United Kingdom & UK Non-Resident (Taxable) Companies
The United Kingdom lies between the North Atlantic Ocean and the North Sea. It is about 35km from the north-western coast of France, separated from continental Europe by the English Channel. It is primarily comprised of the islands of Great Britain and that of the northern part of Ireland (Northern Island), along with many smaller islands. The UK is a member-state of the European Union, though not part of the Eurozone. It is a leading trading power and financial centre, being the second largest European economy and the fourth largest in the world. Britain is a parliamentary democracy with a constitutional monarch, Queen Elizabeth II being the head of state.
Type of Company for International Trade: Private ("Ltd")
Governing legislation: The UK Companies Act 2006. (see below info about UK non-resident companies)
The company may freely conduct any business activity which does not require special licensing.
Information held on public record: Memorandum and Articles of Association and details of issued capital, registered office, shareholders, directors, secretary and mortgages and charges.
Please note that the identity of the company’s Beneficial Owners is Not disclosed.
Taxation: Standard UK corporate tax rates. (see below info about UK non-resident companies)
VAT Registration: If the company will be trading within the UK or Europe, it will need to register for VAT.
Other considerations: As the company will be resident in the UK for tax purposes, it will have access to the UK’s very extensive network of double tax treaties.
UK Private Limited Company Description:
Type of entity: Private Limited
Type of law: Common
Shelf company availability: Yes
Corporate taxation: 21% - 29.75% (but read below about 'Non-Resident' companies not taxable in the UK)
Double taxation treaty access: Yes
Standard Share Capital currency: GBP
Permitted currencies: Any
Minimum paid up: £1
Usual authorised: £1,000
Minimum number of Directors: 1
Local required: No
Publicly accessible records: Yes
Location of meetings: Anywhere
Minimum number of shareholders: 1
Publicly accessible records: Yes (beneficial owners Not disclosed)
Location of meetings: Anywhere
Company Secretary Requirement: Yes
Local or qualified: No
Requirement to prepare Accounts: Yes
Audit requirements: Yes, but small company exemption
Requirement to file accounts: Yes
Publicly accessible accounts: Yes
Requirement to file annual return: Yes
Change in domicile permitted: Yes, but subject to approval of Inland Revenue
UK NON-RESIDENT COMPANIES (NOT TAXABLE IN THE UK):
The regulatory framework with respect to the UK non-resident company provisions can be found in Section294 of 1994 dealing with the issue of 'Dual Residency'. Under the aforementioned regulation, it is possible to register UK companies, which may, in the circumstances explained below, trade or carry on business activities outside the UK free of UK corporation tax.
Under Section249, a UK company may have 'Dual Residency’, i.e. being resident in two jurisdictions at the same time:
(1) In the UK under the domestic law by virtue of the place of the legal entity's incorporation;
(2) In a country with which the UK has negotiated an appropriate Double Tax Treaty.
As a result of the application of the provisions of s.249, all UK companies that meet the conditions referred to below are regarded as resident in the country which the relevant Double Tax Treaty (DTT) provisions specify as being the country of residence thereby preventing the application of any other domestic UK law/regulation from determining the tax residency of the company.
In practice, any UK company which has its "place of Effective Management" outside the UK will be non-resident for UK tax purposes. Such a UK company will only be liable to pay UK taxes if it receives UK sourced income, although even this income may be protected from UK tax as a result of the relevant Double Tax Treaty provisions.
The trigger for the operation of s.249 is the presence in the applicable Double Tax Treaty between the UK and its treaty partner of a 'tie-breaker' clause, which awards tax residency to one of the treaty parties. In most such treaties, the tie-breaker for UK 'Dual Resident' companies, awards residency in the country in which 'the place of Effective Management' of the company is located. Double Tax Treaties based on the OECD model tax convention (which is the one most UK DTTs are based on) follow this rule. The particular Double Tax Treaty provisions must be read to establish the test to be applied. We can guide you through.
