Why is my overseas customer asking for a certificate of residence?

When selling goods or services to a customer located outside the UK, they may sometimes ask for a certificate of residence or something similar like a form W-8Ben– E in the US. 

Why are they required?

The default position of many tax regimes other than the UK is that they often require withholding tax to be deducted from payments made for services or products provided from the UK. This may or may not be later recoverable in the UK and could at the very least result in cash flow implications.

The UK has Double Tax Treaties in place with most countries around the world. Usually, these treaties state that business profits should only be taxable in the country in which the business earning them is tax resident (subject to a company having a permanent establishment in the other location) 

As such, under the terms of the double tax treaty there is usually not a requirement for a customer to withhold tax from a payment to a UK business. However, before making the payment gross sufficient evidence is often sought to demonstrate the recipient of the income is taxable on the income elsewhere, i.e., the UK. 

What is a certificate of residence?

Customers located in many different countries may request a certificate of tax residence. 

This is a document that can be provided by HM Revenue and Customs following a valid application which states the company is UK tax resident for a given period or on a set date. The provision of a certificate of tax residence is often sufficient enough to enable a customer to then pay an invoice that has been raised gross. VAT or sales taxes are dealt with separately.

Other countries may require a prescribed form to be used as directed by the relevant tax authority or require the certificate to be ‘Apostilled’. This requires the document to be validated by the UK Foreign and Commonwealth Office. 

It can take HM Revenue and Customs several weeks to process an application for a certificate of residence. This process will take longer again if the document must be apostilled. As such, it is worth engaging with overseas clients early to consider if there is a requirement for a certificate of residence before they come to make payment resulting in delays.

In the US, customers will often require a form known as a W-8Ben–E completed. This a US Internal Revenue Service form, whereby the seller confirms they are tax resident outside the US and the reasons why they can be paid gross (i.e., the terms of the double tax treaty that apply). 

Certificates of residence can also be required to apply a double tax treaty rate to other payments of interest, dividends or royalties as described in our article: International payments of royalties and interest from 1 June 2021.

How we can help

At Bishop Fleming we often support clients with requests for certificates of residences. If you require assistance, please contact your usual advisor or a member of the international team.