Trevor Shaw, Business Tax Director at Grant Thornton UK in Leicester, discusses the various tax issues businesses should consider when trading in international markets
In this global village it appears easy for businesses to sell their goods and services to overseas buyers. This can be undertaken via the Internet from a server based in the UK through to a fully trading overseas subsidiary.
However, the different routes taken in selling in the global village can have a range of tax consequences – some very unexpected and expensive, whilst some can be highly beneficial.
The potential tax issues facing business when they look to trade in the international markets are broad and can range from the obvious one of: am I taxed on my profits in the overseas country and do I get taxed on these profits in the UK as well?
However, some of the issues are less obvious – including whether attending a board meeting in another country creates an income tax liability in that country or is there a need to register for VAT in the overseas country when I am selling from the UK? Unfortunately, the answers to these questions normally depend on your circumstances.
The picture is not all bleak and over recent years there has been a push by the Government to create the most competitive corporate tax regime in the G20.
As part of this push we have seen: changes to enable overseas trading profits to be taxed only overseas and not in the UK as well; proposed changes to the anti-avoidance Controlled Foreign Companies rules to be more business friendly; and a proposed regime to enable profit arising from patents to be taxed at 10%, although we still await the final detail on this.
The Government is taking this push not only to bring business to the UK but also to convince some larger businesses to stay here, or even return following the departure of some companies a few years ago in particular due to the Controlled Foreign Companies regime. So, there are upsides available but businesses need to act to take advantage of them.
The key message when looking at moving into the international market is that businesses need to plan and take advice to minimise the risk of the potential downside and to obtain the upsides where possible. It is always best to plan in advance as the issues are always easier to resolve before you start than down the line when the time and stress costs, in addition to the financial costs, are far greater.