Running a business is a big responsibility in itself, but branching out to different countries adds a whole new layer of complexity – especially when it comes to taxes. Each country has its own unique set of regulations, making it difficult to keep track of what applies where.
And the truth is – without the right tax strategy – it’s easy to fall victim to common mistakes or run into compliance issues, both of which can end up costing you dearly.
But with the right plan, you can tackle these challenges head on. Instead of getting caught up in tax stress, you’ll be free to focus on the excitement of entering new markets. Expanding internationally opens the door to new customers and fresh revenue streams.
To help you handle these challenges, we’ve put together a guide with practical tips on cross-border VAT, global tax compliance, and much more.
Understanding Cross-Border VAT Regulations
Firstly, it’s important to have a good grasp on cross-border VAT regulations, since they can have a major part to play in how you do business abroad.
What Is VAT and Why Does It Matter for International Business?
Value-Added Tax – or VAT – is a sales tax applied to goods and services in many countries around the world. Within the European Union a harmonised VAT system applies to EU member states.
How does it work? VAT is added to the cost at different steps as a product or service is made and sold. For example, when materials are bought to make something – VAT is charged. Later, when the product is sold to a customer – VAT is included in the price. At each step, the tax is only charged on the value added during that stage.
This might seem straightforward, but when your business operates in multiple countries with different types of customers, VAT rules can get complicated pretty quickly. Each country has its own rates, and regulations which you need to keep in mind if you want to stay compliant with tax authorities and optimise your international tax planning.
How VAT Rules Differ Between Countries
Here’s a breakdown of the VAT regulations that exist in different regions. Keep each of these in mind to stay in compliance with international tax laws.
European Union (EU)
Most EU countries use a VAT system, with rates usually falling somewhere between 17% and 27%.
Planning to sell goods or services in multiple EU countries? Then it’s important to know that if your sales in that country surpass a certain limit, you’ll need to register for VAT in that region. This limit varies from country to country, so it’s important to check the rules wherever you’re doing business or chat with a tax professional.
Plus, there are special EU rules for selling to customers in other EU countries. If you sell goods or services from one EU country to customers in another, you may need to follow the “distance selling” rules or use the VAT One-Stop Shop (OSS).
Example #1: Ireland
Ireland has a standard VAT rate of 23% currently. If your sales in Ireland go over certain limits in a 12-month period, you’ll need to register for VAT. These limits are currently:
- €42,500 for services
- €85,000 for goods
You can see a full list of the VAT limits here.
Ireland also offers the following reduced VAT rates:
- 0% rate: Includes food, books, children’s clothing, medicines, animal feed, and disability aids like wheelchairs and hearing aids.
- 13.5% reduced rate: Applies to coal, heating oil, vet fees, and building, cleaning, and maintenance services.
- 4.8% livestock rate: Covers livestock (except chickens), horse hire, and greyhounds for agricultural use.
Once registered, you must charge the correct VAT on your sales and comply with Irish tax laws.
Example #2: Germany
Germany also follows EU VAT rules with a standard rate of 19%, and a reduced rate of 7% for certain goods and services (food, books etc.).
A domestic German business must generally register for VAT if their turnover in the previous calendar year exceeded €25,000 and their forecasted turnover for the current calendar year is expected to exceed €100,000.
United Kingdom (UK)
Since Brexit, the UK no longer follows EU VAT rules. Instead, it operates its own VAT system at a standard rate of 20%, and a reduced rate of 5% for certain goods and services. For example, home energy and children’s car seats. The UK also has a 0% rate of VAT on some goods including food and children’s clothes.
If your sales in the UK exceed £90,000 in a 12-month period, you’ll need to register for VAT there. Once registered, you’ll need to charge the correct VAT on your sales and file regular VAT returns in line with UK tax laws.
Other Countries Using aVAT taxation system
A VAT system is widely used in countries beyond Europe and the UK, including:
- Australia
- New Zealand
- South Africa
- China
- Mexico
- Norway
- Switzerland
- Russia
- Turkey
Note: The United States is a bit of an outlier here. It doesn’t use a VAT system like most other countries. Instead, it uses sales tax, which is charged at the state and local level (not federal).
