Working overseas – are you aware of your Corporate Tax obligations?

BLOG16th Mar 2021

Despite the global mobility issues Covid-19 has caused during 2020, UK companies have still been presented with opportunities to work overseas. In particular, we have seen UK clients working in Norway, Denmark, Germany, UAE, Saudi and Taiwan, just to name a few. When any work is undertaken in an overseas territory, it is important to remember that UK companies must remain compliant with the local tax laws and any resultant filing obligations, in addition to their UK tax obligations. Additionally, it is evident that overseas authorities are actively seeking to ensure that non-resident companies are compliant, paying the required taxes due, and filing the necessary returns by monitoring their days spent in country. Some authorities are more advanced, like Norway who have a dedicated tracking system.

When your company is working in any overseas territory, advanced planning is essential to ensure that your company understands the foreign taxes and filing obligations that it may be liable to, and the impact these overseas taxes and compliance costs will have on the contract profitability. Failure to understand the associated cost of these taxes, as well as the compliance cost and burden, can result in a reduction in the contract’s profitability, or worse, result in a loss making contract. Furthermore, where companies are non-compliant with the local rules, foreign tax offices can levy substantial penalties and interest on companies who fail to comply.

It is important that companies are aware that there is no ‘one rule fits all’ when a taxable presence, known as a Permanent Establishment (“PE”), is created in an overseas country. Every country has different domestic rules for when an overseas company is liable to their local tax rules. In addition to this, consideration should be given as to whether there is a Double Tax Treaty (“DTT”) in place between the UK and the relevant overseas country. The creation of a PE will result in the company being required to submit a Corporate Income Tax (“CIT”) Return and pay any foreign taxes due. In addition to this, there will likely to be Employment Tax, Withholding Tax and VAT obligations and potential liabilities to consider.

Many overseas authorities reporting tax year coincides with the calendar year and therefore any work undertaken overseas in the year ended 31 December 2020 is likely to require reporting soon. For example, Norway and Danish CIT Returns have filing deadlines of 31 May and 30 June respectively. We at AAB can assist with the preparation and filing of all overseas CIT Returns. Additionally, we can assist with analysing whether there have been any tax exposures as a result of any work undertaken to date, or ideally before work is undertaken, in order to confirm any potential exposure so these costs can be factored in at tender stage, if commercial.

If your company has been working overseas and you are unaware of the potential tax exposure, or believe you have any compliance to undertake, please contact Ruth MacNamee for assistance as most 2020 filing deadlines are fast approaching.