Setting up overseas ― sole traders and partners

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Setting up overseas ― sole traders and partners
  • Is there an overseas operation?
  • Income tax
  • Capital gains tax (CGT)
  • National Insurance contributions (NICs)
  • VAT
  • Specific issues involving partners

Trading in another jurisdiction involves many issues, only some of which involve taxation. Advice should be taken, not only in relation to tax but on the wider business implications.

This note deals only in broad outline with the UK tax issues relating to the self-employed generally, and then considers some issues which are specific to partners. The tax regime in the overseas country is also very important. Its specific rules, and the ways in which the two systems interact should both be explored before decisions are taken.

Is there an overseas operation?

A sole trader or partnership which is based in the UK and merely selling goods or services to customers overseas is not normally subject to foreign taxes on his profits. To be taxable he must generally have a permanent establishment. Different rules may apply for VAT, see below.

A permanent establishment is usually either a fixed place of business in the overseas country, or a ‘dependent agent’. A dependent agent is one who habitually exercises authority to do business on behalf of the UK enterprise.

If the UK business has premises overseas which is used only to store or display goods, or to hold them pending delivery or processing, this does not normally constitute a permanent establishment.

These definitions and requirements are drawn from articles 5 and 7 of the OECD model tax treaty, which forms the basis for most double tax treaties. Other treaties can be found on the HMRC website .

See Simon’s Taxes F1.6 (subscription sensitive).

Income tax
Generally

A UK resident and domiciled individual is taxable on his worldwide income. This includes profits from trading in other jurisdictions. For guidance on the definitions of residence and domicile, see the following guidance notes in the personal tax module (subscription sensitive):