Company Residency Structure

by **corkers** on Sun May 15, 2011 9:20 am

Hi,

New to the forums here and have a small question regarding company residency for tax:

UK Ltd Company, been incorporated for little over 12 months.

1 Director 50% resident UK
1 Director 50% resident Switzerland

If we relocate our business to Cyprus (registered office, business location, incorporated) and run any strategic meetings (AGM, Board etc) there etc would the company be required to pay tax in another jurisdiction, other than taxation on our personal salaries and/or dividends?

My question arises from reading documentation on the residency of an offshore company, i.e if I owned 100% and it was offshore I'd still be liable to UK corporation tax, as the company would be deemed UK resident. However, with the equal split between countries of residency would this create the ability to be located elsewhere?

We are the shareholders / directors of the company and run the company day to day (i.e no other staff employed at this time, but will be in the near future - most likely in the UK.)

Appreciate your thoughts & advise on this.

by **corkers** on Sun May 15, 2011 9:33 am

I also forgot to mention the following:

UK based shareholder/director works from home office in the UK
Swiss based shareholder / director works from home office in Switzerland

If that makes a difference...

by **section 44** on Sun May 15, 2011 8:31 pm

corkers wrote:i.e if I owned 100% and it was offshore I'd still be liable to UK corporation tax, as the company would be deemed UK resident.

This isn't correct.

Share ownership has nothing to do with tax residency. Under UK law a company is UK resident for tax purposes if it is incorporated under UK law or is subject to central control and management from the UK. Central control and management is at the level of the board and not the shareholders.

It is not uncommon, for example, for UK corporate groups to hold investments (say real estate) via wholly-owned non-resident subsidiaries. Such subsidiaries are outside the scope of corporation tax provided that they subject to control and management outside the UK.

by **corkers** on Mon May 16, 2011 2:43 pm

Thanks for the clarification, that makes sense.

Are there any specific laws for management and control being split between two countries?

by **Incredulum** on Mon May 16, 2011 4:13 pm

section 44 wrote:It is not uncommon, for example, for UK corporate groups to hold investments (say real estate) via wholly-owned non-resident subsidiaries. Such subsidiaries are outside the scope of corporation tax provided that they subject to control and management outside the UK.

Indeed. But... for a small company owned 100% by a UK resident, it is generally pretty difficult for him to keep management and control offshore.

by **corkers** on Mon May 16, 2011 4:23 pm

But where management / control of a UK registered ltd is split between UK / Switzerland 50/50 what would be the scenario?

by **Generix** on Mon May 16, 2011 4:53 pm

corkers wrote:But where management / control of a UK registered ltd is split between UK / Switzerland 50/50 what would be the scenario?

I'm no expert but UI think someone said above that if its UK registered ltd then its UK resident.

by **section 44** on Mon May 16, 2011 5:39 pm

Generix wrote:I'm no expert but UI think someone said above that if its UK registered ltd then its UK resident.

Subject to it being dual resident and a relevant double tax treaty determining its residence.

by TN on Tue May 17, 2011 9:38 am

A UK incorporated company is always UK resident for tax purposes.

If the management and control is carried on somewhere else, it might also be resident in that jurisdiction under their domestic law. So if you travel to Switzerland to make all decisions and have board meetings, it could be tax resident in Switzerland. If you and the other director travel to Cyprus to make all the decisions and have board meetings it could be tax resident in Cyprus.

If this is the case then it is resident in both the UK and Switzerland/Cyprus under their domestic laws. In that scenario you need to look at the relevant double double tax treaty to see which jurisdiction this gives the tax rights to.

If you can manage to get the company non-UK resident then you have other problems: you working in the UK at your home could create a UK permanent establishment for the offshore company. Therefore, it will still be liable to corporation tax in the UK in respect of the profits attributed to that PE. There are also rules that treat offshore companies as transparent where a UK resident individual has transferred assets abroad and can benefit from the income/capital gains of the company, although you may be able to find a way through these.

by **section 44** on Tue May 17, 2011 10:53 am

TN wrote:If this is the case then it is resident in both the UK and Switzerland/Cyprus under their domestic laws. In that scenario you need to look at the relevant double double tax treaty to see which jurisdiction this gives the tax rights to.

You would also need to consider whether you have effectively exported the company and triggered an exit charge.

If you were intending to have a non-resident company then it would be prudent to use a company incorporated outside the UK. It would be foolish to use a UK incorporated company and seek to rely on a double tax treaty to determine that it is not UK resident for tax purposes.