Structure for UK resident

[James Turner]

I am of the opinion that what you are suggesting would be a CFC if you remain in the UK and control the company in Cyprus. After that the complexity of Seychelles holding companies etc doesn't matter as control is in the UK. I think your specific circumstances and situation need considering in considerable detail to ensure that what you end up doing is legal.

 

[iniwanginwg]

Yeah truth is I was asking on behalf of a friend who asked me about the possibility of using the method in the OP. Just been picking around for more answers and advice for him since

 

[iniwanginwg]

I am of the opinion that what you are suggesting would be a CFC if you remain in the UK and control the company in Cyprus. After that the complexity of Seychelles holding companies etc doesn't matter as control is in the UK. I think your specific circumstances and situation need considering in considerable detail to ensure that what you end up doing is legal.

complex and needs considering... but possibe? Just so I know the right reply to give back to my friend.

 

[Martin Everson]

Yeah truth is I was asking on behalf of a friend who asked me about the possibility of using the method in the OP. Just been picking around for more answers and advice for him since

I don't mean to be rude but if your friend makes £1m a month an profit and he comes to you for advice, then you come on a forum to ask for advice on what to tell him then something is wrong with this picture . People earning a £1m a month in profit don't tend to ask their mate down the local pub for financial advice .

 

[anticfc]

complex and needs considering... but possibe? Just so I know the right reply to give back to my friend.

Something should be possible, but probably requires some trade-offs. As @offgrid asked, what's the business?
One concept that might or might not work with your business is an CFC pooling construction. The point of such a construction is that you release control of your business to the pool and thus remove CFC status. In return you receive a proportional distribution from the pool.

But take the advice from @James Turner, get a competent tax laywer!

 

[anticfc]

I would suggest contacting an expert on the matter in Cyprus, a friend was facing a similar issue and a solution was offered without paying an arm and a leg. I can provide the contact details of the office that handled the case if you are interested

Do you know what the structure looked like?

 

[totlori9]

Hi,

A simple solution is often the best and cheapest. Just set up an UK LLP with two members. One is you, the other is a non UK resident private person who doesn't have a tax obligation (a nominee) good example is a resident of the UAE or a resident of Malta.

You write the partnership agreement so that every year only 1000GBP goes to you (taxable), and all other profits go to the nominee.

This way you avoid incorporating foreign companies, opening bank accounts, and keep your UK residency too.

 

[blizz]

As @negon and @James Turner already pin pointed here some professional advisor would be the best for your friends situation!

Have you already found a setup that will works? if so, do you mind to share?

 

[negon]

It's better to aks these consultancy firms compared to a public forum. The advise you can find on OCT should be used as some general information which can back up your knowledge in order to get additional help by legal & professional advisors.

 

[totlori9]

As @negon and @James Turner already pin pointed here some professional advisor would be the best for your friends situation!

Have you already found a setup that will works? if so, do you mind to share?

See the setup I described above your post. It does work and is used by EU/UK residents. The only restriction that I have failed to mention is there can be no UK local trade with the UK LLP for the solution to be tax free. So if one DOES need UK trade then one needs to use an Ireland LLP instead (but the setup is the same and it works the exact same way).

For this solution you only need to consult a UK or Ireland accountant, a 'professional international tax consultant' is not necessary (but it obviously won't hurt either). I see no need to complicate things with Cyprus/Seychelles when you can keep it in the UK/Ireland.

 

[Martin Everson]

Anyone checked out the new UK anti avoidance provisions in the budget from October 29th? You may very well want to consider these strong measures while deciding how to structure your business. Professional tax advice is needed as the landscape and scope of UK taxation has changed.

UK Budget 2018 – Key Tax Measures | JD Supra

 

[totlori9]

Anyone checked out the new UK anti avoidance provisions in the budget from October 29th? You may very well want to consider these strong measures while deciding how to structure your business. Professional tax advice is needed as the landscape and scope of UK taxation has changed.

