5.4 Introduction to Basic Country Tax Systems for Internationalisation
When internationalizing our products in the market, it is necessary to know some key points that will make the process easier. It is necessary a good organization and understanding of the taxes and the financial strategy, to carry out a correct one.
The first thing we must understand is a key point, being within the European Union, we have to take into account Community law, that is to say, the rules that are accepted when joining it and that are applicable to all Member States. When we talk about internationalisation and having our business within a Member State, it will be different how we manage taxes if we want to internationalise with another Member State or with a third state (a country that is not a member of the European Union).
Next, we will briefly mention the most important points in terms of taxation to take into account if you want to internationalize your art from within Spain:
If the delivery is intra-community, i.e. the subjects are included within the EU, and the goods go from one Member State to the other member country, the delivery will be exempt from VAT, as the sale within the EU is exempt. These operations will be exempt if the good/service is transferred to another member country, that the one who buys it has a tax identification number, and that these operations are registered in a specific book. For more information on Community regulations on this subject, https://eur-lex.europa.eu/eli/reg/2010/904/oj
In the case of exports, i.e. with third countries, the corresponding VAT will be paid at customs when the goods are purchased. However, when exporting, the international tax system says that the VAT will not appear on the invoice, so the tax will be self-assessed, accounting for input VAT and output VAT.
Introduction to Basic Country Tax Systems for Internationalisation: Poland
The section on employment opportunities for artists and creators in Poland focuses on the characteristics of civil-law contracts as most popular in the creative sector, while employment under an employment contract and the whole aspect of running a business will be disregarded.
Poland uses two types of civil-law contracts, contract for specific work and contract of mandate. The legislator addressed the first type of a contract to the cultural and creative sector (although other sectors are also currently using it).
Contract for specific work: the subject of the contract for specific work may be activities that produce a tangible result, e.g. making a book cover design, and an intangible result, e.g. performing a concert.
Contract of mandate: signing a contract of mandate obliges the person accepting the mandate to perform a specific legal action in exchange for a specific service, which may include performing a specific activity.
The key difference between the contract for specific work and the contract of mandate is the responsibility for its performance. Under the contract for specific work, the service provider is responsible for the result of its work, whereas in the case of the contract of mandate, the service provider undertakes only to properly perform the action contained in the contract, without taking responsibility for its final outcome. The same applies to complaints: in the case of the contract for specific work, the principal has broad rights to lodge a complaint, whereas the contract of mandate does not provide for such a right.
Issues of remuneration: minimum hourly wage
As of 1 January 2017, the minimum hourly rate for employment under the contract of mandate applies. As of 1 January 2020, the minimum wage and the lowest hourly rate will increase for the contract of mandate. The wage will rise from PLN 2,250 to PLN 2,450 and the rate from PLN 14.70 to PLN 16.00 per hour of contracted work. In order to use the above rate, it is advisable for persons employed under the contract of mandate to record the working time. This means that the service providers’ remuneration will be the product of the hourly rate and the number of hours worked.
Persons employed under the contract for specific work are not subject to these regulations and their remuneration is the amount agreed upon by the parties to the contract.
Contributions to the Social Insurance Institution
These two types of contract also differ in terms of the benefits to be provided under them: in the case of the contract for specific work, the service provider is not entitled to pension, sickness, disability, accident or health insurance and does not pay respective contributions. On the other hand, every contract of mandate is subject to compulsory contributions, which means that social insurance (pension, disability and accident) and health insurance contributions must be deducted from every contract until the service provider exceeds their monthly income at the minimum wage level applicable in the year. If the service provider exceeds the amount of the minimum wage for all of their insurance types, the next contract is obligatorily subject to health insurance contribution only. However, on both contracts, service providers have to pay income tax.
The assessment of the appropriate tax rate is governed by the same rules for both contracts. If the gross wage under a civil law contract (i.e. the contract for specific work or the contract of mandate) does not exceed PLN 200, a lump-sum income tax of 18% should be applied. However, if the wage is higher, taxation under the general rules of 20% applies.
Tax deductible expenses
Both the contract of mandate and the contract for specific work offer tax base reduction by flat-rate tax deductible expenses. The basic rate is 20% and the increased rate is 50% if the contract provides for the use of copyright.
Tax System in Spain
Now we will talk about how to handle the tax system when we want to internationalize our product or service from Spain abroad, always taking into account all the information mentioned above.
