With architectural fees for commercial work static, or even falling over recent years, and a struggling housing market, it is true to say that international expansion is becoming increasingly attractive for UK architectural practices.
Certainly, if the Brexiteers are to believed, there’s a world of possibilities outside the UK for firms brave enough to try.
Working from the UK and VAT – business as usual isn’t it?
Some European countries have a provision allowing you to charge UK VAT at 0% to businesses, for site specific architectural services. Others don’t, and will expect you to register in the customer’s country. In most cases, if your customer is a not-for-profit entity or a private individual, you will have to charge UK VAT.
That may come as a shock to your customer, so it is crucial to take advice from your accountant at the quote stage, and ensure charging VAT is fully considered in your contract.
There are also some international markets that have an equivalent regime to VAT, which may need to be considered. This exists for example in Turkey, Switzerland and the UAE.
Whilst your business may not have an establishment in the country of your customer, it doesn’t always follow that you have no obligation to register for, and charge, local VAT or sales tax.
Assuming you render a fee invoice with the right VAT treatment, there is no guarantee you will be paid in full. Many countries require resident businesses to withhold a % of payments intended for overseas suppliers and pay it over to the tax authorities.
In theory, a withholding tax certificate is then issued and you may claim credit for this amount against the UK tax liability for your overseas work.
Withholding tax at best is simply a cash flow headache. Money that you would have paid in UK tax is paid upfront to a foreign government. But at worst, if you don’t have enough suitable profits in the UK, or if the % deducted is very high, you could end up out of pocket.
Some countries deduct such a high % that many UK architects won’t work there or demand additional fees as compensation. Again, you need to take advice at the quote stage.
Sub consultants and employees
Sub consultants are generally easier to deal with than the client side. In most cases if your sub consultant is based in the UK then normal rules apply.
However complexities kick in where you need to engage sub consultants or hire employees in the country where the client site is located. There can be issues of the permanent establishment (PE) of your business, which could lead to you having to engage a local accountant and prepare tax accounts for an overseas project.
There are several ways to manage PE risk, including setting up a foreign company to handle the project (known as a project SPV) or working with a local partner practice under a joint venture.
Given all of the above, it might seem daunting to bid for overseas work. However, in our experience, a small amount of due diligence before entering into a project can ensure any risks in the short and long term are well managed and the overall return can be modelled reliably.
With our help, our clients are profitably working on projects all over the world.
Thinking about international expansion? Talk to our specialist Architect accountants to start your journey.
Haines Watts London are Chartered Accountants & Tax Advisors, working with UK Architectural practices.
Want to know more? Call us on 0207 025 4650 or email firstname.lastname@example.org