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UK Non Dom with Offshore Company

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willow2013

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Nov 14, 2022
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#1
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Hi,

Would like thoughts for a UK Non-Dom looking to set up an offshore company with family directors investing in a portfolio of non-UK dividend shares.

The offshore company would be tax resident in the UK (as 'central management and control' reside in UK) , so would pay UK corporation tax but the dividends would benefit from dividend exemption, so in effect no UK corporation tax would be payable. No extraction of personal dividends from offshore company until I leave the UK.

Thoughts?

I have been advised to use an Isle of Man company but finding it very difficult to open an Isle of Man bank account without local Isle of Man directors which adds to the cost/viability.

Any thoughts on other jurisdictions (e.g. BVI) where I can also open a corporate bank account without local directors with one of the well known banks?
 
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#2
It probably depends a bit on your budget and what you actually need the company for. To get a bank account, for example, in the BVI (British Virgin Islands), you need to be prepared to travel there and you must have a reasonable business plan, otherwise, it won't happen.
 
#3
UK was always one of the preferred locations for a holding company so why don't you use a UK LTD since any offshore company will be considered UK tax resident anyway?

With a UK LTD company with resident directors you will be able to open any bank account.
 
#4
Marzio said:
UK was always one of the preferred locations for a holding company so why don't you use a UK LTD since any offshore company will be considered UK tax resident anyway?

With a UK LTD company with resident directors you will be able to open any bank account.
Click to expand...

I think the issue as I am told, is that the initial capital going into a UK company might be a remittance?
I also believe it will still be difficult to open a foreign coporate account offshore as none of the assets can be UK situs.
 
#9
You should have said this beforehand because you'll have to pay US WHT on dividends and you have to be super careful when selecting the location of the company because in the majority of US double tax treaties there is a limitations on benefits clause that will deny the lower rate for dividends if you don't satisfy some requirements and you'll end up paying 30% instead.

For example in the UK-US double tax treaty a UK tax resident will be allowed to the benefits of the convention but a UK non-dom don't because a UK non-dom is only taxed on UK local sources.

ARTICLE 4
Residence
1. Except as provided in paragraphs 2 and 3 of this Article, the term "resident
of a Contracting State" means, for the purposes of this Convention, any person who,
under the laws of that State, is liable to tax therein by reason of his domicile,
residence, citizenship, place of management, place of incorporation, or any other
criterion of a similar nature. This term, however, does not include any person who is
liable to tax in that State in respect only of income from sources in that State or of
profits attributable to a permanent establishment in that State.
 
#12
OK - I have tried to read this over and over again to understand but in a nutshell I think you can benefit from lower WHT as an individual but not as a company unless its a listed company - would that be your understanding?
 
#16
Marzio said:
Yes but you will pay UK taxes on those dividends so what's the point?

You need a better strategy, from which countries will you receive dividends beside US?
Click to expand...

It will eventually be mainly US dividends with some European dividends.

But my thinking is to have all dividend shares owned by the offshore company and then claim arising basis, since I will not have dividends personally (they will be owned by offshore company).

I think there might be an avenue in this scenario, that the offshore company (tax resident in the UK) to benefit through lower WHT through one of the exemptions in Article 23 (but I need to study this further). Failing that I'd probably have to own Irish-domiciled ETFs (e.g. S&P 500) and supplement with individual stocks which would be at 30% WHT - its probably the best I can do?
 
#17
willow2013 said:
It will eventually be mainly US dividends with some European dividends.
Click to expand...

Theres'a way out.

Romania is one of the few countries that doesn't have a limitation on benefits clause in its double tax treaty with US so you could setup a company and receive your dividends from US without sweating.

As an added benefit you will pay the lowest US WHT possible at 10%

Also, according to Deloitte, Romania doesn't have any WHT on dividends to non resident individuals so you could potentially pay yourself dividends from RO to UK tax free.

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Romanian company could be taxed at 3% if revenue is < 500K / year but you will need to hire a director full time with minimal salary (< 1000€). I'm not sure if a pure holding company could benefit from this lower taxation though.

You will have to verify it with a RO Lawyer.

For EU dividends, dividend revenues distributed by a company resident in another EU member state or other DTT state to a Romanian company that pays CIT are non-taxable for CIT purposes at the level of the Romanian company if it has held a minimum of 10% of the shares in the respective non-resident company for an uninterrupted period of at least one year at the date when the dividend income was booked.

If turnover could justify the expense you could have a Romanian company only for US dividends and another holding company for EU dividends to save taxes on EU dividends.
 
#18
Thanks - certainly food for thought on this option. Its similar to the IOM offshore company with offshore directors, but this would be far less costly (i.e. running costs) and far less WHT.

Presumably I couldn't be a director etc of the Romanian company, as that would trigger it a UK tax resident company (which was the issue with the IOM route) ?
 
#20
Understood - its just the loss of control aspect that I don't like.

But really appreciate your help on this matter.
 
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