Below are countries that have been listed by the UK Inland Revenue as having a suitable Double Tax Treaty with the UK to enable a UK company to take advantage of the s.294 provisions and, therefore, avoid its UK tax residency:
Australia, Austria, Barbados, Cyprus, France, Germany, Hungary, Israel, Luxembourg, Mauritius, the Netherlands, New Zealand, Portugal, South Africa, and Switzerland.
Treaties with: the Channel Islands, the Isle of Man, Malta, and Nevis are not regarded by the UK Inland Revenue as meeting the s.294 applicability criteria.
EFFECTS OF THE CYPRUS DTT WITH THE UK:
The treaty with Cyprus is of particular interest as it offers the lowest corporate tax rates in Europe (10% on net income). It is important to note that the double taxation relief does not actually have to be claimed in order for a UK company to become Non-Resident as per s.249 although the company will be required under s.130 of 1988 to notify the UK Inland Revenue (by presenting a Cyprus tax domicile certificate) and by making arrangements for the payment of any outstanding UK taxes.
Provided that a newly incorporated UK company is 'Managed and Controlled' in Cyprus while also having its place of 'Effective Management' in Cyprus, then such a UK company will:
- Be treated as UK non-resident for all tax purposes;
- Be regarded as resident for tax purposes in Cyprus.
At the same time, registering a UK company branch in Cyprus will result in having its world-wide income be taxed in the same manner as if the company was a Cyprus registered company. This means that the UK company will be liable to 10% tax on its net world-wide income.
In order to obtain the benefits of this tax regime it is essential that the UK company's business is actually 'Managed and Controlled' in Cyprus, and that its place of 'Effective Management' is also in Cyprus. For purposes of deciding whether a UK company is 'Managed and Controlled' in Cyprus the authorities look at the company's decision making process.
Based on the above, in order to establish a Cyprus based 'Management and Control' of the company, the following conditions must be satisfied:
I. The majority of the Board members must be residents of Cyprus (this majority should be an adequate number to form a quorum for Board meeting purposes);
II. Board meetings must be held in Cyprus;
III. General policy of the company (as demonstrated by internal records) should be formulated in Cyprus;
IV. Day-to-day management of the company should be exercised in Cyprus;
V. Company bank accounts must be controlled by the Cyprus Directors and preferably be located in Cyprus.
Voting control can reside outside Cyprus provided it does not replace the functions of the Board in terms of management and control of the business.
As always, external consultants may be employed who might be located outside Cyprus but, again, the place of 'Effective Management' of the company must be in Cyprus and final decisions relating to policy must come from the Board of Directors in Cyprus.
If all the preceding conditions are met, the UK company will only pay Cyprus taxes at the rate of 10% on its net world-wide income. Dividends can be paid free of Cyprus withholding tax. As per the Cyprus tax regulations, royalties paid by a UK company resident in Cyprus relating to rights used outside Cyprus are likewise free of Cyprus withholding tax. In the case of loans the company will be required to charge commercial/market rates of interest which will be subject to the 10% income tax rate.
Provided a UK non-resident company does not receive UK sourced income (such income includes income from trade or business carried on by the non-resident company within the UK, interest from loans made to UK resident borrowers, and royalties from the grant of intellectual property for use in the UK), then no UK tax will be payable by the company. Furthermore, any dividends paid by the UK non-resident company will not be subject to UK tax.
USES OF A UK NON-RESIDENT COMPANY:
A UK non-resident company, taxable in Cyprus will be particularly suitable for international trade transactions particularly between Eastern Europe, the Commonwealth of Independent States (CIS), and Western Europe.
SERVICES PROVIDED BY PROFEL:
The accounts of the UK Company will be required be audited and filed in both the UK and Cyprus. PROFEL provides a comprehensive range of services covering all of the above compliance requirements. Furthermore, we provide company formation in the UK along with the registration of the branch in Cyprus and the provision of all other relevant services such as local Directors, nominee Shareholders, Registered Address, and Secretarial services.