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Hi I am a EEA National, but an UK resident. I work in

Hi I am a EEA...

Hi I am a EEA National, but an UK resident. I work in the UK (and I am a Director of a UK company, and a EU company, and an EEA company), and pay my PAYE there. I have not filed a tax return and don't plan to unless requested. I am wondering, how I will be affected if I open up a BVI company, which will be owned by me personally, which will charge my other companies management fees. I plan to take dividends out of the BVI, and perhaps use it to pay certain expenses like travel etc.

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Answered in 48 minutes by:
8/22/2013
Rachel-Mod
Rachel-Mod, Moderator
Category: UK Tax
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Hello,

I'm Rachel, and I’m a moderator for this topic. I sent your requested professional a message to follow up with you here, when they are back online.

If I can help further, please let me know. Thank you for your continued patience.

Best,

Rachel

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Lindie-mod
Category: UK Tax
Satisfied Customers: 5
Verified

Hello,

I am sorry your requested professional hasn't replied yet. We appreciate your patience. Please let me know if you would like me to open your question to the other professionals for this topic, or if you prefer to wait a little longer to hear back from Sam.

Thank you.

Lindie

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Customer reply replied 4 years ago
Please open it to other professionals
TaxVince
TaxVince, Accountant
Category: UK Tax
Satisfied Customers: 965
Experience: Chartered Accountant >20 years + Qualified IFA
Verified
Hi

Its MamaTax Here!

Thanks for the question.

There are several tax implications that you have raised from your questions and i will try to address them below:

1. You pay tax where you are tax resident. This is normally based on the number of days you spend in that country. Its also possible to be tax resident in two or more countries during the same tax year. If you are working in UK, you certainly should pay tax in UK (unless you are working in special cases like embassies, military, oil & gas etc which may have special tax treatments). You dont pay tax in the country you are not working simply because you are a national there -unless the tax laws in that country require you to - this is only in few countries notably the United States

"I have not filed a tax return and don't plan to unless requested." - Therefore based on the above, you may be due for UK tax return since you moved to UK. There could be penalties and tax charges if this is the case. I could provide more useful information if you tell me more about when you moved to UK, how many days you spend in UK, which country you have been paying tax to, what sort of work you do. etc

2. If you open a BVI company which you operate from UK, the UK tax office will treat it as a UK company despite it being a BVI company. IF you are a UK tax resident generally offshore/BVI structures do not help you as HMRC tends to look through such a structure as if it does not exist and tax you as if the offshore structure was a UK entity- this is to discourage UK tax residents to avoid UK tax b setting up non UK entities yet operating in UK.

However if indeed the BVI company is operating outside UK and you still want to set it up, there are ways around this. However you will need to comply with the key tests that HMRC looks at when evaluating an offshore structure. Basically HMRC would want to see to it that you do not control or manage the company from UK - this is normally done by appointing offshore directors. In addition the operations of the entity should be done outside UK. If you meet these two, (plus a few other minor requirements) you can go ahead and set up a BVI entity without much worry from UK tax office. You can then pay yourself a dividend which is generally taxed at a lower rate than income tax rates.

 

Hope this helps. If you have any further comments or questions please let me know.

TaxVince
TaxVince, Accountant
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Customer reply replied 4 years ago

Hello MamaTax


 


1) Yes, I am tax resident in the UK, as I spent majority of my time here, and I have transferred my residency to the UK. I think it is best to keep it as that, and not have two tax residencies. I am working in a consultancy job in the UK, so I pay may PAYE and NI as I should of my salaries


 


For the Tax return: I transferred my residency to the UK in Dec 12. I spend about 65% of the year in the UK. I used to pay tax to my EEA country, as I was a resident there both tax wise and non tax wise.


 


As for the penalties and tax charges, as I have no other income at the moment then salaries, I beleive that should not be the case? Do they regularly check for tax returns of foreigners?


 


2) The BVI company would issue management invoices to another company in the EU that is charging other EU and EEA companies fees.


The BVI was also planned to own a stake in the UK company, is that then not advised?


 


So If I appoint an offshore director, and use the EU company to do business, I should be fine?


 


Then for the dividend, I would pay regular UK tax rates on those?


 


Thanks!

Thanks for the reply.

1. "I am a Director of a UK company, and a EU company, and an EEA company), and pay my PAYE there". I thought you meant you were paying tax in EEA/EU country and not UK. If you are paying all your taxes in UK through PAYE and you dont have any income other than salary then in that case there is no expected further tax implications. However its just worth to check P60 at the end of the year or your tax code to ensure you are correctly being taxed. Otherwise there is no need to file a self-assessment return unless not all taxes are deducted properly.