UK Budget 2018 – Key Tax Measures | JD Supra

Thanks for that article, it's definitely an interesting read.

Nothing in these provisions that affect LL partnerships with passthrough taxation to a non-resident member though.

 

[Martin Everson]

Thanks for that article, it's definitely an interesting read.

Nothing in these provisions that affect LL partnerships with passthrough taxation to a non-resident member though.

Can I ask you a question based on the figures the original poster gave i.e 1m a month or 12m a year in profit

Do you think HMRC would be ok with an LLP where each year only £1000 goes to the UK resident partner and £11,999,000 will go to the non-resident partner based in a country with a favorable tax regime? Can I also ask you if you have ever lived in the UK and dealt with HMRC before?

 

[totlori9]

Sure you can!

1. Since to form an LLP you have to have at least two members, and there are a lot of non-UK residents who want to invest or do business via a UK LLP rather than via a UK LTD, there are actually quite a few UK LLPs in existence that have a UK resident partner where the UK resident partner's role is only symbolic eg. he/she provides the UK address, presence, help with administration, bank account etc. In all these cases the amount that goes to the UK resident member is - not surprisingly - a lot smaller than the amount that goes to the non-resident member who is the main investor of the partnership. In all these cases the HMRC is 'ok with it'.

2. The amount I used (£1000), was only to show that in spite of what most people think, you don't actually have to divide the profit in fixed percentages (eg. 60-40) between the members of an LLP if the partnership agreement is written accordingly. It can be the size of a UK salary, or whatever the original poster is comfortable with.

3. I have never lived in the UK, but one of my closest friends does live in Ireland and has the exact same setup with an Ireland LLP and a non-resident member from Malta (and he copied the solution from someone who did the same thing with an UK LLP). On a sidenote: he too used to use Seychelles companies in the past instead and he also used to incorporate them for clients as a business up until it wasn't possible anymore to open local bank accounts for them.

However if the original poster wants to completely avoid all kinds of trickery (it didn't seem like it in the first post but who knows), company tax rate is a flat 9% in Hungary and lawyers and accountants are dirt cheap compared to UK standards.

I still believe the UK/Ireland LLP option to be the most tax efficient solution though.

 

[James Turner]

Sure you can!

1. Since to form an LLP you have to have at least two members, and there are a lot of non-UK residents who want to invest or do business via a UK LLP rather than via a UK LTD, there are actually quite a few UK LLPs in existence that have a UK resident partner where the UK resident partner's role is only symbolic eg. he/she provides the UK address, presence, help with administration, bank account etc. In all these cases the amount that goes to the UK resident member is - not surprisingly - a lot smaller than the amount that goes to the non-resident member who is the main investor of the partnership. In all these cases the HMRC is 'ok with it'.

2. The amount I used (£1000), was only to show that in spite of what most people think, you don't actually have to divide the profit in fixed percentages (eg. 60-40) between the members of an LLP if the partnership agreement is written accordingly. It can be the size of a UK salary, or whatever the original poster is comfortable with.

3. I have never lived in the UK, but one of my closest friends does live in Ireland and has the exact same setup with an Ireland LLP and a non-resident member from Malta (and he copied the solution from someone who did the same thing with an UK LLP). On a sidenote: he too used to use Seychelles companies in the past instead and he also used to incorporate them for clients as a business up until it wasn't possible anymore to open local bank accounts for them.

However if the original poster wants to completely avoid all kinds of trickery (it didn't seem like it in the first post but who knows), company tax rate is a flat 9% in Hungary and lawyers and accountants are dirt cheap compared to UK standards.

I still believe the UK/Ireland LLP option to be the most tax efficient solution though.

I agree with the above if the none UK resident investor were genuine and were receiving the income in the quantities suggested above. I think where the problem occurs is that in the original post this is being suggested as a potential tax avoidance option, suggesting that the poster will ultimately be receiving the income which is purported to belong to the 'none UK resident investor'. They are not likely to genuinely give away the bulk of their income and therefore the arrangement is not genuine. If they ultimately receive the income they will be taxed on it and so I can't see how they will achieve anything by doing this.

