M&A Online: Mastering International Currency & Legalities

International Online M&A: How to Handle Currencies and Ensure Legal Security? A Practical Guide from Digimarket.info

The mergers and acquisitions (M&A) market for online businesses is growing dynamically, transcending national borders. Selling an Selling an Online Business in Poland: A Complete Guide">e-commerce store to a US investor, acquiring a SaaS company from Germany, or purchasing a mobile app from the UK is commonplace today. However, dealing with multiple currencies and complex legal frameworks in cross-border transactions presents a challenge. This Digimarket.info article aims to clarify doubts and provide practical advice for businesses facing an international online M&A transaction.

1. Transaction Currency: Euro, Dollar, or Local Currency? Key Decisions

The choice of transaction currency is one of the first and most crucial aspects of international M&A. The most common currencies are USD, EUR, GBP, and less frequently, other local currencies. Sometimes, though rarely, a transaction might occur in PLN (Polish Złoty). It is essential that the currency is clearly defined in the agreement (Letter of Intent – LOI and Share Purchase Agreement – SPA).

• For the seller (e.g., a Polish entity): The preferred solution is usually to receive payment in PLN, which eliminates exchange rate risk during the conversion of funds. If payment is made in a foreign currency, it will be crucial to hedge against a decline in that currency's exchange rate against PLN.
• For the buyer (e.g., a Polish entity): If you are buying a foreign business, you often need to pay in its native currency or a globally accepted currency (EUR/USD). In this case, you must accurately calculate the costs and potential losses or gains resulting from exchange rate fluctuations.

Example: You are selling an e-commerce store with an annual turnover of PLN 2,000,000, and a buyer from the USA offers USD 500,000. At an exchange rate of 1 USD = 4.00 PLN, this is PLN 2,000,000. If the rate drops to 3.80 PLN before finalization, you will receive PLN 1,900,000, losing PLN 100,000 (approximately USD 26,000) if you have not hedged against currency risk.

2. Currency Risk and Hedging Methods for M&A Transactions

Currency fluctuations can significantly impact the final value of a transaction. How can you protect yourself?

• Currency hedging: The most popular tools include:
• Forwards (forward contracts): Allow you to lock in an exchange rate for a future date. For example, you can enter into an agreement to buy USD 500,000 in 3 months at an exchange rate of 4.00 PLN/USD, eliminating the risk of a rate increase.
• Currency options: Give the right (but not the obligation) to buy or sell a currency at a predetermined price in the future. They are more expensive but offer greater flexibility.
• Currency spread: Pay attention to the spreads offered by banks and online currency exchange offices. Differences can be significant. For example, on a transaction worth EUR 500,000, a difference of 0.01 PLN per euro (e.g., 4.50 vs. 4.51) already amounts to PLN 5,000 (approximately USD 1,300). Online M&A">Digimarket.info can advise on choosing partners offering competitive rates.
• Currency factoring: For long-term payments, factoring can help manage currency flows and credit risk.

We recommend consulting with corporate finance specialists and currency advisory experts to choose the optimal solution for your specific transaction. Their commission, typically 0.1%-0.5% of the transaction value, can pay for itself many times over through savings on exchange rates.

3. Cross-Border Payments: Channels and Costs

How to transfer funds abroad efficiently and securely?

• Traditional bank transfers (SWIFT/SEPA): The most common. SEPA transfers (in EUR within the EU/EEA) are fast and relatively inexpensive. SWIFT transfers (other currencies and countries) can be more expensive and take longer (2-5 business days). The cost of a SWIFT transfer for USD 100,000 can range from USD 20 to as much as USD 100, depending on the bank and intermediary banks.
• Fintech platforms (e.g., Revolut Business, Wise): Often offer significantly more favorable exchange rates and lower fees than traditional banks. For example, Wise charges a transaction fee of around 0.3% - 1% for international transfers, which can be competitive compared to bank spreads.
• Escrow services: Escrow (trust account) is a secure way to conduct payments in M&A transactions. An independent third party (e.g., Digimarket.info through partner platforms) holds the funds until all contractual conditions are met. This minimizes risk for both parties. Learn more about escrow on Digimarket.info.

4. Tax Aspects of International M&A Transactions

Taxes are a key element of any transaction, and in cross-border cases, they become even more complex. You should pay attention to:

• Capital Gains Tax: In Poland, the sale of shares (even foreign ones) to a foreign company by a Polish resident is subject to PIT or CIT. The CIT rate is 9% (small taxpayer) or 19%, PIT is 19%. When a Polish entity acquires a company from abroad, the tax regulations in the seller's country are crucial.
• Double taxation: Double taxation treaties (DTTs) play a fundamental role. Poland has signed DTTs with most developed economies. Their provisions determine in which country and at what rate the tax on the profit earned is paid.
• Sale of foreign assets (e.g., digital assets): Complexity can increase if individual assets are sold (e.g., a domain, customer base, software) rather than the entire company. The place of taxation for income from such a sale must be determined.
• VAT: In M&A transactions, the sale of shares in a company is generally not subject to VAT. However, caution should be exercised regarding advisory services related to the transaction, which may be subject to VAT, especially when the parties have different tax residences. The VAT rate in Poland or another country can affect the final transaction cost.

