Hi guys and ladies,
My website is hosted in US. I am a British resident. I hope to sell a web based service to Spanish businesses.
Am Liable for income tax :
A) In the country where the website hosted and the
B) The country where I reside (UK)
c) The country where my clients reside.
Any help very much appreciated.
Where your site is hosted shouldn't make any difference at all.
Where your client is located may affect whether or not certain taxes apply to the transaction but should not impact on where you pay tax.
How is it determined where you are based for tax?
If you haven't already done so, my advice would be to get professional and qualified advice for your particular circumstances. Any "advice" you receive in forums like this should be treated as general advice only and might not apply in your circumstances.
If you get dragged to court because you have done something wrong, I doubt a defence of so-and-so on SP, or any other forum, told me it was ok would not be laughed at.
Just some food for thought
I would say that, in this case, the answer is B. If you are working from the UK, then you are liable to pay income tax in the UK. I'm not a lawyer, but I used to work for HMRC. If you really want expert advice, then why not just ask them? Contrary to popular belief, they like being helpful to the public. Or you could ask a tax consultant, who'll probably charge you for the same advice HMRC would give you free of charge.
I have no professional background in any tax area, but with more and more transactions moving online and international, it is likely that tax authorities will want to tax it both ways, i.e. where you reside and where you sell to. Incidentally I spoke with someone about VAT in the Eurozone and according to him, this is liable at clients end and needs to be filed by you in the client country.
Either way, TechnoBear is giving good advice, most "revenue services" are very helpful in outlining your requirements and also ways to reduce tax, for example many countries have no-double-taxation agreements, meaning you need to file in both countries, but choose to pay only the difference in one of them (again, there are usually rules re residence etc)
You are subject to laws from anywhere that claims jurisdiction over your transactions. So, you need to understand the tax laws where you are physically, where your customers are, and where the actual money changes hands. Hosting is usually not consider a nexus-producing activity unless there is financial transactions taking place, but even that can get tricky.
My guess would be that you need to understand your tax requirements in the UK and Spain, and can probably not worry about the US since you aren't really doing business out there. That's a guess, but I'm 100% sure you could consult someone who knows the right answer for a small fee.
I can say this with a fair degree of certainty - as a UK resident (and assuming your business is registered in the UK) you will be liable for taxes in the UK only. In addition, a web based service would most likely be seen as 'electronically supplied services' by HMRC and generally speaking, supply of such services to an EU business is typically 'out of scope' of UK and EU VAT, so does not count towards the turnover level you need to meet to become VAT registered, nor would it be eligible for VAT should you already be VAT registered.
Server location means nothing with regard to taxes.
As usual though, consult an accountant who understands these things - many have no idea about the VAT loopholes relating to electronically supplied services. I would also assume that, as a 'service provider', you'd be better off running this through a limited company to give your assets some protection should anything go 'wrong'.
BTW, HMRC can also advise on the VAT and tax issues, and you can request that their advice be sent to you in writing, which could be useful should you ever have any problems with them in the future.
I sell digital goods mostly to the US, and got written confirmation that those transactions were out of scope of VAT.
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