In this way, each state has its own rules, rates, and thresholds. If you’re selling into the US – especially online – it’s important to know where your customers are and whether you have what’s called a “nexus.”
A nexus is a connection to a state – like having a lot of sales there, storing inventory, or using local warehouses or workers. If you do, that state may require you to collect and pay sales tax. It’s another layer of complexity you’ll want to stay ahead of!
How to Avoid Paying VAT Twice
If you’re not careful about where and how VAT is charged when doing business across borders, you run the risk of paying VAT twice on the same goods or services. This can easily happen if you’re not careful about where and how VAT is charged. Here are some tips to avoid this common pitfall:
- Use VAT exemptions for exports: Many countries apply a 0% VAT rate to goods or services that are exported to another country This means you don’t charge VAT to your international customer. The recipient may be required to self-assess VAT under what is called a ‘reverse charge’ mechanism.
- Claim VAT refunds: If you pay VAT in a foreign country, you might be able to claim it back through a VAT refund or rebate system.
- Keep good records: Detailed invoices help prove when and where you paid VAT. This is essential for refunds or exemptions and to demonstrate compliance.
- Work with a tax professional: Expert assistance can help you lighten your workload, navigate complex VAT rules, and avoid paying twice – especially when selling goods across multiple countries.
Business Structuring for Tax Efficiency
Here are some simple things to keep in mind to help you minimise your tax burden and stay compliant in multiple countries.
#1 Pick the Right Structure for Your Business
When you start doing business in other countries, how you set up your operations can make a big difference in your tax liability and compliance. Common ways to structure your business internationally include:
- Branch: An extension of your main business operating abroad. It’s simple to set up, but can mean you’re taxed in both your home country and the foreign country. A branch is not a distinct entity but rather is usually your current company doing business in a new location.
- Subsidiary: A separate company registered in the foreign country but owned by your main business. It’s treated as its own legal entity, which can limit your risk and sometimes offers tax benefits.
- Partnership or joint venture: Partnering with a local business can help share costs and risks. But keep in mind, you’ll need clear agreements on taxes and responsibilities to stay clear of future disputes.
The right setup will lower your tax bill and help you stay compliant as you grow internationally. But each option comes with different tax rules – so it’s important to pick the one that fits your business goals. Working with a qualified international tax adviser can ensure you select the best structure for your business.
#2 Plan for Transfer Pricing
If your business operates in more than one country, you might buy or sell things between your own branches. For example, your company in Ireland might sell parts to your company in France.
When that happens, tax rules require you to set fair market prices – just like you would if selling to an outside company. This is known as transfer pricing, and it’s based on the OECD’s ‘arm’s length’ principle, which says transactions between related companies should be priced as if they were between independent parties.
Getting this right is crucial. It ensures that each country gets the right amount of tax based on where the value is created. If you don’t follow these rules, you could face extra taxes, audits, or penalties.
#3 Look Out for Tax Breaks
Many countries actively try to attract small businesses and growing companies like yours – and one way they do that is by offering tax breaks.
But what kind of breaks? It might be something like lower taxes for startups or reduced rates for certain industries. It could even be credits for investing in research and development.
You should also look into foreign tax credits. These let you reduce your home country’s tax bill by the amount of tax you’ve already paid abroad – for example, on foreign dividends or income from overseas operations. That way, you avoid paying tax twice on the same income and keep your international business more tax-friendly.
#4 Think About Controlled Foreign Corporation (CFC) Rules
Many countries have Controlled Foreign Corporation (CFC) rules to prevent companies from shifting profits to low-tax jurisdictions through foreign subsidiaries. If your business owns or controls a foreign company, you might be required to report and pay tax on certain types of income earned by that foreign entity. This applies even if the profits are not repatriated.
Understanding CFC rules and how foreign income tax applies is a must for avoiding unexpected tax liabilities and ensuring compliance in your home country.
Managing Global Compliance Requirements
As we now know, every country has its own tax laws, filing requirements, and deadlines. Part of your job is to stay compliant with all these rules. This includes:
Understanding Local Regulations
When do you need to register for VAT? What details should your invoices include? How often do you need to file returns? When do you need to charge VAT? These are important questions to ask.
