UK company managed from abroad?

UK company managed from abroad?

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I have been referred a new client.

The client is non UK resident and non UK domiciled. However, he is 100% shareholder of a UK company which hold investment properties abroad.

Because of this ill thought structure, the UK company is paying tax on rental income and is now potentially liable for a huge capital gains tax as he wishes to dispose off the portfolio.

Can anyone suggest a way out to avoid the UK tax? Of course local taxes are a separate matter.

The company's directors are based abroad and as far as I can see it can be said the company was managed from abroad. The previous accountants, so are us, are based in the UK. The company has been paying UK tax on rental income for a number of years.

I was wondering if it is possible for this company to argue with HMRC that it was/is managed and controlled from abroad and hence resident in abroad for tax purposes?

Has anyone come across such situation before?

Your comments much appreciated.

Thank you for your time

L Rob

Replies (5)

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By Diane Warland
23rd Mar 2009 20:14

UK Director working wholly overseas for own co
We have been asked to advise a UK registered company director who is employed by his own company but works wholly overseas which he has done for several years. Previous accountant (1man band) has paid a salary and dividends to him and wife. We feel that a salary for overseas work would be exempted under the employment being carried out wholly overseas? We would welcome comments

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By jamesashburton
16th Jan 2009 19:00

Hmmmm
It looks as if someone thought about using a nominee structure but didn't follow through.

I don't think we can deal with this on this forum. Get in touch with me by email [email protected] to chat about the specifics and see if anything can be done to correct the situation.

Cheers

James

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By Abraham2001
16th Jan 2009 08:41

Nominee company?
G and James - thank you for your comments

The client is resident in a tax haven and the properties are also located in the same jurisdiction- no DTT with UK. Therefore reading from G's comments, it might not be possible establish residence in that country.

James- your comments are interesting, nominee arrangement would have been a suitable strucutre. The shareholders of the UK company is an offshore company beneficially owned by the client. Unfortunately, the properties were included in the UK company’s balance sheet for the last five years and the rental income was assessed for tax in the UK.

Under the circumstances, it would appear to me the client is stuck with a huge tax bill, unless there is something which we can do now alter the structure retrospectively.

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By jamesashburton
14th Jan 2009 15:20

What does the UK company actually do?
Whilst what G says is a good starting point it may be that there is a way around the tax position.

It was fairly common a few years ago for offshore residents (corporate or individual) to own properties in countries such as Spain and Portugal via a UK company.

This was done to camouflage the offshore ownership as otherwise these countries imposed quite penal taxes. In general terms the UK Company acted as a nominee for the offshore company and received the rents on behalf of the offshore owner and passes this on less an agency charge. As the beneficial ownership of the rent belonged to the offshore owner the UK company accounts made no mention of the income only of its “fees” and normal running costs.

This can still work although the overseas authorities soon cottoned on to it and it is not as easy as it used to be.

Depending on the country of residence of the ultimate beneficial owner and the location of the property it can still work or there can be other methods of legally avoiding the UK tax (tautology I know as avoidance is legal).


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By User deleted
14th Jan 2009 09:15

dual resident
Hi,

If central control and management is abroad (which in itself is quite a detailed area!), you are likely to have a dual resident company as if the company was UK incorporated, it will be resident here regardless.

Assuming dual residence, you need to look at the UK double tax agreement for the country the shareholders live to see if there is a tie-breaker clause, which may award residence to one country only.

Of course, if you award residence to another country that isn't a tax haven, they are likely to pay tax in that country in any case. It all depends on the country in question.

This is quite a complicated area, but I hope this should be enough to get you on the way.

Thanks

G

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