Understanding and managing Value Added Tax (VAT) is crucial for businesses that operate internationally – increasingly common in today’s business landscape.

VAT on international transactions can carry complex requirements, varying from one country to another, and failure to comply can result in significant penalties.

It is important to clear up the confusion on VAT on international transactions, particularly exports, imports, and digital services, to create offers strategies for maintaining tax efficiency.

Understanding VAT on exports

Goods exported outside the UK are usually zero-rated for VAT purposes in the UK.

This means that, while VAT is not charged on the sale, you can still reclaim VAT on any expenses related to the export.

It’s essential to keep evidence proving that goods have left the country, as failure to do so could result in having to pay VAT at the standard rate.

What about VAT on imports?

VAT is typically due on goods imported from outside the UK.

The rate of VAT is the same as if the goods were supplied within the UK. Businesses can reclaim the VAT paid as input tax, subject to the usual rules.

The introduction of Postponed VAT Accounting (PVA) allows businesses to account for import VAT on their VAT return, rather than paying it upfront and reclaiming it later.

This can significantly aid cash flow.

VAT on digital services

Selling digital services internationally adds another layer of complexity to VAT.

The ‘place of supply’ rules determine where the VAT is due. For B2C sales of digital services to EU customers, VAT is due in the customer’s country.

Making your international business VAT-efficient

As with any other tax liability, you can plan around VAT to make your tax structure as efficient as possible and ensure that your profits stay within your business. Here’s how:

• Understand local VAT laws: Each country has its own regulations concerning VAT on imports, exports, and digital services. Familiarise yourself with the VAT laws of the countries you’re doing business with.
• Leverage technology: Use accounting software that can handle international VAT rules, reducing the risk of errors and non-compliance.
• VAT relief schemes: Where applicable, use schemes like PVA to improve cash flow and simplify VAT reporting.
• Keep accurate records: Maintain detailed records of all international transactions, including invoices and proof of export. This documentation is essential for VAT reporting and audit purposes.
• Regularly review VAT processes: As your business evolves and international tax laws change, regularly review and update your VAT processes.

Can we help?

Of course! Navigating VAT in international transactions requires diligence, understanding of ever-changing laws, and strategic planning.

By helping you implement tax-efficient strategies and stay compliant with international VAT regulations, we can help you avoid legal pitfalls and optimise your global operations.

To find out we can help you with expert, bespoke advice, please contact us today.