Is your business planning to send international invoices? Here are some important things to keep in mind when you send invoices across borders.
As technology improves and the world gets smaller, an increasing number of businesses are operating across borders. Expanding into new markets is exciting, however there are also some potential issues to keep in mind.
Your business should use international invoice software, such as Conta, Xero or Quickbooks for easy and quick invoicing across borders.
Do I need to invoice in foreign currencies to my foreign customers?
No, you don’t have to invoice in a foreign currency. When you send an invoice across borders, you can either send it in your own currency or the preferred currency of your customer. Your decision might be influenced by the types of services or products you sell, and who your clients are.
For business-to-business sales (B2B), it’s common to operate across currencies. For business-to-consumer sales (B2C), it might be a good idea to convert the amount into your customer’s currency.
Some international online stores choose to only operate with dollars. Other online stores let customers pay in their own currency. Online stores also have different practices when it comes to shipping and taxes. Some include these fees in the price, others don’t.
Customers usually prefer to pay in their own currency and have taxes included in the price. However, that might require more work on your part. Also, remember that if you issue an invoice in a different currency, your bank might charge you a fee.
Invoicing in your own currency is also better for your business’ liquidity.
How do I calculate the exchange rate?
Exchange rates are constantly changing, which means the value of your currency can vary at any given time, much like stocks or gold. That’s why it might be a good idea to set the prices for your products and services in your own currency, and then, at the point of sale, calculate the exchange rate to your customers’ currency so you don’t end up losing money.
You can search for market exchange rates to find out how much the customer’s currency is worth. You can find this information online, or at banks, airports or currency exchange shops.
But it’s important to remember that the exchange rate at the date you issue the invoice might vary from the exchange rate at the due date.
If you don’t know the exchange rate, you can do the following:
Take the invoice amount (in the original currency) and divide it by the amount you are paid (in the customer’s currency) = the exchange rate.
Which VAT rate should I use?
Value-added tax (VAT) is imposed by more than 170 countries—not including the U.S.—on the value added to goods or services at each stage of the supply chain.
Usually when you sell services and goods to another country, it’s considered export and therefore exempt from VAT. However, there are some exceptions. For example, customers in EU countries have to pay VAT on services and goods purchased within the EU. The VAT rate varies from country to country, but in general it’s between 15 and 27 percent.
In some countries VAT is called goods and services tax (GST).
Different countries have different rules for whether cross-border transactions are taxed in the country where the seller is located or the country where the buyer is located, although many countries tax the goods or services in the buyer’s country. You should look up which rules apply in your country.
Tax considerations on international transactions
As mentioned above, sales of services and goods to another country is often considered export and therefore VAT exempt. If you receive an international invoice with VAT included, make sure to check whether you can write it off in your accounts.
If you sell services or goods to another country, the country you sell to might add an import tax.
Make sure to do some research about the countries where you’re planning to sell goods and services. It’s your company’s responsibility to know the taxation laws before you do business across borders.
BIC and IBAN on international invoices
When you send invoices to another country you need to make sure that the payment details include all the necessary information, so that your customer is able to pay you. It’s a good idea to use invoice software to help you fill in the correct information.
You have to remember to include BIC/Swift and IBAN. BIC or Swift is your bank’s international code or address.
You also have to include an international bank account number (IBAN). IBAN is your business’ international bank ID that you need in order to receive money from other countries. You’ll be able to find this information online or by contacting your bank.
