How to legally avoid UK VAT for Ltd?

[banafinfodafuggiano]

I am a resident of a third world country outside the UK and the EU.


I want to run my online business through a UK Ltd + my local country company and invoice the UK Ltd with this company.


Am I supposed to pay UK VAT if my customers are based in the UK BUT the director of the company (me) is not a UK resident AND 100% of the products shipped to
UK customers are shipped OUTSIDE the UK/EU ?


If the naswer is yes, I have to pay VAT, is there a way to not pay it legally giving the current circumstances?

I heard that if products are shipped outside the UK/EU, then VAT is not payable from the company even after the regular thresold.... ?

 

[JustAnotherNomad]

VAT is only about where the customer is.
If you sell to private EU customers, there is always VAT, once you exceed the minimum thresholds. No way around that.
Even if you and your company were in Vanuatu, you’d still have to pay EU VAT. Period.

Of course it’s a hassle for them to track down who’s behind some company in a country outside the EU, so many Hong Kong based sellers just don’t give a damn and sell without VAT. As long as you’re not selling products for millions of EUR, you probably wouldn’t be a priority.
But with a UK/EU company, it probably wouldn’t be a good idea. Or, well, what can they do, if you live in some country far away. Probably they’d just close your company. I don’t know.

And even if your company is based in the EU, if the customer is not (for example, if the customer is in the US), then there is no VAT.

 

[banafinfodafuggiano]

VAT is only about where the customer is.
If you sell to private EU customers, there is always VAT, once you exceed the minimum thresholds. No way around that.
Even if you and your company were in Vanuatu, you’d still have to pay EU VAT. Period.

Of course it’s a hassle for them to track down who’s behind some company in a country outside the EU, so many Hong Kong based sellers just don’t give a damn and sell without VAT. As long as you’re not selling products for millions of EUR, you probably wouldn’t be a priority.
But with a UK/EU company, it probably wouldn’t be a good idea. Or, well, what can they do, if you live in some country far away. Probably they’d just close your company. I don’t know.

And even if your company is based in the EU, if the customer is not (for example, if the customer is in the US), then there is no VAT.

Ok so let's say I have a company in the US and I am a resident of Canada, but I sell to UK customers only.
And my products are all shipped to UK customers OUTSIDE the UK/EU zone.

Do I still need to register for VAT and pay VAT in the UK?


(if yes, that doesn't make any sense)

 

[JustAnotherNomad]

And my products are all shipped to UK customers OUTSIDE the UK/EU zone.

What do you mean by UK customers outside the UK/EU zone?

As mentioned, the other things shouldn’t matter. It’s only about where your customers are and your revenue per EU country.

And it does make sense to charge foreign entities because it levels the playing field. Otherwise offshore companies would have an unfair competitive advantage.

 

[banafinfodafuggiano]

What do you mean by UK customers outside the UK/EU zone?

As mentioned, the other things shouldn’t matter. It’s only about where your customers are and your revenue per EU country.

And it does make sense to charge foreign entities because it levels the playing field. Otherwise offshore companies would have an unfair competitive advantage.

If my company is based in Canda and I am a US citizen based in the USA,

Why would I pay UK VAT if the products I sell are shipped from CHINA directly to UK customers?
(they already have to pay VAT upon receiving the goods through customs and border protections)

 

[JustAnotherNomad]

VAT is only paid once. So any VAT you have already paid upon import you don’t have to pay again. You only pay additional VAT (value added tax) on the value that’s added after the import.

I tried to explain it above: If only UK-based sellers had to pay VAT, then this would be a huge advantage for foreign sellers and ruin their local businesses. For that reason, everybody has to pay the VAT, so that no one gets an unfair advantage.

 

[CaptK]

If your company is BASED in the UK/EU then you must apply VAT to your products.

If your company is based in the US for example then the VAT is applicable to the SELLER but to the buyer.

Example

US LLC selling trainers that are shipped from China to a UK client.

The US company is not obliged to add VAT to the product. The courier at cutsoms will be asked to collect the VAT on behalf of the revenue service.

You should have a disclaimer in your T&C's that the customer is responsible for any taxes in their country.

 

[NicolasMaduro]

If you have UK Ltd you have a treshold of like 8x.000 pounds, and as soon as you hit that you have to register for VAT. Since you are dropshipping from outside the EU, I wonder why you even register in EU. Why don´t you just have a company in Canada?

