Owner-Managed Businesses

Setting up overseas ― sole traders and partners

Produced by Tolley
  • 08 Nov 2021 07:51

The following Owner-Managed Businesses guidance note Produced 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
  • Generally
  • Moving overseas
  • Transferring assets
  • Capital gains tax (CGT)
  • National Insurance contributions (NICs)
  • The basic rule for Class 2
  • Displacement of the basic rule
  • More...

Setting up overseas ― sole traders and 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 their profits. To be taxable the individual must generally have a permanent establishment. Different rules may apply for VAT, see the International services ― overview guidance note in the VAT module.

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.

Income tax

Generally

A UK resident and domiciled individual is taxable on their 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:

  1. Residence

  2. Domicile

ITTOIA 2005, ss 6, 7

For the different treatment where individuals are not UK domiciled, see the Personal Tax module guidance note on Remittance basis

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