A UK resident company is liable to UK corporation tax on its overall income and gains. By differentiation, a non-UK resident organization is just subject to corporation tax on its UK income.
At first look, along these lines, no doubt an offshore company is a viable method for protecting income and capital gains from the taxman, as all foreign income and gains gathering to the organization ought to be free of UK tax.
In fact, utilizing a legitimately possessed offshore company is certainly not a direct alternative to maintain a strategic distance from UK tax. One reason for this is the issue of 'considered' organization residence.
A company is viewed as a UK inhabitant if:
- It is a UK incorporated organization, or
- Its focal management and control are in the UK.
Different legitimate cases have shown that it is the function of the governing body to run the organization; in this way, Revenue and Customs would at first be worried about where the top managerial staff meet, when they meet, and whether they really practice command over the organization and settle on the board choices.
So if a board of directors meet overseas and review management decisions and strategies, this should constitute overseas central management and control.
In any case, where there is a controlling investor in the UK, there is a hazard that the directors won't effectively practice their power over the company with the outcome that HMRC may argue that the organization is controlled by the controlling investor and shareholders in the UK. In these conditions, the organization would be classed as UK residents and subject to UK corporation tax.
The most effective method to establish an Offshore company as Non-Resident
Unmistakably you ought to guarantee that itemized proficient guidance is taken depending on your particular certainties. When in doubt you ought to guarantee there is a functioning board which meets and takes choices.
Some of the most important points are:
- Maintain at least six meetings each year (although it is acceptable to have three or four).
- Keep entire minutes which demonstrate the executives practising central management and control.
- Hold gatherings in a fixed spot.
- Do not hold any board meeting in the UK. What's more, you ought to guarantee there isn't a majority of directors resident in the UK (to maintain a strategic distance from unintentional UK meetings).
- Do not allow directors to take part in directors' meeting by phone/video conferencing or by utilizing email from within the UK. In addition, where directors' resolutions are passed recorded as a hard copy, don't sign them in the UK.
- If the board needs things done in the UK it needs to designate the exercises to be performed by individuals in the UK and after that regulate what they do at the ordinary (overseas) board meetings.
Apportionment of Capital Gains
UK tax anti-avoidance arrangements require the gains of a non-resident 'close' organization to be allotted among the member shareholders. Capital gains tax is charged on the individuals who are resident and domiciled in the UK.
Before April 6th 2008 these allocation rules did not make a difference to non-UK domiciliaries. Notwithstanding, the progressions to the settlement premise from April 2008 implies that if an investor is UK occupant yet non-UK domiciled, they will be liable to the settlement premise on any gains acknowledged by the offshore organization. Accordingly, they can abstain from having gains attributed to them under this area by holding the proceeds overseas.
The meaning of a nearby organization can be intricate, anyway in straightforward terms it applies to a company that is constrained by its directors or five or fewer investors.
Using a Non-Resident Trust AND Company
For the reasons expressed above, offshore companies that are legitimately claimed by UK residents are not actually that normal practically speaking. Rather, offshore organizations possessed by offshore trusts are utilized as often as possible. Such game plans are frequently prominent from a non-tax edge because of the down to earth focal points of owning the trust ventures through at least one completely claimed offshore company. This gives the trustees the advantage of limited liability.
The residence of the company is anything but a key issue in these conditions as the main people lawfully qualified for exercise control of the company are the non-inhabitant trustees.
In any case, following on from the Wood v Holden case, care would need to be taken to guarantee that the organization truly is controlled by either the trustees or directors. If they somehow managed to stand aside and let a settlor/beneficiary give every direction, it could be contended that the organization residence is equivalent to that of the settlor or beneficiary.
Given the beneficiaries were non-occupant, they would endure no UK tax collection charge on circulations from the trust, and the organization/trust would likewise endure no UK tax charge if the assets held were abroad resources. In the event that the beneficiaries are a UK occupant, the fundamental issue would be the UK anti-avoidance legislation. There are constrained methods for getting away from this, and on the off chance that one of the exclusions connected (for instance, the thought process test), this could be claimed on the tax return.
The thought process test is a significant part of one of the key anti-avoidance rules that traits the income of offshore trusts and organizations to UK occupant people. The anti-avoidance provisions won't have any significant bearing if the exchange abroad were not made to avoid tax or if there were genuine business reasons behind transferring assets for an abroad company or trust.
Accordingly for a person to exploit this standard, and guarantee that pay from an offshore organization or trust ought not to be credited to them, they would need to demonstrate that there was no tax shirking rationale in the exchange of any advantage abroad. Basically, the organizations were found abroad for sound business reasons. This can be a troublesome arrangement to fulfil.
So as to be non-inhabitant for money assessment and capital gains charge purposes under the current principles, the trustees would all be non-resident if the settlor was a UK resident.