Overseas Trading

With increasing ‘globalisation’ many local businesses now sell goods or services overseas. When trading with overseas businesses or individuals there are a number of factors which you need to take into account, including VAT, possible foreign income tax, and risk of exposure to exchange rate movements.

The most straight forward way to trade with an overseas business is to sell your goods and/or services to a foreign business or individual. However, it is possible that you will need to take account of the VAT or local sales tax rules in the country to which you are selling.

Generally if you sell goods to a business in another EC member state and you send the goods from the UK to your customer’s country, that business will be VAT registered in its own country. If you can obtain your customer’s VAT registration number you should not charge VAT on your sales invoice as long as you also obtain proof that the goods have been delivered from the UK to your customer’s country. Your customer should account for VAT in their country under the ‘“acquisition tax” rules. Generally, if you cannot evidence that the purchaser is VAT registered (for instance because they are a small business or individual) then you should charge UK VAT on the sale.

If you export goods to non-EC countries then VAT should not be an issue. However you should be aware of the detailed rules for zero-rating of exports which include obtaining proof that the goods have been sent out of the EC.

If you provide ‘services’ rather than goods then the VAT rules are different and more complex. The rules are determined by the type of services provided and in some cases by the location of your customer. It is possible that you might need to consider registering for VAT in another country, for example if your services are deemed to relate to land in another EC country.

Please be aware that the VAT rules are complex, and detailed advice should be sought if you are unsure how your sales should be treated.

If you set up an office or have a permanent site overseas it is likely that the tax authorities in that country will deem that part of your business to be resident in that country. You may be required to prepare tax computations and pay tax in the foreign country. The UK has many ‘double tax treaty’ agreements with various foreign countries, and you will need careful advice to enable you to decide whether you are liable for tax in the overseas country or not.

If you sell goods or services overseas you may have to tender for this work in a foreign currency, such as the Euro. The Euro is now close to an all-time high against the pound, which might make your pricing very competitive. However, currency movements might impact on the sterling amount you receive for the work you carry out. Banks are able to provide facilities to protect against the risk of exchange rate fluctuations, and if you do invoice in foreign currencies you should consider whether or not you can ‘hedge’ against the risk of adverse foreign currency movements.

The same issue arises if you are buying goods or materials from overseas. You may be required to set prices to UK customers, and base these prices on costings dependent on certain foreign currency exchange rates. If the exchange rate moves against you then this can significantly increase your purchase price, resulting in a fall in sales margins. You can ‘forward purchase’ foreign currency to protect against such exchange movements. Your bank should be able to assist you with this.