Complex tax regulations require the support of an experienced tax advisor, both in Poland and in the country of transaction. Optimizing the transaction structure can lead to savings of up to several hundred thousand PLN (tens of thousands of USD) for transactions worth several million.

5. Legal Aspects of International Online M&A Transactions

The legal documentation in cross-border transactions is more complex than in domestic ones. You should pay attention to:

• Choice of governing law: Which law will govern the SPA agreement? Polish law? The law of the buyer's/seller's country? English law (often found in international commercial transactions)? This is of great importance for interpreting contract provisions and resolving potential disputes.
• Jurisdiction of court/arbitration: Where will potential disputes be resolved? In a Polish court, a foreign court, or in arbitration (e.g., in London, Geneva)? The costs of foreign litigation can be significant, for example, several thousand pounds for the arbitration application alone.
• Due Diligence: Legal due diligence for a foreign entity is crucial. Among other things, compliance with local data protection regulations (GDPR is global, but local acts may introduce additional requirements), sectoral regulations, and agreements with employees and contractors governed by foreign law should be checked.
• Anti-Money Laundering (AML) and Know Your Customer (KYC): In the financial sector (including M&A platforms like Digimarket.info), there are strict AML/KYC requirements. In international transactions, verifying the parties and the origin of funds is even more rigorous. Be prepared to provide appropriate documentation.

6. Online Business Valuation in an International Context

Online business valuation, while in many aspects universal, may require considering the specifics of the market in which the company operates and currency risk in international transactions. Precise valuation is key, contact Digimarket.info experts to value your online business.

• Impact of exchange rates on valuation: If the valuation is performed in a foreign currency and the company generates revenue in that currency, exchange rate stability should be considered. If the company has revenues and costs in different currencies, currency risk analysis is an integral part of the valuation.
• Comparable markets: When looking for comparable transactions (multiples) for valuation, consider companies from similar geographic markets with similar currency structures for revenues and costs. Example: the valuation of an e-commerce store from the UK should take into account multiples from the UK or Western European market, not just Poland.
• Accounting standards: Differences between IFRS, US GAAP, and Polish Accounting Standards can affect the interpretation of financial data and valuation. It is always advisable to keep this in mind and ask for a financial report compliant with IFRS or US GAAP for a foreign entity, especially if it is a larger transaction.

Summary and Next Steps

International online M&A transactions offer immense opportunities but require careful planning and an understanding of numerous nuances. Appropriate currency risk management, a conscious approach to legal and tax issues, and professional valuation are key to success. Digimarket.info is your knowledge center and toolset to help you navigate the world of online M&A.

Need help selling or buying an online business internationally? Browse our business listings for sale or sell your online business on Digimarket.info!

Frequently Asked Questions (FAQ)

Can a Polish company buy a company in the USA, paying in PLN?

Technically, it's possible but extremely rare. US sellers almost always expect payment in USD. A Polish company would have to exchange PLN for USD, incurring spread costs and currency risk.

What are the average costs of escrow services for online M&A transactions?

The costs of escrow services typically range from 0.5% to 2% of the transaction value, with minimum fees starting from several hundred dollars/euros, depending on the service provider and the complexity of the transaction. For transactions worth several million PLN, these costs can amount to tens of thousands of PLN (several thousand USD), but they provide incomparably greater security.

Do I have to pay tax in Poland if I sell a company in Germany to a buyer from France?

If you are a Polish tax resident (an individual or a company based in Poland) and you sell shares in a German company, as a rule, this income will be taxed in Poland according to the DTT between Poland and Germany/France. It is important to check the provisions of the specific double taxation treaty; for example, it often stipulates that capital gains are taxable only in the seller's country of residence.

How long does the currency process take in a cross-border M&A transaction?

The process of currency exchange and fund transfer itself can take from a few hours (SEPA via fintech) to several business days (SWIFT via bank). The entire transactional process (from LOI to closing) usually takes 3-6 months, depending on the complexity of the business and due diligence.

Do I always need a foreign lawyer for an online M&A transaction with a foreign entity?

Absolutely. Even if the main documentation is prepared under Polish law, knowledge of local regulations (e.g., labor law in the acquisition country, industry regulations, tax aspects) is crucial. Collaboration with two legal teams is standard practice.