instances, a partnership can be formed unwittingly through an informal agreement to undertake a particular business with another person. Foreign companies should engage counsel early on to avoid these misunderstandings.

mobilize your business

United States banking for foreign companies

It can be difficult to open a bank account in the US for a foreign entity without a US presence. Even once a foreign individual or company has created a US entity, it is not uncommon for banks in the US to be more willing to lend money to US businesses over their foreign counterparts. Once a foreign business has been successfully doing business in the US for a period of time, that business often has increased access to capital through US banks.

U.S. Business Immigration

All foreigners coming to the US to work must obtain permission to do so in the form of a visa. US visa laws are complicated and strictly federal. Individual states do not regulate or provide visas. Visas are issued by US embassies and consulates abroad. Many types of visas, including most types of work visas, require approval from US Citizenship and Immigration Services.

It is important for foreigners to obtain the correct type of visa for their stay in the US. There are numerous employment categories for admission to the US and there are particular categories for investors, for business visitors, and for sponsor-based employment. Many entities bringing a business to the US seek advice from a US immigration attorney to select the correct visa category and to avoid application mistakes.

Numerous typces of visas have different requirements

Each of the numerous types of visas have different requirements and allow for different authorized lengths of stay in the US. For example, the E-2 non-immigrant visa allows individuals from countries with which the US has a treaty of commerce and navigation to be admitted to the US if the person seeking the visa is investing a substantial amount of capital in a US entity. The individual must be seeking to enter the US solely to develop and direct the investment entity. Separate visas may also be obtained for employees and family members of qualifying E-2 visa recipients. A qualified individual can stay in the US on an E-2 visa for an initial stay of 2 years and requests for extension of stays may be granted in additional 2-year periods.

It is critical for foreign business owners and their workers to adhere to the terms of their particular visa as any violation can result in removal from the US or denial of re-entry into the US.

United States Contract Law

Contracts are usually governed by state law. Generally speaking, if parties enter into a written agreement, courts will interpret that agreement based on the plain language of the writing, the parties’ conduct, industry custom, and applicable laws. However, all 50 states have adopted some variation of the Uniform Commercial Code (UCC), which generally applies to any contract for the sale of goods over $500. When interpreting such contracts, courts will look to UCC provisions to fill in gaps that the parties did not address in their agreement.

Not all countries require consideration for contract formation, but in the US, an agreement without consideration is invalid. Performance or a return promise must be bargained for between the parties in order to qualify as consideration. For example, consideration can be money, performance of a service, forbearing from doing something, or the modification of a legal right.

Negotiation and your attorney’s role

It is common for legal counsel to be involved early in negotiating and drafting contracts. Counsel for each party typically exchange numerous versions of agreements with “red lined” edits before reaching a final agreement. Foreign companies should be comfortable with this dynamic when working with US companies and will often benefit from engaging legal counsel prior to agreeing on important deal points.

Choice of law and venue

Because US contracts are governed by state law, all contracts should include a “choice of law” clause that designates which state’s laws to use in interpreting the agreement. Similarly, a contract may include a “choice of venue” clause that designates the state in which a lawsuit may be brought to enforce the contract. Making these selections allows for predictability and avoids litigation in unfamiliar or distant jurisdictions.

Choice of Law Clause

United States taxes related to foreign companies

Given the complexity of US tax law, careful tax planning and counsel is important for all companies doing business in the United States. Companies in the US are subject to separate federal, state, and local taxes. The federal government, through the Internal Revenue Service (IRS), collects income tax, capital gains tax, tax on dividends, interest, and other passive income, and employee payroll taxes. Businesses will also likely have some additional tax obligations in the state in which they conduct business.

Getting an EIN number from the IRS

A new company must obtain an Employer Identification Number (EIN) from the Internal Revenue Service. The EIN is required for filing taxes and to identify the company. This number is often required before a company can transact business or open a bank account. In order to obtain an EIN, an applicant may apply by filling out an “SS-4” form. This can be done online (www.irs.gov), by mail, or by fax. Foreigners without an Individual Taxpayer Identification Number (ITIN), however, cannot use the online service to obtain an EIN. International applications may be made by telephone by calling 267-941-1099 to obtain their EIN. The person making the call must be authorized to receive the EIN and to answer questions concerning the SS-4 form.

Tax treaties

The US is party to bilateral tax treaties with numerous foreign countries. If your home country has a tax treaty with the US, the tax treaty should be consulted as a primary tax planning tool. These treaties have significant differences, but generally aim to prevent double taxation and tax evasion and to facilitate commerce between countries. Many treaties set forth the conditions under which a foreign company has a “permanent establishment” in the US, which affects whether the business will be subject to federal income taxes. If a provision of a relevant tax treaty results in a foreign company owing less federal income tax, this benefit must be claimed on the company’s federal income tax return and the specific provision must be cited on the return form. Failing to comply with this requirement can result in significant penalties. Operating through a US entity, such as a corporation, eliminates some of the concerns about double taxation that foreign companies rely on tax treaties to resolve.