Of course on the face of it HMRC will be absolutely fine with income being paid to a genuine none UK resident investor in whatever quantity, but when they look at it in any detail it is my opinion that they will pull it apart very easily.

 

[Martin Everson]

I have never lived in the UK,

Like I suspected.

This is why reality always trumps theory. In reality if he runs a UK business with £1m a month in profit and decides to shift into a structure where he continues the same activity and revenue level but as an LLP with a partner based offshore in a favorable tax jurisdiction he will have serious problems with HMRC and anti avoidance legislation. Suddenly the business has a new form and a partner based offshore and he is earning and paying tax on a much lower percentage of what he did the prior years but continuing the same activity. He will be flagged for anti-avoidance, audited by HMRC and possible investigated by the SFO and his life will become a living nightmare.

He wants to get professional tax advice. HMRC is no joke in a high value audit and unless you have been in the UK and experienced it be careful with what you decide to do...really.

 

[James Turner]

The other issue is that if transferring a portion (99%) of an existing trading business (making £1m a month) to an investor there will need to be some consideration. If he receives consideration for the transfer of his asset, which would be significant given the profit levels then he will be taxed on it.

 

[negon]

Well, normally you just forget about to renew the company and good is, the company will be taken off the registry after some time. Don't know why it should be a problem when this clearly works in Belize and Seychelles.

 

[totlori9]

Like I suspected.

This is why reality always trumps theory. In reality if he runs a UK business with £1m a month in profit and decides to shift into a structure where he continues the same activity and revenue level but as an LLP with a partner based offshore in a favorable tax jurisdiction he will have serious problems with HMRC and anti avoidance legislation. Suddenly the business has a new form and a partner based offshore and he is earning and paying tax on a much lower percentage of what he did the prior years but continuing the same activity. He will be flagged for anti-avoidance, audited by HMRC and possible investigated by the SFO and his life will become a living nightmare.

He wants to get professional tax advice. HMRC is no joke in a high value audit and unless you have been in the UK and experienced it be careful with what you decide to do...really.

What you describe here is literally the same in every other onshore country with every other tax authority and is not the slightest bit unique to the UK. You've just described why people should be afraid of trying to avoiding taxes in general. Which has nothing to do with someone who is asking how he/she can implement a structure that lets them do it. And hAS also nothing to do with if the structure works or not. And it does.

I see no point in continuing this as we would need more deatils from the OP in order to not just discuss generalities that lead us nowhere.

The problems aren't the same if the profits arise from trade in the UK or if they are outside the UK (that's why I provided different solutions for the two cases), or if the OP even wants to move both UK and nonUK sourced profits to a low tax enviroment.

The structure is tried and does work, OP needs to chime in with more details in order for us to move forward.

 

[totlori9]

The other issue is that if transferring a portion (99%) of an existing trading business (making £1m a month) to an investor there will need to be some consideration. If he receives consideration for the transfer of his asset, which would be significant given the profit levels then he will be taxed on it.

If this issue is truly feared by the OP then he/she can always use a nominee resident or non-resident member instead of himself/herself in the LLP too (the member that received the £1000 in the example). So you have two members, one from a low tax juristiction to make the profits tax free the other simply because an LLP has to have two members. This way no taxes are paid and the OP stays anonymous. No profits are received in his/her name.

But again in order to move forward we need the OP to provide details of what he/she wants. Because right now we don't know if there are UK source trade profits or not, or if he/she wants to receive funds in his/her name in the end or not (I assumed no but if yes that can also be done without changing ones tax residence by receiving the profits in a way that is only taxed at the source by double taxation treaties for example director's fees from the UAE).

I answered with the best structure I could come up with based on the limited info that the OP gave. I really believe we need more details in order for this discussion to be meaningfull.