Key considerations for indirect tax on international activities

Expanding internationally - whether through exporting, importing, hiring overseas contractors, or establishing operations abroad - opens significant opportunities for growth. But it also introduces complex Indirect Tax implications that many businesses underestimate. Getting these wrong can quickly erode profit margins, create compliance risks and in some cases trigger significant penalties.

Here, we outline some of the key Indirect Tax considerations for businesses engaging in cross-border trade so leaders can better protect cashflow, avoid errors and operate with confidence.

1. Know the rules for goods moving across borders

When businesses buy or sell goods internationally, the VAT treatment depends on where the goods start, where they finish and who owns them at each point.

Key points to understand:

Imports

• Import VAT is normally due when goods arrive in the UK from overseas. Customs simplifications can avoid Import VAT for some goods where they will not stay in the UK.
• Ownership is key to import VAT recovery. Businesses importing goods they don’t own need to consider the use of appropriate customs reliefs.
• Businesses can use Postponed Import VAT Accounting (PIVA) to avoid paying VAT at the border and reclaiming later - improving cashflow.
• Incorrect commodity codes or origins on customs declarations can delay goods and lead to assessments, penalties and HMRC audits.
• Incorrect valuation of goods can cause incorrect VAT liabilities, and lead to assessments, penalties and HMRC audits.
• Claiming Preference on items requires evidence origin to be held when the claim is made, including specific wording and details on invoices.
• Businesses importing goods should regularly review PIVA statements and/or C79s to ensure these are being completed correctly.

Exports

• Exports of goods from the UK can generally be zero-rated for VAT purposes, but only if the business holds the correct evidence of export. Obtaining this can be difficult, particularly where the Incoterms dictate that the customer collects the goods (e.g. EXW).
• Clear written instructions to your freight agent should be provided with exports to ensure declarations are made to your requirements.
• Missing documentation or unclear Incoterms often lead to assessments long after the transaction.
• Incorrect use of Incoterms can lead to unforeseen overseas VAT registration requirements.

Moving goods directly from overseas suppliers to your customers rather than via the UK might provide transport savings but could lead to an overseas VAT registration liability if not structured correctly.

2. Understand VAT rules for international services

VAT on services depends on the VAT place of supply rules - essentially, where VAT needs to be accounted for and by whom.

For B2B services

Most services supplied to overseas businesses are outside the scope of UK VAT, but:

• Evidence that the customer is “in business” overseas is required (e.g. VAT number, business certificate).
• Certain services have special rules (e.g., services relating to land, events, hospitality).

For services purchased from overseas suppliers

UK businesses are often required to self-account for VAT under the reverse charge mechanism when purchasing services from overseas suppliers. This can affect:

• Overseas consultancy fees
• SaaS and digital subscriptions
• Marketing or creative services bought abroad

Getting this wrong is a common issue identified in VAT enquiries and for businesses that are not VAT registered, can sometimes lead to an unexpected VAT registration requirement.

3. Check for VAT registration requirements overseas

Growing businesses are often surprised to learn they may need to register for VAT in another country even without a physical presence.

Triggers can include:

• Selling and delivering goods locally
• Holding stock in a foreign warehouse or using fulfilment centres
• Providing certain digital services
• Running in-person events overseas

Failure to register in time can lead to retrospective VAT charges and penalties from foreign authorities.

4. Consider the Indirect Tax implications of using overseas fulfilment, marketplaces or distributors

Using overseas fulfilment, marketplaces or distributors creates additional obligations.

You may need to consider:

• Whether the marketplace becomes deemed supplier
• EU One Stop Shop (OSS) schemes
• Local VAT registrations in the country where goods are stored
• Local Excise or recycling taxes
• Evidence requirements for cross-border shipments
• Checks on declarations made by overseas agents on your behalf.

Proper planning ensures that growth into new markets doesn't create unexpected profit leakage.

5. Review the impact on cashflow and reporting

International trade often impacts VAT cashflow and timing, for example:

• Delays in reclaiming VAT
• The cost of setting up deferment accounts, customs security deposits or bank guarantees
• Unique documentation requirements
• Additional reporting such as Intrastat (if thresholds apply)
• Foreign VAT reclaims under the 13th Directive or EU refund system

Robust internal processes help ensure entries are captured correctly in VAT returns.

6. Plan ahead for overseas expansion or restructuring

Before entering new territories, businesses should ask:

• Will we hold stock overseas and how will we store it?
• Can we use a Customs process to avoid additional duties?
• Will we employ or contract with overseas staff?
• Will we need to register for VAT or similar taxes?
• Do our systems capture VAT correctly across countries?
• Is our classification data correct for this Country?
• Will we incur VAT and if so, how long will it take to recover that VAT, if at all?

Integrating Indirect Tax considerations early avoids costly fixes later.

Why planning matters

International Indirect Taxes are increasingly scrutinised by tax authorities. Errors are common and often go unnoticed for years until a compliance check exposes them. For businesses, the financial impact can be significant.

Proactive planning ensures:

• Efficiency in your supply chain
• Improved cashflow
• Reduced compliance risk
• Confidence in your systems.
• Better pricing accuracy for global customers

We’re here to help

Our Indirect Tax specialists support businesses at every stage of international activity - from early stage exporting to complex multi jurisdiction operations. We help business leaders navigate Indirect Tax obligations confidently, avoid hidden risks and unlock opportunities for growth.

Get in touch with our team today to arrange a health check review or speak to our specialists about your international activities.