Corporate relocations

There are commonly held misconceptions relating to overseas companies and to overseas investments.  Basically, the UK taxation net covers the profits of companies incorporated outside the UK if it can be demonstrated that the day to day management and control of the company is carried out from the UK.

If you are a UK resident for tax purposes, extreme care needs to be taken to ensure that not only do all Board Meetings take place overseas but that the main business decisions and day to day control happen outside the UK.  It is generally necessary also to have foreign nationals on the Board of Directors.  This may give rise to possible commercial concerns.

The electronic age gives a clear evidence trail of business activities.  If an offshore company is subsequently shown to be effectively managed and controlled from the UK, all profits will be liable to UK corporation tax in the normal way.  There may also be penalties and interest arising, not to mention the professional costs incurred to deal with H M Revenue & Customs (HMRC) enquiries.

There is also wide ranging anti-avoidance legislation in place to counter situations where funds are transferred out of the UK and later a UK resident individual is entitled to benefit from any income or gains arising.  It is possible for the UK taxation authorities to “look through” a company which has no real commercial purpose and to then tax all income on the UK individual.

This is a very complex area which can lead to very expensive tax consequences and high professional costs to deal with HMRC challenges on ill conceived structures.

You need to consult a professional adviser experienced in this area to ensure your commercial needs are structured correctly.  Any mitigation of UK taxation is a side issue.

Remember also that UK resident individuals are liable to UK tax on world-wide income or gains arising.  Ultimately retained profits in non-UK companies will need to be accessed with consequent UK tax liabilities.

By Ann Somerville

Ann Somerville is a partner at French Duncan LLP, Chartered Accountants