A breakdown of the considerations you need to take note of when invoicing internationally.
When issuing invoices to foreign customers, businesses often work in commonly-used currencies, such as euros, dollars or sterling, to minimise complication. The advantage of invoicing and being paid in pounds is that there is no exchange rate risk. However, foreign customers may prefer to pay in their own currency. Most small businesses billing in a foreign currency hedge against currency risk by getting forward cover (also known as Forward Exchange Contracts) from their bank. This locks in the current exchange rate, so they won’t lose if the rate moves against them while they’re waiting for payment.
In most instances, issuing an invoice is a requirement - EU rules, for example, dictate that an invoice must be produced whenever you sell goods, offer services or receive payment on account. This can be done electronically or on paper, with all countries in the EU required to treat electronic and paper invoices as equal. But emailing international invoices makes good sense for reasons of speed, plus avoiding possible mistakes in postal addresses.
If you’re issuing invoices in a foreign currency, different rules apply depending on whether you’re selling goods or services, plus whether you’re dealing with other businesses or directly with consumers. It may also be necessary to register for VAT or the equivalent sales tax in the country with which you’re trading.
After considering the currency you're going to accept payment in, you need to consider the method by which you'll accept payment. Common payment methods include:
Credit or debit card
Each has pros and cons in terms of time and cost of setup and ongoing operation.
Depending on the countries you and your customer are located in, there may be certain taxes and fees to account for. Businesses buying from, or selling to, EU member states - for example - will have to account for international VAT. Many factors come into effect when calculating international taxes and fees - if you don't have specialist knowledge, it is worth getting an accountant or lawyer involved.
VAT issues with EU and international invoicing
Zero rating international invoices
If you sell goods from the UK to someone in another country, you might need to charge VAT on the sales. However, you can zero rate most items sold outside the EU or those sent to someone who is VAT-registered in another EU country. There are exceptions, such as second-hand goods and means of transportation, so always check. If you’re selling services to a foreign customer who is VAT-registered, you don’t charge VAT, but they pay the sales tax in their own country. This detail should be acknowledged on the invoice. When a service is sold to a customer not registered for VAT, VAT is charged at UK rates.
In instances where the VAT payable is zero, this should also be noted on the invoice. Your invoices are important since they can be used by HMRC as ‘evidence of removal’, demonstrating the goods concerned left Britain. Records should be kept for up to six years, but businesses registered for VAT Mini One Stop Shop (MOSS), the service for firms selling digital services to consumers within the EU, must keep invoices up to ten years.
If you’re selling goods or services to someone who is not registered to pay VAT in another EU country and you’re responsible for delivery, this qualifies as a distance sale and you charge VAT at UK rates in the normal way. However, each EU country has a distance selling threshold – 35,000 euros in many countries including France, Ireland and Italy, but up to 100,000 euros in Germany, Luxembourg and the Netherlands, for example. If the value of your sales to that country exceed that limit, you must register for VAT in the country concerned and charge customers there VAT at the local rate.
International invoicing and accurate record keeping
When invoicing sales overseas, often the reverse charge mechanism applies. This shifts responsibility for reporting a VAT transaction from the seller to the buyer of a good or service. Most sales between EU member states are subject to reverse charge rules, which are designed to simplify trade by making the customer accountable for VAT. But the seller must state on the invoice: ‘Subject to reverse charge in the country of receipt’.
The British tax authorities require businesses dealing with foreign customers to issue a VAT invoice clearly showing the VAT sum in sterling as well as the other currency. When updating your accounts, invoices in foreign currencies must be recorded in sterling with the foreign sum converted using a commercial rate as of the invoice date. If you’re owed money in foreign currencies, it’s necessary to keep track of the amount outstanding in sterling even though exchange rates are constantly fluctuating. So, if you issued an invoice in euros, the bill has yet to be paid, but the euro has dropped in value against the pound in the intervening period, you must recalculate the amount owed based on the new exchange rate. The difference should be registered in your profit and loss account as a foreign exchange loss.
Selling to foreign customers can be complex, so talk to an experienced accountant to check which rules and regulations apply in different jurisdictions and where you should be paying tax.
International invoice checklist
The date of issue
A unique invoice number
Your company’s full name and address
The customer’s full name and address
A description of the goods or services provided and the quantity
The date and place of supply
The total amount payable in the agreed currency
If you’re registered to pay VAT and are sending the invoice to a customer in another EU country also include:
Your VAT number
The VAT number of the customer if applicable
The VAT rate being charged
The taxable amount per rate
The VAT amount payable
The sterling equivalent of VAT payable if the invoice is in another currency
If you’ve delivered a service and the VAT rate is zero, state: ‘Article 44 of the EU VAT Directive; VAT is due by the recipient of the service’
If you’ve sold goods and the VAT rate is zero, state: ‘VAT exempt, EC Supply Article 138 of the EU VAT Directive’