General issues facing foreigners

Is it time to consult a lawyer in Italy?

shutterstock_121835134 copy 2The short answer, without the following lengthy rationale, is probably. I am aiming this post primarily at the British for reasons I will explain, but it has relevance to other Northern Europeans and also Americans.

If you have what appears to be just a small issue, situation or doubt, you should run it by a lawyer to be sure. But don’t worry, you won’t have any trouble finding one, Italy has more than any other European country… a lot more!

Being British I fully understand the natural inclination to avoid using lawyers wherever possible, it is the notion of eye watering hourly fees clocking up as they carry out their dark art behind closed doors before presenting a bill that looks more like the list price of a new Ford Fiesta. The only consolation is that the standards are high and British society is such that most people have little need for a lawyer in ordinary life. However, ‘when in Rome’ you need to re-adjust your mindset somewhat, as firstly, lawyers’ fees are generally lower than the UK and secondly, the chances are that you do need their advice!

To properly understand the difference you must consider that the bureaucratic structure of everyday life in Britain is very different to many of our continental cousins. For example, try telling someone from mainland Europe that in Britain you drive a car without carrying your license, vehicle documents or insurance certificate (to them that would mean immediate arrest and your car impounded) or that you don’t carry any form of ID in public at all times, they will struggle to see how order is maintained with such Bohemian governance. And the suggestion of doing anything vaguely important without using a Notary would leave them perplexed as to how that is even possible, and in any event would surely be rendered invalid in some future dispute.

Car cartoon copyBecause the British have much less formal bureaucratic involvement in everyday life, rarely requiring intermediaries, its citizens are far more reliant and trusting of the basic administrative processes, even if they are not aware it. Most affairs can be conducted at no charge by simply filling in a form and posting it to the appropriate authority, and even then they will quietly grumble if is not a ‘Freepost’ envelope!

For example, to sell your car you simply fill in the name and address of the person buying it on the original car registration document (you don’t even need a separate form) sign it and send it off to the DVLA. The buyer does the same with their half. It is a 5-minute job from the comfort of your own home, with no charge beyond the postage.

However, the next time you complain at having to use your own envelope and pay for a second class stamp, spare a thought for those in Italy, where until 2006 the process required a public Notary, and even now with various administrative improvements you will still need to undertake a procedure involving a visit in person to the Municipal PRA or Motorizazzione offices, and payment of hefty fees. Providing that both the buyer and seller are able to set aside a working day and arrange to attend the offices together with all the correct ID’s, taxes and paperwork, then it can be done in one visit, but don’t bank on it. The fee varies depending upon the Municipality and the car’s power, but for an average family car it will be in excess of €500. If both parties cannot attend together then the absent party must get their form and signature notarized, costing several hundred euros more.

Regulatory guidelines cartoon copyThe contrast of these two processes in terms of time, hassle and cost couldn’t be greater, and it is by no means a unique example. The result is a strong cultural difference in approach and attitude towards central administration. An Italian won’t disagree that the former sounds much simpler and more efficient, however, they will likely have a number issues to contest, for example “… what if the document gets lost in the post? What if the DVLA don’t register the name change properly? What if the person buying the car does something wrong on their form? What if they try to trick me somehow? What if I get stopped by the police before I have the new documents? ” Your answers to these questions will not allay an Italian’s reservations.

For this reason, whilst the Italian process is laborious, time consuming and expensive, it is somehow accepted as a necessary trial in order to earn the peace of mind that comes with having undergone, and survived, the regulatory process.

This leads back to my original point, all too often we are approached by British and Americans who have arrived at the stage that they feel appropriate to consult a lawyer, unfortunately they are surprised to learn that the situation is a bit more serious than they expected, as contrary to the belief that things were being quietly dealt with in the background, problems were in fact propagating, usually unwittingly exacerbated by some action or inaction on their part. An Italian would not fall into this trap, they are acutely aware of potential hazards well in advance, they neither trust nor rely upon due process and don’t expect anything to go as planned, and that’s assuming there was even a plan in the first place! In this sense, Italians are much sharper leaving us British and Americans looking somewhat naive and having way too much faith that everything will be taken care of by the appropriate process or authority.

As a foreigner you have to be brutally honest with yourself and your fellow confidantes. Your well meaning ex-pat friend may have lived a few years in the country and can now competently handle a visit to the post office, impress you with cordial conversation with the owners of the local coffee bar and quietly scoff at the ‘ignorati’ who drink cappuccino after a meal, but they will never truly be able to think and act like a native.

