Growing Internationally: the export tax regulatory environment

UK businesses will be familiar with the requirement to charge VAT when selling goods or services to customers within the UK (unless the supply is zero rated or an exempt supply) and the ability to recover input VAT (unless an exempt supply is made). 

When a UK business makes a sale to an overseas customer, the VAT treatment of the sale needs to be considered in more detail, as well customs and excise duty, and potentially withholding taxes. 

There is no one-size fits all answer to whether any of the above taxes and duties will be payable and/or the extent they may be relevant to your business.  The impact can vary depending on the product or service offered, who the customer is and where the customer is located.

However, by doing the necessary research and working with the right partners you can be forewarned of the potential taxes and duties payable, how you may be able to mitigate them and what the compliance burdens may be. 

VAT

Since the UK has left the EU, in most cases supplies of goods made to customers outside the UK will not require UK VAT to be charged, provided there is evidence of export.

However, there may be an obligation for VAT to be charged in the recipient country. There may also be a requirement to register for VAT in those countries. The international commercial terms (incoterms), i.e. who owns the goods at what point in the supply chain, are crucial in identifying any registration liabilities.

In terms of providing services overseas the general rule is that the sale is treated as being made where the supply takes place, and this can differ depending upon whether the customer is a business or consumer and the nature of the service.

If the place of supply is the UK, there will be a requirement to charge UK VAT. If the place of supply is overseas then there may be an obligation to register and charge VAT in that country.

Customs

The import tariffs and duties payable on import of goods to another country will depend upon the rates set by that country and may vary by product.

If the UK has any trade agreement in place with the relevant country since leaving the EU, reduced tariffs and duties may apply.

The origin of goods may also be a factor and where necessary you will need to able to produce a certificate of origin for a particular duty rate to apply.

There may be detailed customs paperwork to complete and it is worth understanding the extent of this before embarking on your export journey. 

Withholding taxes 

When trading in some countries payment for goods or services will be made after the deduction of withholding tax.

It is often possible to be exempted from this procedure or have any withholding tax reduced if relevant certification of UK tax residence can be obtained.

This can enable the terms of a double tax treaty between the UK and the relevant jurisdiction to be applied. This may not always be possible and the double tax and cash flow impact will need to be managed. 

The earlier you are aware of any withholding taxes that may potentially be applied by your customers, the earlier you can process any relevant applications and minimise the tax payable and/or the impact on your cash flow.