When exactly do UK CFC rules apply?

[mark072]

Hi everyone I am trying to come up with a theoretical structure but am not quite clear on how UK CFC regulations apply and was hoping someone with any experience or understanding would be kind enough to enlighten me. I have done a bit of reading and would like to think this isn’t a completely dumb thought process, I also have gone through the forum quite thoroughly but couldn’t find any similar concepts discussed.

I am a UK resident (& Citizen), I want to leave the UK at some point in the next year for a while. I have a completely online business.

If I were to set up a US LLC or an Estonian Company, completely under my sole personal ownership (or other possession model to the same effect), or any other similar entity to conduct my services from, I understand that it would be considered a CFC by the UK and therefore be subject to UK Corp Tax.

However as I want to leave the UK soon I am wondering when exactly and what exactly would that CFC charge/UK Corp Tax would apply to?

Every legislation I’ve read around UK CFC laws relate to the distribution of profits, so does this mean I could provide services through the company and accumulate income in it and then leave the UK and apply for split year treatment thereby becoming non UK resident before any distribution of profits and therefore the company would no longer be a CFC and would not be subject to any UK Corp Tax? I could then distribute profits/draw a salary in my new tax free jurisdiction? Have I understood that correctly? Are there any other complications that could arise from the above?

I am also wondering if the UK CFC charge would apply to profits retained but not distributed in an Estonian Company.

Thanks in advance.

 

[ShillGates]

following this...

 

[Marzio]

I understand that it would be considered a CFC by the UK and therefore be subject to UK Corp Tax

The problem are not CFC rules, the problem are PE rules AKA you manage an offshore company from UK making it tax resident in UK so UK taxes apply unless you pay a foreign director to do your job unless you move from UK.

Since you mentioned Estonia maybe @Don could help you

 

[Don]

The problem are not CFC rules, the problem are PE rules AKA you manage an offshore company from UK making it tax resident in UK so UK taxes apply unless you pay a foreign director to do your job unless you move from UK.

Since you mentioned Estonia maybe @Don could help you

Merely incorporating a foreign company will not exempt you from local tax and other compliance obligations when activities are still in the UK.

CFC rules typically apply to persons who have a controlling interest in a foreign corporation. The aim is to prevent tax avoidance through the use of foreign entities.

It might reduce the risk if you don't hold the shares directly.
UK also has exemption for low profits.

 

[CyprusLawyer101]

The problem are not CFC rules, the problem are PE rules AKA you manage an offshore company from UK making it tax resident in UK so UK taxes apply unless you pay a foreign director to do your job unless you move from UK.

Since you mentioned Estonia maybe @Don could help you

PE and tax residency arising out of managment and control are different concepts in different contexts.

CFC rules are different in each jurisdiction however have the same basic intention. To catch taxpayers incorporating abroad to reduce taxes.
Taxation of CFC income arises most of the times at the point of the income being generated and does not generally apply at the point of distribution but it is charged on the person who is shareholder and is tax resident in the jurisdiction applying the CFC rules.
UK has an exemption in their CFC rules which provide for exemption from taxing a CFC at the first year of operation. Maybe this ia what tou have come across.
Generally it is possible to structure around CFC rules, however you should seek advice from a an international tax professional - in your case - better someone in the UK.