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Best way to fund Overseas Company from UK Company?

I've found a 'logical' way to fund my Overseas Company, but not sure if it will attract UK Tax?

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Hello!

I am a UK-resident currently setting up an Overseas Company in S.E. Asia.

I intend to fund the Overseas Company via my UK Company, as this was a requirement of my funder (they would only transact with a UK Company, but they are fully aware that all profits will be generated Overseas).  I am therefore wondering what will be the best way to do this from a UK Tax perspective?

I own 100% of the UK Company (which only exists to fund this transaction, i.e. there is no other trading activity) and I own 24.5% of the Overseas Company.

The 'easiest' way would be for the UK Company to be listed as the owner of my shares in the Overseas Company, but I need the shares to be in my name in order to obtain a Working Visa in the Country.

My proposal was to loan money from my UK Company to the Overseas Company and post a "Notice of Security" with the relevant overseas Authorities, essentially giving me a piece of paper to prove that the UK Company has security over my Overseas Shareholding.  The loan(s) would be at 0%, and transacted in GBP (to avoid currency fluctuations on the UK side).

As part of the Loan/Security Notice, the UK company would receive all Dividends due to me from the Overseas Company until such point as the loans are re-paid.  In the meantime, I will pay all of Dividends to myself through the UK Company.  The UK has a Tax Agreement with the Overseas Country, so there shouldn't be any issues there.

This all seems simple and logical enough (to me at least), but my concern is that I may inadvertently expose myself to UK Corporation Tax liabilities through the Loan mechanism?  I'm also not sure whether I would need to post a charge with Companies House (to register the Security at both ends), or if that only applies to debts rather than liabilities?

All thoughts/advice/further questions welcome!

For context, we're talking about a £300k loan, and the majority of profits will be re-invested in further Assets, so likely Dividends of £0-50k per annum.  Also, the Working Visa is a 'nice to have', so if the best solution is to put the shares in the UK Company's name then that is also fine.

Many thanks in advance!

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By Tax Dragon
24th Jan 2020 06:20

Assuming you're serious (and it's not the case that you got home at 3am having had 6 too many and found the idea of a few spoof posts on random sites the funniest thing in the world right then), then it's a scenario on which to take professional advice. Obviously.

The tax that could arise on the initial 300k transaction far outweighs any fees that you might have to incur. And as you say, the tax issues don't end with that transaction.

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Replying to Tax Dragon:
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By markbatte
24th Jan 2020 08:32

Thank you so much, and yes, it's definitely a serious question (I'm 8 hours ahead of you over here hahaha). I sure will ask for professional advice, was just hoping to narrow the question somewhat so my Accountant doesn't go off on a wild goose chase (charged by the hour, of course)

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By paul.benny
24th Jan 2020 07:35

I can immediately see a couple of things:
1) 0% interest on a cross-border loan won't fly. Transfer pricing rules mean that interest should be charged at a market rate.
2) The presence of other shareholder(s) in the foreign entity raises questions - mostly commercial/legal but which could have a bearing on the tax.
3) You mention a working visa for the foreign country. If you're spending enough time there to need a visa, it may start to affect personal tax both here and there.

As for the rest of it, I really couldn't say.

The TaxDragon said you need professional advice. I couldn't agree more.
Find an accountant with expertise in the destination country as well as in UK tax - possibly a large firm, possibly a small firm run by or serving people in the UK from your foreign country.

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Replying to paul.benny:
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By markbatte
24th Jan 2020 08:32

Thank you so much for your response, much appreciated. Yep, I'm drafting an email to my UK Accountants right now...

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By WhichTyler
24th Jan 2020 09:24

I'm not sure that 'logical' is the word I would use...

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