Corporate income tax

A corporation formed in the US is subject to federal income taxes on all of its income earned anywhere in the world. The tax is levied on net taxable income, which is gross income less allowable deductions. There are a wide variety of deductions available to taxpayers and the rules governing those deductions are complex. Companies in certain sectors may also be eligible for tax credits, which are often used to incentivize investment in emerging industries like renewable energy. Tax credits are particularly valuable compared to deductions because they reduce a company’s tax bill dollar-for-dollar.

Tax credits reduce a company's tax bill

State Sales Taxes

In addition to federal taxes, companies doing business in the United States must comply with state sales tax laws. Sales tax rates vary widely by state and some localities add further sales taxes. Generally, businesses are required to collect and remit sales tax in any states where they have a substantial physical presence or “nexus.”

With the rise of e-commerce, the issue of out-of-state sellers collecting sales tax on online sales has become increasingly common. and many states require out-of-state online sellers to register, collect, and remit sales tax. Companies with significant online sales to US consumers should familiarize themselves with the evolving patchwork of state sales tax laws and registration requirements. Failure to comply can result in audits, tax liabilities, interest, and penalties. Proper sales tax compliance is complex but critical as states crack down on untapped revenue sources.

Transfer pricing

Foreign companies doing business in the US may not shift profits to a foreign parent company to avoid taxes. The practice of “transfer pricing” occurs when a foreign parent company charges the US subsidiary exorbitant prices for goods or services, such as inventory or management services, in order to move pre-tax money overseas. The IRS can investigate companies for this practice and may impose steep penalties for violations. Defending a US tax audit is expensive and time-consuming, further adding to the costs of non-compliance. Any short-term benefits gained are outweighed by the risk of being audited and caught by the IRS.

Individual/Expat income taxes

Individuals that are US citizens or US resident aliens are subject to tax on their worldwide income, regardless of where they work or live. Generally, an individual is considered a US resident for tax purposes when they either obtain legal permanent residency status or are present in the US for at least 183 days of the latest tax year. Even if an individual is not a US resident or legal permanent resident, such individuals must still pay US federal income tax on income earned in the United States.

In either case, a foreign individual would benefit greatly from proactive tax planning with a US tax professional. Such professionals are aware of numerous deductions, exemptions, and tax credits that minimize tax liability and ensure compliance with the law. As is the case with corporate income taxes, individuals can be subject to harsh penalties for failure to pay US taxes.

Foreign Investment in Real Property Tax Act (FIRPTA).

Foreign individuals and companies doing business in the US are also subject to the Foreign Investment in Real Property Tax Act (FIRPTA). This act applies a tax to the disposition of real property in the US, regardless of the taxpayer’s residency or the existence of a “permanent establishment” in the US. This tax is an issue any time an individual or corporation acquires or sells any interest in real property in the US.

United States Intellectual Property Laws

The US has robust intellectual property laws that protect intangible assets that add value to businesses and distinguish brands and products. There are four primary forms of intellectual property in the US: patents, copyrights, trademarks, and trade secrets.

US Intellectual Property Law

Patents

A utility patent protects the functional and structural aspects of an invention. In order to secure a patent, the invention must be new, novel, and non-obvious. New, original, and ornamental designs for an article of manufacture can also be patented in the US. Once a patent is granted by the US Patent Office (USPTO), the patent owner has the right to exclude others from making, using, selling, and importing the invention or design in the US for a period of 20 years from the application filing date. A foreign company doing business in the US may not infringe the patent rights of a US company. If the patent owner believes its patent rights are being violated, the owner can bring an infringement action in federal court and seek damages and an injunction.

Companies should note that foreign patents are unenforceable in the US. A foreign company introducing a unique product into the US market may be able to obtain protection for its invention by securing a US patent, provided that the invention has not been marketed or sold in another country. Obtaining a patent in the US, however, requires US patent counsel and can be time-consuming and expensive.

Trademarks

Trademark rights in the US are based on the use in commerce of a word, name, symbol, or combination thereof which the public sees as indicating the source of goods or services. Federal protection for a trademark is secured by registering the trademark with the USPTO. A registered trademark holder can sue competitors whose marks deceive or confuse customers or dilute the value of the registered owner’s brand. Trademark owners may also register their mark at the state level, but state registration confers fewer rights than federal registration. Foreign companies should consider seeking trademark protection for company and product names by registering with the USPTO.

