I am CTO and 20% shareholder of a technology company in Israel.
The company has historically worked with contractors who invoice the company and manage their own income from there. It makes sense to me to do the same for my own salary, but there is the additional complication I am a shareholder.
Would it be legal and appropriate for me to set up a UK company that I own 100%, invoice the Israel company an amount each month for my services, and then take a salary and/or dividends from the UK company as I see fit?
The benefits for me are that I have complete control over how I manage my income and tax, as currently the most tax effective way is to wait for EOY and then take a dividend for my share.
Is this a normal practice, or am I way off the mark? To me it sounds like what we have done with contractors, but as I am a shareholder perhaps it would be considered as avoiding tax in Israel?
Thank you very much for any input.
Replies (7)
Please login or register to join the discussion.
issue
The only issue is that you probably deemed to be an employee of the Israeli company and therefore should always be under PAYE
Shareholders and invoicing is fine but IR35 and disguised employee could be a problem
IR35 is complex and changing from employee to a director of a limited company may seem suspicious plus you are an office holder within the company. IR35 looks at the underlying relationship (between you and the client with each contract.
With due respect I would suggest to get a clear cut answer that you do decide to contact a local accountant who does specialise in this area
The problem may well turn out...
...that there is NO clear cut answer to the IR35 question. It depends in andyh82 attitude to risk.
WHT on dividends
Thanks, I will definitely be looking for full advice before moving forwards. Ultimately it seems to me the only people losing out is the Isreal as they'll have less CT. As it stands, I would look to pay Israeli CT on my share of the company profit, and then extract a dividend to UK paying HMRC equiv 25%. However, f I pull the money into a UK company, I'll have to pay either PAYE or CT+dividend which will yield more than taking a direct dividend from the Isreali company. Perhaps its tax advice in Israel that is really needed to avoid any issues there.
I understand the israeli withholding tax is 20% but the UK and Israel Double Tax Treaty dividends should be taxed at 15% therefore you will end up losing 5%. I think you would need to file a return in Israel to claim the difference between between the Israel and Treaty withholding tax rates ?
Yes, Israel Corporation tax rate is higher than the UK by 5%
tax treaty
Google 'double tax treaty with Israel' for further information, to start with. Very much agree with the 'take advice' advice.