The underpinning principles of how things work in different countries is so tied in with their history, culture and environment that you will never fully comprehend it using your own principles and logic. To address a problem with what you, or others of similar mindset, think to be the right approach is fraught with danger and the best solution is to take advice early from someone who really understands what is, or might be going on, and how best to tackle it.

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Setting up a company in a foreign country

company plaque for blog copyPeople often ask my advice about setting up a company in different countries. The first thing I always ask is “what do you want it for?” It might sound obvious, but you shouldn’t just assume it will always best suit your needs.

In many cases I find that, instead of the more traditional sense of starting a business to trade in a particular region, the purpose is to create an umbrella vehicle for a variety of activities.

Alternative uses for a company

A legal entity can be useful in order to consolidate and formalise your affairs in a particular place, for example as an investment vehicle, to purchase and own assets, to act as a holding company for a business in another country, or for legitimate tax benefits. I have also often seen individuals set up a simple company in order to purchase a house or apartment in countries or regions where foreigners are prohibited from owning land or property. However, I don’t generally recommend this and the authorities try to deter such ‘shell companies.’

In my experience, holding assets in a personal name wherever possible is preferable and I would generally only advise setting up a company for the purpose of trading, attracting and holding investment or succession planning.

The process, cost and regulations are very different in each country; however, there are some general guidelines and implications to be aware of in bureaucratic countries.

Hidden costs and considerations

If you do decide to set up a company to manage your affairs without the intention of maintaining a constant presence, make sure you are aware of the hidden costs in doing so. An accountant isn’t the right person to initially ask as they will tell you it’s a great idea due to the set-up fees and monthly income you will provide for them, especially if you don’t intend trading as this makes it very low workload.

City skyline for blog copyIn more bureaucratic countries a physical presence of the executive director or legal representative will be required for on-going administrative procedures, and there will be a series of regular municipal and state taxes to pay that I assure you no-one will accurately forecast at the outset. All your affairs must be kept up to date as some Municipalities have the power to block your company bank account and commandeer its contents without going to court, and if this happens expect several months before you can get it operational again.

You might even find that the rules change significantly en-route. For example in Turkey a law was introduced necessitating that a Turkish registered company with foreign directors must appoint a Turkish citizen as director, and remember this kind of rule is usually applied retrospectively (i.e. to all businesses and not just those incorporated from that date on) so you could find yourself operating unlawfully through no fault of your own, and left with a rather difficult or undesirable remedy.

The annual accounting cost must be considered along with that of a registered office and in some cases it will, at least in appearance, need to be an active place of work. In some countries you will find plentiful companies offering this service, but in others it is much more difficult. Don’t assume you will be able to manage everything with online banking from your home country, most banks offer this service to varying extents, however, the regulations on banking procedure vary and you may need to personally present all original documents before a transaction can take place. In addition, be sure that you have someone you can trust to periodically look after your interests in your absence, and as I have covered in previous blogs, be careful what powers you entrust.

A final consideration is the potential cost of closing the company as it can be significant, and take up to 12 months. In some countries you need to appoint a liquidator and there is no provision to simply strike a dormant company off the register, as you can in the UK for example.

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It’s one thing to know, it’s another to understand

With good advice and on-going guidance, carrying out business in a foreign country can be a relatively trouble-free experience, however, it can also be fraught with problems if done incorrectly.

Professional advice will furnish you with certain information, however, always try to ask yourself if you really understand it and what may lie behind these facts.
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I accept this is easier said than done for someone with little experience, and inevitably there will be elements completely outside your sphere of understanding, but the more aware you are, the better placed you are to foresee and avert problems. I have repeatedly seen people get into trouble over seemingly obvious issues that in certain situations can get easily overlooked, especially if taken at face value.

What are you really agreeing to?

The reality of dealing in foreign countries means that you won’t understand everything (or sometimes anything!) that is going on in real time. With the thermometer topping 38 degrees (even hotter in the Notary office) and after a 2-hour wait it’s suddenly your turn and you will be handed a flurry of documents from all directions and expected to summarily sign each one in order to progress to the next office before it closes for lunch (and it’s on the other side of town!) There is little you can do to prepare for this experience but always have a good interpreter who has experience and regular involvement in these processes and don’t be afraid to ask questions; in these situations there really is no such thing as a stupid question.