Like foreign patents, foreign trademarks are not enforceable in the US. Rather, trademarks are territorial and must be filed in each country where protection is sought. The Madrid Protocol, however, makes it easier to register a trademark in multiple countries. By filing one application with the USPTO, U.S. applicants can concurrently seek protection in up to 84 countries.

Separate from USPTO registration, the user of a mark may acquire certain common law trademark rights by using the mark in commerce. These rights, however, are limited and much less clearly defined than those granted by formal registration.

Copyrights

US copyright law gives the author of a work exclusive rights in the work for the life of author plus seventy years (for works created on or after January 1, 1978). Copyright protection is available for literary, musical, architectural, artistic, graphic, sound recordings, and other works that are written down or otherwise fixed in a tangible medium. The exclusive rights granted to the copyright owner include the right to reproduce the work, prepare derivative works based on the original, distribute copies of the works, perform the work publicly, and display the work. Both published and unpublished works are protected by copyright.

Copyright protection is automatically secured when the author creates the work—registration is not required for protection. This protection applies to unpublished works regardless of the nationality or domicile of the author. As a result of various treaties to which the US is a party, published works authored by foreigners may also be protected by US copyright law if certain conditions are met. Although registration is not required, federal registration does confer substantial benefits, including the ability to enforce the author’s rights in court and to obtain additional remedies for infringement. Registration is easily completed through the Copyright Office.

 Trade secrets

A trade secret is any information that adds value to a business or provides a competitive advantage to the owner because the information is not known by others. For example, a trade secret could be a formula, a device, a compilation of data, or a manufacturing technique. Trade secrets are broadly protected by state law in all 50 states. Trade secrets are also protected under federal law as of the May 2016 passage of the Defend Trade Secrets Act. The owner must make reasonable efforts to maintain the secret for continued protection. Trade secret law can protect intellectual property that is not patentable but is crucial to a company’s operations or product. Companies often require that employees sign agreements to protect trade secrets.

United States Labor and Employment Laws

Foreign business coming to the United States must comply with US law when hiring employees that will be working in the US. US laws distinguish between “employees” and “independent contractors.” Employees are subject to tax withholding requirements and protected by federal labor laws. Independent contractors, on the other hand, are not subject to tax withholding requirements and are not covered by many labor laws, such as federal minimum wage. A true independent contractor exercises a greater degree of behavioral and financial autonomy than an employee. Companies doing business in the US need to be aware of these distinctions and accurately classify workers. If a government agency or court determines a worker is actually an employee rather than an independent contractor, the employer can be liable for back taxes and civil claims under labor laws.

Employment/Expat employment contracts

Contracts governing employee relationships between foreign owners in the US and foreign employees in the US must comply with US law. Many companies enter into employment contracts with their key employees such as executives, officers, top managers, and others whose technical or commercial skills are integral to the business. These employment contracts may set the scope and term of employment and the conditions under which the parties can terminate the relationship. Absent such an agreement, an employee is considered “at-will”, and the employer or employee may terminate the relationship for any lawful reason without notice in nearly all US states.

Employers must also comply with US wage and hour laws when entering into contracts with their US employees. For example, the Fair Labor Standards Act (FLSA) requires employers to pay at least the federal minimum wage and time and one-half overtime pay for each hour over 40 per week. If an employee is working in a state with a higher minimum wage, the employer must pay the higher state minimum. Employers must also comply with the Family Medical Leave Act (FMLA), which sets standards for employee absence due to qualifying medical or family reasons. Employees are allowed 12 weeks of unpaid maternity leave, under the FMLA.

HIgher Minimum Wage

Intellectual property and inventor agreements

Under US law, discoveries and inventions made by an employee during their employment generally belong to the employer. Nevertheless, it is common for employment contracts to contain language expressly granting such rights to the employer and requiring that the employee cooperate to secure federal registration of the intellectual property at issue. Employment contracts can also be used to broaden the scope of an employer’s rights to include any and all discoveries and inventions related to the business or made using company equipment during the employment term. Employment contracts can further be used to limit employees’ ability to derive inventions from their knowledge of proprietary systems or information.

Non-Disclosure agreements.

Many US employers require employees to sign broad non-disclosure agreements to prevent employees from sharing proprietary information with competitors or any other valuable, unflattering, or otherwise sensitive information. Non-disclosure agreements are also common before negotiating deals that involve exchanging sensitive information.

Non-Compete agreements

Non-compete agreements that limit a former employee’s ability to work for a competing company can be tricky under US law. Such agreements are flatly unenforceable in some states and are construed narrowly by courts. Nonetheless, they are often favored by employers and can be effective in some instances. Where allowed, non-compete agreements must be reasonable in scope, time, and geography and may not make it impossible for the former employee to earn a living in their field.

Employee handbooks.

