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UK Ltd Co director returning to Portugal

UK Ltd Co director returning to Portugal

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A UK Ltd company has two director/shareholders and, after several years in the UK, one is returning to Portugal on a permanent basis in January 2022 where he will continue to work as usual (construction technical draughtsman).

They wish to continue taking a low salary/dividend combination.

I assume that HMRC PAYE need to be informed so that a NT code is operated – correct?

The UK dividends will be treated as disregarded income so no UK Tax due - correct?

There will be no UK tax as the salary will be covered by the personal allowance - correct?

The client will appoint a local agent in Portugal but if anyone knows how this would be taxed there any pointers would be much appreciated.

Thanks in advance.

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By Matrix
07th Dec 2021 18:43

I would get on a call with the local adviser and establish the optimal structure for the two of them going forward (obviously it helps if you also act for the other Director). Whatever worked to date may no longer be optimal and may incur additional professional fees and taxes. I would also want to know the driver for having this joint company.

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Caroline
By accountantccole
08th Dec 2021 11:57

Definitely need to liaise with Portuguese advisor.
If there are two equal owner/directors presumably this means there will be half of the profits now being generated in Portugal, so Portuguese corporate tax may be due. If the employees work is performed in Portugal the salary should probably be under a Portuguese payroll and they are likely to want to be paying into the local systems for healthcare etc.
We've got similar cos that operate a (French) branch to deal with the foreign income but in some scenarios it is just cleaner to operate a foreign company and invoice the UK one from there.

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By richard thomas
09th Dec 2021 11:48

The advice from Matrix and accountantccole is clearly appropriate and helpful, but in answer to your question about UK tax I would say the following, based on the assumptions that the person concerned is a Portuguese national and will be solely resident in Portugal. And that you are talking about 2022-23 onwards, as 2021-22 will be a split year, I assume.

Question 1 – correct, if there no UK duties performed.

Question 2 – not correct, if you mean that disregarded income is not taxable. (The dividends are not, by the way, “treated as disregarded”, they are actually “disregarded” but only for the specific purpose of determining whether s 811 ITA 2007 sets an upper limit on liability.)

If we assume that the dividends will be less than the total of the personal allowance (A), the dividend nil rate amount (B) and the basic rate limit, then the amount of the dividends less (A + B) is taxed at the dividend ordinary rate (7.5%*) and relief is given for the tax deemed paid at 7.5% (s 399 ITTOIA) making no amount due (or repayable).

The s 811 calculation will limit the liability (7.5% on the excess over A + B) to 7.5% on the total dividends, which will be a higher figure than the actual so is not applicable.

If the dividends are such that tax is due at the dividend upper rate then the s 811 limit may apply but it depends on whether the lack of a PA in the s 811 calculation counterbalances the effect of any PA in the actual tax calculation.

Question 2 – yes if PA is due and the salary is for non-UK duties.

*7.5% this year, but 8.75% if the Finance Bill currently in the Commons Committee Stage becomes law.

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