International Contract Considerations

With the internet and cloud-based sharing, companies engage in international business more easily than ever. Writing and negotiating an international contract shares many considerations with a domestic one — essential terms like identifying the parties, describing the goods and services, and the price. But a few sections deserve special attention.

Official Language Clause

This clause states which language version of the contract governs if a dispute arises. Text translated from one language to another can unintentionally create disagreements about meaning, because of differences in syntax and interpretation between the source and translation.

Governing Law Clause

This specifies which country’s laws apply to the agreement and would control in a dispute — one of the most important clauses in the contract. U.S. federal law and your state’s law are preferable, but the other party may insist their foreign country’s law controls. That’s difficult: foreign law may be written in another language (for example, German law in German), and your U.S. attorney may not read it. If you can’t fully understand and get competent advice on the pitfalls of the other party’s local law, consider the United Nations Convention on Contracts for the International Sale of Goods (CISG) — an automatically binding body of law that applies to contracts where one party is based in a participating country, including the United States. It’s similar to the Uniform Commercial Code that governs the sale of goods in the U.S. If you don’t want it to apply, you must affirmatively disclaim the CISG in your agreement. If you can bind neither the CISG nor your local law, retain counsel in the other party’s country to review the agreement and advise on pitfalls.

Forum Selection / Dispute Resolution Clause

Disputes can be resolved through mediation, arbitration, or litigation. For international contracts, mediation or arbitration is usually ideal. The agreement should specify which arbitration rules govern — such as the American Arbitration Association (AAA) rules for international contracts. Cross-border enforcement may be supported by treaties like the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, an important tool when assessing the risk of a given set of rules. Also consider the location of arbitration, given the international travel involved and the burden it may place on your business.

Taxation

The most difficult issue is the international taxation of goods and services. Most countries impose a value-added tax (VAT) on goods and services consumed within their borders, each with its own laws and applicable treaties. You must determine whether your transaction is subject to taxation in any country involved, including the United States. It’s always advisable to consult an international tax professional when selling or purchasing goods abroad.

If you’re contemplating an international transaction, we can help make sure your contract language is drafted to protect your interests.

Frequently Asked Questions

What's different about an international contract?

Beyond the usual essential terms, international contracts need special attention to the official language clause, governing law, dispute resolution/arbitration, and cross-border taxation like VAT.

What is the CISG?

The United Nations Convention on Contracts for the International Sale of Goods — an automatically binding body of law for contracts where a party is based in a participating country (including the U.S.). It’s similar to the UCC; if you don’t want it to apply, you must affirmatively disclaim it.

How should disputes be handled in an international contract?

Mediation or arbitration is usually preferable to litigation. Specify which arbitration rules apply (e.g., AAA international rules) and the arbitration location, and consider treaties governing cross-border enforcement of awards.

This article is general information from Accord & Shield Legal, PLLC and is not legal advice. Reading it does not create an attorney-client relationship. For guidance on your specific situation, please consult a qualified attorney.