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Issues With Clients Abroad

By: Paul Geraghty - Updated: 20 Oct 2012 | comments*Discuss
Business Abroad Withholding Tax Exchange

Globalisation has been one of the great buzzwords of recent years. Among other things, it means that economic activity is increasingly transnational in character. The internet makes doing cross-border business easier than ever before; and, if you set up your own company, sooner or later you are likely to find that some of your clients are from outside the UK.

If you operate on a post-facto invoice basis, you will naturally need to think more carefully about whether or not to accept business offered from a new client abroad. Your ability to check the bona fides of foreign company or citizen will naturally be more limited than it is in your home country. Pursuing legal remedies in the event of non-payment will also, at the least, be more complex and probably more expensive than would be the case in Britain.

There are firms which specialising in factoring for foreign markets, paying you most of the value of your invoices in advance, then attempting to collect payment on your behalf. Insurance is also available for business transacted abroad, including from the government’s own Export Credits Guarantee Department.

Taxation Issues

Tax issues can be complex at the best of times, but you may find that things get even more messy when you begin to work for clients abroad. Your clients may face special legal requirements of their own when doing business with foreigners, and, as a result, you may have to help them with this if you decide you want to work together.

For example, if you operate in business as a freelancer, some countries will require companies operating in their jurisdiction to deduct withholding tax from any payment they make to you. In other countries, like the USA, you may be asked to fill in a W-8 form to claim exemption from withholding tax. Companies in other countries, such as Italy, may ask you to produce a declaration from the tax authorities in your own country, saying that the income will be subject to taxation after it is paid to you.

Receiving Payments From Abroad

If you operate internationally, you will need to give some thought to currency issues. Will you bill only in your own currency? This certainly simplifies things, but some clients may insist on paying you in their preferred currency, and you may lose business if you refuse to go along.

When you receive payments internationally, you may find that your bank imposes significant charges on each transaction. This can especially be a problem if your business involves doing lots of small, low-value jobs. In this case, bank charges may swallow up a significant portion of your invoicing amount. One option is not to invoice right away but to let a number of small jobs stack up before sending in one big invoice.

If you’re billing in foreign currencies, you’ll be exposed both to additional currency exchange charges and to the risk of dramatic changes in exchange rates.

The rise and fall of sterling relative to other currencies can, of course, be good as well as bad, but you are dependent on the random fluctuations in the market unless you can exert some control over the process. One way of doing that is to maintain foreign currency bank accounts and have your foreign invoices paid into those. Then, you can wait till the exchange rate is favourable before transferring the funds to your UK account. This can also be beneficial if you sometimes have to make payments in the foreign currency, too, cutting down on unnecessary foreign exchange costs.

If you’re transferring large sums, you can also seek out the services of a foreign currency exchange broker, who should be able to come up with a more competitive exchange rate than the “tourist rates” typically offered by banks.

Issues With Clients Abroad – Conclusion

Opening yourself up to business from abroad certainly involves more complexity. But it also expands your potential customer base considerably, so the time investment you make in it will usually prove to be worthwhile.

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