Overseas Contracts – Accounting for Tax?

Hopefully the encouragement and support of UK businesses in winning overseas contracts in developing markets in Africa and Asia will be a positive feature of Brexit. Many UK engineering companies develop and sell advanced engineering solutions in countries spread across the world.

Pricing a contract

What receipts will the contract earn for the UK? When pricing a contract, this should be a key question for such businesses.

Exchange rates play a key part if the contract is priced in foreign currency. They can of course be hedged with forward contracts.

Exploring local taxes

Experienced or well advised businesses know to explore the local taxes that can apply, normally before the negotiation of contracts.

These taxes can vary considerably from country to country. For example, Malaysia has recently extended the range of services that are within the scope of the withholding tax deducted from payments Malaysian businesses make to non-resident suppliers.

Withholding taxes

Most UK businesses would be delighted to work with an emerging African state, for example, Uganda. However, if the business needs to establish a Ugandan branch to deliver its sales, is it prepared for the Ugandan tax that will be withheld from branch remittances to the UK?

Businesses shouldn’t let withholding taxes blunt their enthusiasm for seeking sales on other continents. However, if earnings will be subject to tax being withheld from remittances, then there are a couple of important questions;

  • Is there scope to recover the tax, and if so, how? Or;
  • Is it possible to price the tax into the sales price to recover the margin?

Managing overseas withholding taxes involves understanding and taking action in advance of them being levied. A client once displaced a competitor to an overseas government contract as the competitor was heavily penalised for not understanding the basic tax rules of the country who’s business they sought.

Contact us

Our extensive experience of helping businesses trade globally together with our global network of affiliate firms makes us ideally placed to support businesses entering new markets.

For further information, please contact our Tax team on 0191 285 0321 or email advice@taitwalker.co.uk.