 

[JustAnotherNomad]

US LLC selling trainers that are shipped from China to a UK client.

The US company is not obliged to add VAT to the product. The courier at cutsoms will be asked to collect the VAT on behalf of the revenue service.

Hmmm, I guess you’re right. There’s a difference between physical and digital products and services.
But the VAT still needs to be paid.

 

[polonieth]

Am I supposed to pay UK VAT if my customers are based in the UK BUT the director of the company (me) is not a UK resident AND 100% of the products shipped to
UK customers are shipped OUTSIDE the UK/EU ?

What do you mean by are you supposed to pay VAT?

If you are running a UK limited company, customers are in the UK and the products are stored in the UK, then your products will need to have VAT on them if you are turning over more than £85k.

If you are running a UK limited company, customers are in the UK, but the products are coming from e.g. China directly to your customer, then they are outside of the scope of you charging VAT on them.

But there is still VAT due when the goods are imported into the UK. So if you are shipping directly to a customer, then the customer will have to pay the import duty + VAT, assuming the goods are higher in value than £15.

 

[polonieth]

If your company is BASED in the UK/EU then you must apply VAT to your products.

Not really, you could be based in the UK, but if the goods are shipped from outside the EU to a customer, they are outside the scope of VAT to be charged on them by you. Instead, the customer would pay it once it reaches UK shores and passes through customs.

You would need to be VAT registered based on the following example: UK company- selling to UK customers, bringing products in and storing them yourself, then shipping to customers, and turning over £85k.

 

[CaptK]

Hmmm, I guess you’re right. There’s a difference between physical and digital products and services.
But the VAT still needs to be paid.

It's the same, for example if I buy software from a Qatari seller there is no VAT at the place I bought it.

 

[CaptK]

Not really, you could be based in the UK, but if the goods are shipped from outside the EU to a customer, they are outside the scope of VAT to be charged on them by you. Instead, the customer would pay it once it reaches UK shores and passes through customs.

You would need to be VAT registered based on the following example: UK company- selling to UK customers, bringing products in and storing them yourself, then shipping to customers, and turning over £85k.

Correct but in this instance he wanted clarification on UK clients.

 

[JustAnotherNomad]

It's the same, for example if I buy software from a Qatari seller there is no VAT at the place I bought it.

I’m pretty sure the Qatari seller needs to add VAT once they’ve exceeded the VAT threshold. So if a Qatari company sells software to UK private customers for GBP 500k per year, then they do have to register for and charge UK VAT.

 

[CaptK]

Yes that's correct but guys over there use a multitude of companies to avoid this.

I’m pretty sure the Qatari seller needs to add VAT once they’ve exceeded the VAT threshold. So if a Qatari company sells software to UK private customers for GBP 500k per year, then they do have to register for and charge UK VAT.

 

[JustAnotherNomad]

Yes that's correct but guys over there use a multitude of companies to avoid this.

I guess you could do the same with UK companies... Couldn’t you?

 

[CaptK]

I guess you could do the same with UK companies... Couldn’t you?

Yes it's a very common practice to negate the additional accounting. It's also protection against fraudulent claims made in your company name.

 

[banafinfodafuggiano]

What do you mean by are you supposed to pay VAT?

If you are running a UK limited company, customers are in the UK and the products are stored in the UK, then your products will need to have VAT on them if you are turning over more than £85k.

If you are running a UK limited company, customers are in the UK, but the products are coming from e.g. China directly to your customer, then they are outside of the scope of you charging VAT on them.

But there is still VAT due when the goods are imported into the UK. So if you are shipping directly to a customer, then the customer will have to pay the import duty + VAT, assuming the goods are higher in value than £15.

So if it's a UK ltd, products from China, customers in UK, no VAT?

 

[CaptK]

No US LLC. You can't have a company in Europe or UK.

 

[khinkali]

I guess you could do the same with UK companies... Couldn’t you?

I think HMRC are pretty strict about artificial separation and VAT. When I was in the UK my accountants were concerned about it even when the businesses has different employees, offered different services and had only partially shared ownership. The advice was something like "I know you say the services are not the same, but they're all 'online' related so HMRC will probably view them collectively for the threshold".