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Running a UK Ltd while tax resident in Portugal

Looking for advice regarding "centre of control" and EU VAT

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My wife and I are have recently moved to Portugal and after taking advice here have started a Portuguese Ltd to encompass both my work (web development) and my wife's (fashion print design and selling vintage clothing). I have also recently shut down my UK Ltd, which I used to offer software contracting services.

At a recent meeting with our Portuguese accountant he advised that my wife may now need to open a UK Ltd for her vintage business, which she was previously self-employed for in the UK, as there is technically no activity in Portugal despite our residency here. In particular the goods she sells are not stored in or ever transported through Portugal and therefore he thought that UK VAT would be applicable rather than a VAT reverse charge from the Portuguese Ltd. He advised that my web development business and my wife's print design business (as services businesses in Intellectual Property) should be run from the Portuguese Ltd.

Regarding my wife's vintage business, she sells vintage clothing to fashion brands, it's all B2B. The stock is stored in the UK, primarily bought in the UK (although also France, occasionally Portugal, occasionally US) and sold in the UK and France at industry trade shows around 8 times / year (6 x events UK, 2 x events Paris) which she essentially "commutes" to from Portugal. The thing I am unsure of here is that because we are now tax resident in Portugal, would that make Portugal the "centre of control" of  a UK Ltd, or would the fact that effectively all operations are carried out in the UK be ok here?

Replies (6)

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By alan.rolfe
29th Nov 2018 15:30

I don't think you should seek Portuguese tax advice on a UK forum!

UK VAT will be due if goods are being sold from the UK to UK customers.

Are you worried about the "centre of control" for VAT or Corporation Tax purposes (the two have different rules)?

Thanks (1)
Replying to alan.rolfe:
By alexprokop
04th Dec 2018 22:15

I know what you mean and I am taking Portuguese tax advice too, I suppose I'm asking what the rules are from the UK end of things!

Yes, I'm concerned about "centre of control", it seems clear that for VAT it is certainly the UK. I'm not so sure regarding CT.

Thanks (0)
29th Nov 2018 16:23

Yes you will need to be VAT reg in the UK if stock is bought, stocked and sold in the UK to UK customers.
Does the UK company have a seat of control in Portugal? yes. Does it have a permanent establishment? probably not. What does the DTT say?
If you have a problem it will not be with HMRC as they will be happy to take your tax all day long, it will be if Portugal want to treat the company as resident there (again you need to check the DTT)
We deal with a number of clients in exactly this kind of situation, pm me if you want more help.

Thanks (1)
By accountantccole
30th Nov 2018 11:51

Some sort of group structure with cross charges for work done in Portugal? Who looked after the UK side before - ask them to see it through as they know your circumstances

Thanks (1)
Replying to accountantccole:
By alexprokop
04th Dec 2018 22:23

Up until now my wife has run the vintage business trading as self employed only, so setting up a company is a new undertaking and we would need to seek advice about this. Do you think a group of companies is necessary or beneficial? Could the UK company be completely independent of the Portuguese one?

Thanks (0)
By alexprokop
04th Dec 2018 22:20

Regarding the DTT, my Portuguese advisor has written the following, which seems to suggest that the fact of us living in Portugal wouldn't automatically make any UK company liable for Portuguese Corporation Tax:

Article 5 Permanent Establishment

"(4) A person acting in a Contracting State (UK) on behalf of an enterprise of the other Contracting State (PT) --other than an agent of an independent status to whom paragraph (5) applies--shall be deemed to be a permanent establishment in the first-mentioned State (UK) if he/she has, and habitually exercises in that State, an authority to conclude contracts in the name of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise.

(5) An enterprise of a Contracting State (PT) shall not be deemed to have a permanent establishment in the other Contracting State (UK) merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status where such persons are acting in the ordinary course of their business."

--> brief analysis: if contracts are concluded (selling goods or others) in the UK in the name of the company. It is deemed to be a PE in the UK and therefore being liable for UK corporation tax. If the contracts are concluded by an independent person in the scope of his activity, there is no existence of a PE.

"(6) The fact that a company which is a resident of a Contracting State (UK) controls or is controlled by a company which is a resident of the other Contracting State (PT), or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other."

--> If a company is set up in the UK (to buy and sell vintage clothes), even if owned by the Portuguese Company or by the same individual holders, it is not automatically a PE of the PT company due only to the fact that the holders live in Portugal.

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