The excitement of expanding their operations overseas into larger markets is a milestone for SMEs, but it can also be fraught with danger.
To help you make this step a safe one, the following guidance explains some of the regulations that you’ll have to comply with:
Drawing up contracts
It may be difficult to deal with all the relevant commercial and legal issues within a few additional clauses in your domestic standard terms. If your business makes a lot of overseas purchases or sales, get tailor-made terms drawn up.
If you make only occasional low value overseas purchases or sales, you can get some protection by including additional clauses in your domestic standard terms. You could consider using Incoterms (the international rules for the interpretation of trade terms, published by the International Chamber of Commerce), or some other internationally recognised standard terms.
Setting up payment mechanisms
Whether you’re buying or selling goods overseas, you’ll need to think about how payment will be made. You should take into account possible changes in the exchange rate after the order has been placed.
If you’re exporting goods, getting payment from an overseas buyer may be difficult unless you use special methods. The usual methods of payment are either undercollection arrangements or letters of credit (also known as documentary credits).
Restrictions on imports and exports
Laws in both the UK and in other countries you’re dealing with may restrict both what you can buy or sell overseas and the amounts.
You’ll have to make a customs declaration for all exports to and imports from countries outside the European Union. You don’t usually have to make a declaration for goods sold within the EU but there are exceptions. You can find out more about this on the HMRC website.
Restrictions on imports
Before you buy any goods from overseas, find out about any laws that might apply in the country of origin. You may need the seller to provide you with documentation proving the origin of the items you’re importing.
The import of some items, such as animals, food, medicines and dangerous goods, is strictly controlled, and special measures may apply to their import. You also need to ascertain whether there are import quotas on the goods. The import quotas system allows limited amounts of goods to be imported at a lower rate of duty than would otherwise apply.
Restrictions on exports
When you’re exporting goods from the UK you’ll need to find out whether they are “controlled goods”. If they are, you may need to apply for a licence, or comply with specific regulations. Controlled goods include things like: goods with a potential military use; live animals, agricultural products, dangerous chemicals and valuable antiques and works of art.
There may also be import restrictions on the products you are exporting, and you may need to prove that your products comply with local requirements.
VAT and other duties
When you import goods into the UK and EU member states you’ll have to pay import duties and VAT before the goods are released to you.
Under the EU common customs tariff, all EU member states charge a common duty tariff on goods imported from outside the EU. After you’ve paid the tariff you can move the goods within the EU without having to pay any further customs duties.
You may have to pay other local charges in a member state, such as excise duty or VAT. If you are importing goods from outside the EU you must notify HMRC by making an import entry.
If you’re selling to a private individual or business in the EU that is not VAT-registered, you charge VAT in the normal way. If you’re selling to a VAT-registered customer, you can zero-rate your goods as long as you keep satisfactory evidence, including commercial invoices and shipping documents, proving that the goods have been removed from the UK.
If you’re exporting goods outside the EU they can be zero-rated as long as you ensure they leave the EU within set time limits (typically three months) and keep satisfactory evidence of the transaction taking place.
Completing an Intrastat declaration
Intrastat is the system used for gathering statistics on the trade in goods between EU member states. All VAT-registered businesses whose annual value of trade with other EU member states reaches a certain threshold, must submit a monthly Intrastat declaration.
Richard Manley is a commercial solicitor at Riverview Solicitors.