One of them is the management of VAT for foreign operations. This tax is regulated by Law 37/1992 on Value Added Tax (to which we refer for further information). Article 1 of the Preliminary Title states that this tax is levied on the supply of goods and services by professionals, as well as intra-community purchases of goods and imports of goods, although depending on the type of purchase, one type of VAT or another will be paid:
In order to carry out operations within the EU, it will be necessary for our company to have been awarded a NIF-IVA by the Treasury, which is provided when applying for registration in the ROI (Register of Intra-Community Operators). In order to do this, you must fill in form 036 of the Tax Authorities. This register shows all the companies that carry out operations within the EU. This form is available at the following link: https://www.agenciatributaria.gob.es/AEAT.sede/tramitacion/G322.shtml
When you are registered, you can make invoices without VAT, but if we are not registered, we must add VAT to our operations. It is not obligatory to be registered in the ROI, but it is advisable since we will lower the costs to our client. In addition, you can consult the VIES system to check that your client is also registered as an intra-community operator. To consult it:
Finally, it should be noted that, as employers working at Community level, form 349 of the Tax and Customs Administration must be completed. This is an Informative Declaration which is a summary of the European purchases and sales that have been made. This form is available at:
Regarding the differentiation of the sale of goods or services, we can highlight the following rules:
- If a sale is made to a private individual, the sale will be taxed in the country of origin.
- If a service is offered to a company within Europe, an invoice without VAT must be submitted, and the customer will pay for it through the "reverse charge".
- If a service is offered to an individual, the invoice must be paid with VAT, except in certain cases such as television or radio.
Another rule to bear in mind is that works of art will always be obligatorily taxed in Spain, so it is necessary to consult the legislation applicable to the case, available at this link: https://www.agenciatributaria.es/AEAT.internet/Inicio/_Segmentos_/Empresas_y_profesionales/Empresas/IVA/Regimenes_de_tributacion/Regimenes_especiales/Regimen_especial_de_bienes_usados/Regimen_especial_de_bienes_usados.shtml
For any query on how to handle both VAT and Corporate Tax to be taken into account in Spain, you can consult the website of the Tax Agency (AEAT), as well as the Chambers of Commerce, which allow us to process returns.
When carrying out an international activity, the complexity becomes greater and it can happen that double taxation or few benefits are given. Therefore, international tax law includes rules to avoid these situations. For example, double taxation agreements, which try to avoid large costs in case of internationalization of the company. This is achieved by the rule of paying only the tax in one of the countries involved, for example, the Spanish Corporate Tax, or the foreign Corporate Tax. There are two methods:
Exemption method: Spanish tax is not paid when it is lower than foreign source income.
Tax deduction to avoid double taxation: deduct the tax paid abroad when this is less than the income left in Spain.
Another important issue to bear in mind when internationalising our product will be insurance, which will protect us in the event that something does not go as planned. These types of insurance will depend on which product or service you want to internationalize, but the most common ones to take into account are:
Transport insurance: The most common are the INCOTERMS clauses, which determine the obligations of both parties for the transmission of risks according to the place and time agreed.
Exchange insurance: Covers exchange rate variations of the currency in which the transaction has been carried out. Thus, when the transaction is carried out outside the euro zone, we can ensure that the value of what we've sold won't change.
Export credit: it would cover losses related to defaults by customers.
Introduction to Basic Country Tax Systems for Internationalisation: the UK
In the United Kingdom, there are systems for business owners to use, in order to explore tax relating to the expansion of businesses across countries.
For information relating to the tax system in the United Kingdom, follow this link: https://en.portal.santandertrade.com/establish-overseas/united-kingdom/tax-system
This website provides a detailed overview of all systems including:
- Corporate Taxes
- Accounting Rules
- Consumption Taxes
- Individual Taxes
- Double Taxation Treaties
This information has been sourced from the HM Revenue & Customs and the Ministry of Finance in the UK.
For more information relating to VAT, the UK Government website provide numerous links to different guide books and resources: https://www.gov.uk/topic/business-tax/vat. This website also provides information relating to exporting and importing goods and services and overseas businesses and UK VAT.
For information relating to Corporate Deductions and trading regulation, please read this website: http://taxsummaries.pwc.com/ID/United-Kingdom-Corporate-Deductions
For information on exporting and management finance around exportation, head to this website for all the relevant information: https://www.great.gov.uk/