Exactly what are you conceding?

It is common practice to give Power of Attorney to a lawyer or accountant to act on your behalf when you are not present, however, always create a very specific document allowing only the required actions. It may be more costly this way but at least you retain some control. Never concede a wide-ranging Power of Attorney unless you absolutely have to, and even then, only to someone who would give you a kidney. There can sometimes be a rather relaxed attitude by some professionals towards you handing over your legal rights to them, but that doesn’t mean you should also treat it so lightly.

The rules for companies can be different, for example in Italy and Montenegro amongst others, a legal representative of a company has the power to do virtually anything without seeking prior approval, so make sure you know exactly what authority you are assigning.

Who really owns this property you are buying?

Make absolutely certain that the person or company you are buying from has the legal right to transfer it. On the surface all might seem fine but I have seen some large-scale villa and apartment developments with a very complex and tenuous relationship between the marketing & sales company (with whom the contracts were signed and deposits paid) and the actual owner of the land & property. Get a lawyer to check the land registry and do some due diligence on the company. Don’t take anything for granted, a fancy sales office and impressive computer generated imagery don’t mean a thing!

If for some reason you are not able to be the registered owner of the property, even temporarily, be very wary of who you empower to hold the asset in escrow. I have seen many people do this in countries or regions where foreigners are not permitted to own property, some resulting in situations where the agent (in some cases a lawyer) demands an absurd sum when you decide to sell. Not all agents are bound by high legal standards, so check if they are licenced by a government authority and what protection, if any, you have.

You are only as good as the people you hire

Never underestimate that in situations of unfamiliar language and law, you are completely beholden to the skill and integrity of the person advising you, so you must involve yourself with good professionals who are experts in their local jurisdiction, will take ownership of the whole process and always advise in your best interest.

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Keep records and expectations realistic

In all your dealings try to confirm all agreements and communications on email, I am acutely aware that in some countries this is most certainly not the modus operandi, as deals are done face to face or over the telephone, so don’t expect circulated minutes after each meeting, but at least try to keep a record of the essentials. It is not just useful in the event of potential dispute, but it will also create a better working relationship as it reduces misunderstandings, as the truth is that most people won’t recall exactly what might have been said or agreed 18 months prior.

Finally, regardless of what notional advice you might receive from a hungry-for-work lawyer, there is only so much help the law can afford you, for example there is no merit in winning a case against a company or individual with no money, or where the cost and effort of pursuing a case outweighs the return. Therefore you always have to exercise some discretion with whom you do business, carry out due diligence and ultimately be realistic about your potential risk exposure.

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Traduttore – Traditore!

A rather dramatic saying in true Italian style that means Translator – Traitor! Whilst it is intended more so in a literary sense, there is some relevance to working in foreign countries.

I recently read on a popular UK TV property website where they recommend foreign buyers to use a local lawyer and utilise a translator, rather than use an international or Anglo/Italian firm. In principle I am inclined to agree as it is more advantageous to choose the most suitable lawyer for your particular situation, and not primarily because they speak English. However, having done a lot of work using translators I would add a word of caution.

translatorFirstly, not all translators are equal, language is a complex and varied mode of communication and we have all seen the hilarious consequences of some literal translations. It is therefore vital that you find someone who can convey all the nuance as well as the content between you. On a number of occasions I have found myself ardently recounting a very important and detailed scenario with, what I considered useful accompanying hand gestures, only to subsequently witness the translator make the briefest of aloof sentences followed by silence and looks of mutual indifference. I am left wondering did he really convey everything I said in such succinct fashion? or just say ‘no idea what this idiot’s talking about’

Secondly, their job is not to fully understand your situation, it is simply to recount what each person says, and you must be aware that the local lawyer, whilst knowing the rules and norms of their jurisdiction inside out, will not likely be aware of your perception and expectations. They will understandably therefore structure and convey the information in a manner befitting their own conventions, and this can lead to some misunderstandings. For example, from knowledge of your own country norms, you may feel they are doing something unnecessary, or conversely not doing something they should be.

Don’t expect a fully structured walkthrough on every point and every potential eventuality. There can be somewhat of an attitude of ‘don’t get wet before it rains’ so if you are accustomed to a particular way of approaching problems, or don’t like surprises, then prepare in advance a list of questions that you need to satisfy your own concerns, they might not even be relevant to the law of that country, but it will help put your mind at rest and help prevent potential misunderstanding.

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