The future of Ecommerce is changing, new sectors and business owners are rethinking their business model. They want to explore the opportunities and understand the benefits an online sales/service platform can provide.
Key summary from our Ecommerce webinar:
What are the main tax considerations that UK sellers need to be aware of when selling overseas for the first time?
Main considerations are VAT and Customs
- The application of VAT depends on:
- location of customer
- whether or not the customer is an EU VAT-registered business
- nature of goods or services being supplied
- As a general rule, VAT on sales of physical goods to EU VAT-registered businesses:
- zero rated by the UK seller
- customer accounts for VAT under a reverse charge mechanism
- supplier prepares monthly EC sales lists
- As a general rule, VAT on sales of physical goods to EU non-VAT registered customers:
- UK seller applies UK VAT on sales until the distance selling threshold in the country where customer resides is exceeded
- Once the relevant distance selling threshold is reached, the UK seller must register for VAT in the overseas country and must charge VAT at local rates
- Its important to know the particular threshold for the countries you are selling to
- VAT on sales of physical goods to non-EU customers are zero-rated but the seller may need to register for sales taxes in customer’s country. Local advice should be sought.
- Other VAT rules apply to the sale of digital services and to other services. The rules can be complex.
- There are currently no customs duties on sales within the EU
- If selling to customers outside EU, customs duties will apply.
- To avoid the responsibility for the settlement of duties falling on the customer, work with a shipping company that takes care of this for you.
What is expected to change as a result of Brexit?
This depends on whether we get a trade deals and if so, what it says. It’s looking increasingly likely that there won’t be a trade deal. The “no-deal” implications are:
- VAT on sales of goods to all EU customers will be zero-rated by the UK seller.
- There will be no need to complete EC sales lists
- UK sellers will need to register for VAT in an EU country if they are storing goods there.
- UK sellers storing or importing goods into EU will need an EU EORI number
- Some EU countries require traders to set up a separate company in order to register for import VAT and customs. Don’t leave this until the last minute!
- Those selling via Amazon FBA need to be aware that Amazon will no longer transport your goods to EU fulfilment warehouses. Traders will need to ship goods to EU warehouses themselves and take care of customs and import VAT.
Do UK traders need to register for corporation tax overseas if selling to overseas customers?
- The need to register for direct taxes overseas depends on what activity takes place in the relevant country and whether UK has a double tax treaty with that country.
- If there is a tax treaty, this will determine whether a UK trader has a taxable presence (permanent establishment) in the overseas country.
- UK tax treaties don’t generally treat the use of a distribution warehouse for the storage of goods as giving rise to a permanent establishment and therefore simply using a fulfilment warehouse for distribution shouldn’t create a requirement to register for corporation tax overseas.
- If using a warehouse in a country with which the UK doesn’t have a tax treaty, seek local advice on the registration requirements.
- If employing people overseas or using sales agents overseas, take advice. Depending on the nature of the activities they undertake, this may trigger an obligation to register for corporation tax.
Are there any tax reliefs available to e-commerce businesses?
- R&D tax relief may be available on the development of the e-commerce platform, especially if work is done to develop new search functions, methods of preventing fraud or on integrating with other systems.
- SME companies (broadly, those with fewer than 500 employees, turnover below €100m and gross assets below €86m) get an extra 130% deduction off taxable profit for qualifying R&D expenditure
- SME companies also get a 14.5% tax credit (i.e. cash payment) if tax losses are surrendered
- Larger companies can also claim R&D relief but under a slightly different scheme. They get a 13% tax credit for qualifying R&D expenditure.
Should e-commerce businesses set themselves up in a low tax jurisdiction?
- This is a very complex area of tax and is subject to a large amount of anti-avoidance legislation. There would need to be a strong commercial reason for doing this, other than the avoidance of tax. It’s unlikely to be feasible for the majority of UK companies, as the costs involved in structuring things within the tax rules are likely to outweigh any benefit.