2. "The BVI company would issue management invoices to another company in the EU that is charging other EU and EEA companies fees." There is no major issues with a BVI company charging management fees to the affilaited company. However the problem is with the entities paying the management fees. Some countries are strict with regards XXXXX XXXXX such management fee expenses to be deducted for tax purposes. The general requirement is that the management fees o be tax deductible they should be relating to genuine work done by the entity charging it and should be at an arm's length transfer price. For example if BVI company is charging management fees to a UK company, one normally agrees in advance with HMRC on the fee arrangement and HMRC would want some form of proof and rationale for the fee.


"The BVI was also planned to own a stake in the UK company, is that then not advised?" - there is nothing significantly negative about this arrangmenet as a number of UK firms are owned by foreign firms. There are however a couple issues to take note of and these include: relationship between UK and BVI company need to be clear so that the BVI is not seen as trading in UK through its UK subsidiary. In addition transactiions between these two should be done at an arm's length.


"So If I appoint an offshore director, and use the EU company to do business, I should be fine?" - Yes. The tax office have no problem with non UK companies trading outside UK even if you may own the company - subject to anti-avoidance legislation. As a non domiciled person setting up such an offshore structure should not be a big issue. Just an indication of offshore director fees depending on what the company does, this site can help you: LINK.

"Then for the dividend, I would pay regular UK tax rates on those?" - yes. However you can also use remittance basis by keeping the dividends outside UK , hence outside UK tax scope.

Hope this helps. Let me know if you have any further comments??
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Customer reply replied 4 years ago

Hello again :)


 


1) Okay, I will however also issue myself dividends from the BVI company. So that will be another means of income.


 


2) For the management fees: The fees in question would be to EU and EEA companies, not UK companies, so the HMRC is not a worry in regards XXXXX XXXXX They will be a mixture of selling intangible assets such as brand name, logo, royalties, director services, and management fees


 


For the UK company ownership: As it will be an investment (35%) into a company, with other investors, I believe all transactions would be determined to be at Arms length?


 


If I pay dividends into my personal account, based in another EU or EEA country, would they be outside the UK Tax scope? Am I not supposed to declare them to the HMRC anyway?


 


 


 


 

Thanks for your patience. Sorry was away.

1) Okay, I will however also issue myself dividends from the BVI company. So that will be another means of income.
Yes- Dividends are taxed differently as from employment or other income. You can see here: http://taxaid.org.uk/info/taxation-of-savings/taxing-dividends



2) For the management fees: The fees in question would be to EU and EEA companies, not UK companies, so the HMRC is not a worry in regards XXXXX XXXXX They will be a mixture of selling intangible assets such as brand name, logo, royalties, director services, and management fees


If the management fees are paid from UK firm HMRC would be worried unless the fees represent genuine work done or value. Ideally one would need to agree with HMRC in advance for the management fees to be deductible.

For the UK company ownership: As it will be an investment (35%) into a company, with other investors, I believe all transactions would be determined to be at Arms length?

To avoid tax issues - inter company/related companies should all be done at arm's length



If I pay dividends into my personal account, based in another EU or EEA country, would they be outside the UK Tax scope? Am I not supposed to declare them to the HMRC anyway?

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Customer reply replied 4 years ago

Hi Again


 


Sorry for the lengthy questions :)


 


For 2)


So are these issues only related to such services, but if it is dividend, equity, loans and ownership or such, there are no queries or problems?


 


I also see that you missed out on the last question?

 

Apologies for forgetting to answer the last part and thanks for the rating.

“If I pay dividends into my personal account, based in another EU or EEA country, would they be outside the UK Tax scope? Am I not supposed to declare them to the HMRC anyway?”

If you become a UK tax resident, you are taxed on your worldwide income/gains hence you declare such income/gains even if not in UK. However as non-domiciled person, you can elect to be taxed on remittance basis ie to have your non-UK income and gains taxed in the UK only to the extent that they are brought into or enjoyed in the UK. In the case you only concerned with dividends you bring back to UK.

So are these issues only related to such services, but if it is dividend, equity, loans and ownership or such, there are no queries or problems?

HMRC would be concerned with all transactions that would result in you paying less tax in UK as a UK resident. These include management fees that you may charging UK firms; loans borrowed from UK companies; dividends declared from UK firms etc.

What I would recommend if you are seriously considering these offshore structures is to hire an offshore tax expert to help you structuring the whole arrangement. The fee can range from as low as £100 but it all depends with the expert and the level of advice you want to get. Try sites like HERE and HERE or simply google.

 

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