International Trading: Using UK Entities
After the arrival of the crisis, tax authorities started increasing their vigilance and financial authorities started pushing for tighter controls.
In recent years, offshore companies have been having more and more difficulty trading with on-shore companies. Due to this fact, alternative solutions have been sought that could be used for international trade while at the same time, of course, limiting exposure to UK taxation. These alternative solutions are using a UK Agency Company and a UK Limited Partnership (UKLLP).
With a UK Agency Company, it is formed to specifically operate as a nominee for the offshore company and in that way, the UK company acts as a sort of ‘agent’ for the offshore company. There will be an agreement signed between the two companies to specify the specific terms between them. The offshore company behind the UK company does not have to be visible which is ideal where the receipt of invoices from an offshore company would not be acceptable.
To simplify, the offshore company manages and controls UK company and its officers but all business is conducted in the name of the UK company. Invoices are paid into a UK bank account and then are remitted to the offshore company by the UK company after deduction of an agreed commission.
This commission is taxable in the UK, after expenses have been deducted, as it is source income, but the offshore company does not have any source income and therefore is not taxable in the UK. Commission is usually taxable at 5 or 10% and annual accounts must be filed. Audit will depend on the level of turnover.
Other long term advantages of having a UK Agent Company is that if it is linked to a discretionary trust, it is a suitable structure for long term income/inheritance tax planning. Another advantage is that it can be used in EU VAT triangulation situations.
With a UK Limited Liability Partnership (UK LLP), if it is set up to carry out trade with a view to profit, income and gains of the UK LLP will be treated as the income and gains of the offshore company and not the LLP. Income and gains from a non-UK source will not be taxable in the UK as they are not registered in the UK.
So which is the better option? Well this all depends on other issues the company would like to address such as controls and VAT.
With a UK Agent company, you may be able to be VAT registered in the UK if you can demonstrate you have a fixed establishment in the UK, which can be done via a UK Agent as the ‘principle’ offshore company is not considered. Only the agent is. This would not be the case for the UK LLP.
With regards to controls, a UK Agent, the offshore company does not have all the day to day control as it would have if it was a UK LLP. This is a factor that also needs to be considered.
So in the end, both types of company can be successfully used, it just depends on other factors like control and VAT.