Trading with overseas customers can be very profitable, but it should come as no surprise that international taxes can be complex and in some cases hefty. International taxes of which you need to be aware include customs duties, VAT, tax on your profits and any local overseas taxes that may affect your business.
While we have cherrypicked the best official tools from HMRC for you to use, specialist advice is essential to ensure that you comply with international tax law and minimise your total liabilities.
Customs duty and VAT
The customs duty and VAT that you pay depends on whether you are trading with other European Union (EU) countries or businesses based outside the EU.
If you are importing goods from other EU countries, provided you are registered for VAT, you can ask your supplier to zero-rate the goods for VAT (zero rate means that you don’t pay anything, but you still make a VAT declaration). You will not have to pay any VAT and no additional customs duty is charged. Excise duty is charged on some goods, such as alcohol and tobacco.
If you are importing from outside the EU, you pay VAT at the normal UK rate for those particular goods. You may also have to pay extra customs duty (import duty) depending on the goods and where they come from, as well as excise duty if it applies.
If you are exporting within the EU, you can normally zero-rate sales to VAT-registered customers, but otherwise charge the normal UK VAT rates. However, if you supply digital services, new rules in force from 1 January 2015 require you to charge VAT at the rate applicable in the consumer's country.
Exports outside the EU are normally zero-rated. There may be international taxes (eg customs duties) payable in the country to which you are exporting.
The responsibility for paying customs duties and any other international taxes will depend on what you have agreed with your customers or suppliers. Depending on the circumstances, there may be opportunities to defer customs duty and VAT by storing goods in a customs warehouse.
International tax on profits
UK and international taxes may be payable on the profits you make from international trade.
If you are simply importing goods for sale in the UK, there should not normally be any international tax complications. You pay tax on your profits in the normal way.
International tax becomes more complex as soon as you have an international presence, for example, if you set up a local operation overseas to help with your exports. You may then become liable to international taxes such as a tax on the profits made in that country. You’ll need to be able to work out what profits have been made in the UK (and are subject to UK taxes) and which profits international taxes are paid on.
International taxation and international tax planning can be very fiddly and mistakes are expensive so you should always seek specific advice on your particular circumstances.
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