Foreign self-employment

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

Foreign self-employment
Is there an overseas operation?
Income tax
Capital gains tax
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 in broad outline with the tax issues facing a self-employed person who is trading overseas. It then considers some issues that 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. This note does not discuss any tax issues that might arise in other jurisdictions.

Is there an overseas operation?

A sole trader or partnership that is based in the UK and merely sells goods or services to customers overseas is not normally subject to foreign taxes on 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. The meaning of permanent establishment is discussed in detail in the Permanent establishment guidance note (subscription sensitive).

If the UK business has premises overseas that are 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. A list of treaties can be found on the GOV.UK website .

Income tax

Generally

A UK resident and domiciled individual is taxable on his worldwide income. This is known as the arising basis