Employee handbooks are often used to provide instructions to orient new employees and to set forth company policies. Employee handbooks, however, are not a substitute for an employment contract, even when the handbook is signed by the employee. Representations in the handbook, might, however, be construed to modify employment terms in certain circumstances. Accordingly, it is common for employers in the US to avoid language that could create an expectation of continued or perpetual employment for an at-will employee.

Anti-Discrimination laws

Federal and state laws broadly prohibit discrimination based on an employee or potential employee’s race, color, national origin, religion, age, gender, disability, marital status, and veteran status. Employers are also prohibited from punishing employees who report discrimination. These anti-discrimination laws must be complied with at all stages of employment, including during hiring, advancement, and termination. Many states and localities have enacted additional laws that extend further protections on the basis of, for example, sexual orientation or gender identity. This is an evolving area of law in the US.

In order to ensure compliance with all anti-discrimination laws, companies often codify anti-discrimination policies in an employee handbook and educate managers and supervisors on these laws. An employer that knowingly allows an employee to engage in discriminatory conduct can be liable for that employee’s actions, even if the company policy prohibits discrimination.

United States Product Liability Laws

US product liability laws differ greatly from product liability laws in other countries. Unlike in many other countries, a majority of US states have adopted the doctrine of strict liability in tort. The adoption of strict liability expanded the scope of entities that can be liable for product injuries and lessened the proof necessary to establish such liability. Under strict liability, a company

anywhere in the production chain (makers, distributors, retailers) can be liable if they sell a product in a defective condition that is “unreasonably dangerous” to the user. This is true even if the seller was not negligent (meaning the seller exercised reasonable care) and even if the consumer did not enter into a contractual relationship with the seller. The focus of the inquiry is on the product and not the conduct of the seller.

A company could also be held liable to an injured consumer under a separate negligence theory, or for breach of warranty. A company is negligent if it fails to meet the standard of care that a reasonable company should have exercised under the circumstances, such as in the design or manufacture of the product. A company could also be found negligent for failing to warn consumers of a product’s dangers. Warranty claims arise from a contractual relationship between the injured person and the seller of the product. In the US, warranties may be express or implied.

Company held liable to an injured consumer

Unlike in many other countries, damages for product liability cases are commonly decided by juries and may include compensation for all direct and indirect losses caused by the injury. This means that damages in product liability cases can be very high.

Because the entire production chain could potentially be liable for harm caused by a product, it is important for businesses to include indemnification provisions in US sales contracts. An indemnification provision is an agreement by one party to compensate the other for certain costs and expenses. Under a typical indemnification clause, the obligor (the party giving indemnification) agrees to reimburse the obligee (the party receiving indemnity) for any losses, liabilities, claims, or causes of action that arise from or are related to injuries caused by the product. It is also possible to negotiate a defense clause where one party agrees to defend the other against lawsuits filed by injured third parties.

In addition to negotiating indemnification and defense clauses, foreign companies doing business in the US should consider carrying adequate insurance coverage to protect against product liability claims.

United States Environmental Laws

The United States has a comprehensive system of environmental laws that regulate air, water, land, and hazardous waste. These laws are designed to protect human health and the environment.

Foreign companies that do business in the US must comply with these laws, regardless of their home country’s environmental laws. The US Environmental Protection Agency (EPA) is the primary federal agency responsible for enforcing environmental laws. The EPA can impose civil and criminal penalties for violations of environmental laws. Foreign companies that violate environmental laws in the US can also be subject to private lawsuits.

Major Environmental laws

Here are some of the major environmental laws in the US:

  • Clean Air Act: This law regulates air pollution from factories, power plants, and other sources.
  • Clean Water Act: This law regulates water pollution from factories, sewage treatment plants, and other sources.
  • Resource Conservation and Recovery Act (RCRA): This law regulates the disposal of hazardous waste.
  • Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA): This law, also known as Superfund, regulates the cleanup of hazardous waste sites.
  • Safe Drinking Water Act: This law regulates the safety of drinking water.
  • Endangered Species Act: This law protects endangered and threatened species.

Here are some specific examples of how US environmental laws impact foreign companies:

  • A foreign company that operates a factory in the US must comply with the Clean Air Act’s emission standards.
  • A foreign company that discharges wastewater into US waters must comply with the Clean Water Act’s discharge permits.
  • A foreign company that generates or transports hazardous waste in the US must comply with the RCRA’s regulations.
  • A foreign company that is considering acquiring a property in the US must be aware of any environmental contamination on the property.

Foreign companies that violate environmental laws in the US can face significant penalties. These penalties can include fines, imprisonment, and the loss of business licenses. In addition, foreign companies that violate environmental laws can be subject to private lawsuits from individuals and businesses that have been harmed by the pollution.

By understanding the US environmental laws and regulations, foreign companies can avoid costly penalties and protect their reputations.

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