Hello everyone! We are a Hong Kong based & registered company. We provide furnishing services to Asia based investors, investing in real estate in England. As such, we buy our goods from a UK based supplier, who will then take care of installing this furniture in these properties that are all based in England. The purchasing and installing services provided to me are all taxed at the 20% VAT rate. My question is since I’m a Hong Kong registered company (where there’s no VAT, which I believe is not really relevant, but might be wrong), do I still have to pay the VAT because the good are bought and serviced in England? Or can the supplier quoted me Zero VAT and claim it back? Do we have to register for UK VAT, and what will the benefit be for us if we do so? My other questions is that I pay referral fees to real estate agents who introduce me clients. This is purely a service, there are no goods involved. Can my referral fee be Excluding VAT? Glad to answer any questions you may have. Thank you very much in advance for you help!
Hong Kong entity doing business with UK - What's the rule on VAT Tax
Answers
VAT is the abbreviation for VALUE ADDED TAX. Contrary to a Sales Tax, the VAT is only charged on the profit that a company has added to cost incurred for the products sold.
In your case, your vendor is adding 20% on their invoice to you. When you are reselling the product to your customer, you are adding another 20% to the price you are billing your customer for. At the end of the quarter, you have to report the total of value added tax collected from your customers and deduct the total of the added value paid to your suppliers. The net difference between the two becomes payable as VAT to the Tax Authorities for that reporting period.
If you do not have your own operation in the UK, I suggest that you use the services of one of the many "independent" independent CPA's or VAT Agents, that offer these services to companies, that do not have their own representation in that country. Otherwise you risk, that you will loose the full amount of VAT that you paid at the time of the purchase of the products.
Also beware, that you are not employing anybody in the UK that handles either customer services, or any other activities on your behalf. Otherwise, the British Tax authorities might come to the conclusion that you are actually "doing business" in the UK and decide that you have established a "legal residency" within the UK. Income tax payable on your activities in the UK would be the consequences.