Non-UK Resident Company Registration

Non-UK resident company registration: it is possible, and serves a number of purposes, to establish a limited company in the Great Britain and yet pay tax in another jurisdiction. This may be to present a professional front in the United Kingdom, where customers will often prefer to do business with a domestic entity, to present an international presence or simply to separate a UK arm's business from the international brand. It can also help protect dividend income from taxation. Whatever the reason, Coddan can help.

It's a tie-breaker, really...

When there is a Double Taxation Agreement between the two nations there is a tie-breaker for the tax residency, and once it has been determined that the private company effectively resides in the second nation then it is known as a treaty non resident company. Recent high-profile companies using this system include Starbucks and Amazon, which have both been criticised for tax avoidance, although neither has been accused of any wrongdoing. You don't need to have a company that size with an international reputation to become a multinational, though.

The tie-breaker, though it sounds like a game show conclusion, is an objective test that decides where the limited company is effectively managed from. It is critical, then, to take professional advice before assuming TNR can be applied, as Her Majesty's Revenue & Customs can be remarkably fickle and it comes down to a judgement call in some cases.

For those that fall foul of the regulations, they can even suffer the ignominy of double taxation if the foreign nation does not agree with HMRC's interpretation and must go through the process of seeking a resolution. This will likely be time-consuming and very expensive.

A question of management: many private companies have chosen to base themselves in Ireland, Gibraltar, Cyprus, Malta and other nations thanks to the extremely generous corporate taxation rules. For operational reasons, they then choose to register a limited company in the United Kingdom, but the UK arm must clearly be managed from overseas for HMRC to accept the arrangement without a fight.

Where your company's only connection with the Great Britain has been incorporation, then you must notify HMRC if your company ceases to be resident for treaty purposes in another country under the tie-breaker in the treaty between the United Kingom and that other country. In that event, it would again become resident by virtue of incorporation and HMRC will want money.

Holding penalty? Some overseas groups with a number of trading subsidiaries in the United Kingdom have inserted a incorporated holding company into their structure to more effectively manage their tax affairs, including protecting dividend income from taxation altogether when the company has its base in a suitable location.

There is also no withholding tax to deal with when distributing money from the holding company to the parents overseas. Non-resident directors can also sell shares with no capital gains tax; the tax does not apply to share capital and there is no minimum paid-up share value. So there are a number of advantages and the TNR is the first step towards a well-organised tax avoidance scheme.

However, this is a complicated procedure that should not be attempted lightly. This is also the case with one-man businesses that attempt to register as a TNR, as HMRC can look closely at the movements and living arrangements and make a decision based on these facts. A certificate of residence is required, as well as significant amounts of supporting information. Without clear records and a definite structure, there could be trouble ahead.