Remember, if you don’t follow the rules properly, you could face fines or delays. So, make sure you know what’s required in each country where you’re doing business. If in doubt, it’s a good idea to consult a tax expert.
Use Tools That Make Compliance Easier
There are plenty of handy tools – like Avalara – for managing international invoices, VAT filing, and sending deadline reminders. With these tools at your fingertips, you’ll make fewer mistakes and have more time to spend on more exciting parts of growing your business internationally.
Keep Your Records Accurate and Up-to-Date
Having clear and organised records makes it easier to follow local tax rules and handle any audits or reviews. So, don’t forget to track your sales, expenses, VAT, payroll, and important filing deadlines for every country you operate in.
Make Compliance Part of Your Growth Strategy
It’s important not to think of following the rules as another boring task on your list. Why? Because compliance is actually the foundation that helps your business grow. When you get it right from the start, you avoid surprise costs later on, making it way easier – and less stressful – to expand into new markets.
Planning for International Tax Residency (and Permanent Establishment)
When expanding your business abroad, you need to think beyond VAT and filing returns. You have to consider where your business is considered “tax resident” and whether you plan on creating a permanent establishment in another country.
Corporate Tax Residency
This refers to the country where your business is legally based for tax purposes aand considered resident/taxable. Typically, it’s where the company was incorporated or where central management decisions are made. But, if you operate extensively or make key decisions in another country, that jurisdiction might also claim your business as a tax resident – meaning you could be liable to pay tax on your taxable income there as well. Double Tax Treaties usually help resolve situations of dual residency.
Permanent Establishment (PE)
If your company has a fixed place of business (like an office, warehouse, or even a sales agent) in another country, that country might see it as a PE. What does that mean? Well, you could be taxed on the income generated there – separate from your home country. A PE is a tax presence in a different jurisdiction.
Note: Without careful planning, you might end up paying tax twice – once in your home country and again abroad. Or, you could accidentally trigger tax obligations you weren’t expecting, which could even lead to fines or penalties.
Quick tips to avoid surprises:
- Understand the corporate tax residency rules in the countries where you do business
- Know what counts as a permanent establishment under local laws and the relevant Double Tax Agreement
- Leverage tax treaties to prevent double income taxation
- Consult tax professionals familiar with cross-border rules to structure your operations strategically and avoid non-compliance with tax regulations
Need Help Navigating International Tax Rules?
You’re in the right place! Our team at Expat Taxes specialise in helping SMEs and entrepreneurs manage the complex global tax laws that come with doing business across borders, and particularly when clients are relocating to do business here in Ireland
Whether you’re planning your expansion into new markets or trying to avoid double taxation – our team of Chartered Tax Advisers have the insight and expertise you need. We make sure you’re taking full advantage of relevant tax treaties and are fully compliant in every country you operate in, so you can minimise tax liabilities and avoid costly mistakes.
Book a consultation with our Chartered Tax Advisers to get expert support, and effective tax planning to make your international expansion successful
DISCLAIMER: The material in this article is for general information purposes only and does not constitute legal or taxation advice. Legal, financial, investment and taxation advice should be sought before acting or refraining from acting. All information and taxation rules are subject to change without notice. Expat Taxes Limited and RemitEase Limited (hereafter ‘the parties’) accept no liability for any action taken based on the information in this article or any of the articles in our blog series. The parties do not provide financial planning, investment, or mortgage advice; this article is provided only for general information. We are not authorised/licensed to provide financial advice, and this article should not be considered to constitute advice of this type in any respect.
Written by Stephanie Wickham, CTA, FCA
Known for her ability to simplify even the most complex tax matters, Stephanie has worked extensively across income tax, corporate taxes, capital gains, and inheritance taxes, with a deep understanding of cross-border tax implications and double tax treaties. Having experienced life as an expatriate herself, Stephanie understands the stress that can come with international moves — and how daunting tax compliance can feel. Her philosophy is simple: tax advice should be straightforward, clear, and tailored to each individual.
