Can I use an offshore company to limit profits taxed?

Is it possible to set up an offshore trading structure in order to limit the profits that are assessable to UK tax?

The advantages of using an offshore company are that ‘non-UK resident’ companies are exempt from UK capital gains and also exempt from income tax on profits from an overseas trade.

However, if the company is controlled or managed from the UK, it is still classed as a UK company for the purposes of UK corporation tax and thus the likely additional expense incurred in forming and running an offshore company could be wasted. The same is true where nominee or trustee directors are used in order to attempt to move management and control offshore, as these nominee or trustee directors could simply be seen as puppets of the ultimate UK owners and would not have sufficient higher-level control offshore.

Another point to be wary of is where the actual trading activity is maintained. If the trading activity is located offshore and the ‘permanent establishment’ is therefore seen to be offshore, then profits will be outside of the scope of UK corporation tax if the management and control is also located offshore. If however, the trade is based primarily in the UK or there is a fixed UK establishment (e.g. the main trader or traders are still resident in the UK), then the offshore company will still be assessable to UK tax on any income resulting from this UK trade or permanent establishment.

Finally, on the presumption that you as the ultimate owner remain a UK resident, but you have managed to move the ultimate management and control of the business offshore along with all of the trading activities, you have the additional issue of drawing the money back out of the company and back to the UK tax efficiently. You would still be taxable in the UK for any monies received from that overseas company whether it be salary, dividends or another form of income.

If you don’t plan to remain a UK resident and wish to use an offshore company to build up funds offshore for when you personally move offshore then provided that overseas management and control, and overseas trading can be established (and you can also argue that the business has not been set up purely for a tax avoidance motive!), then the use of an offshore company could be beneficial to you as part of your overall financial affairs.

Should you wish to discuss the potential use of an offshore company as part of your financial affairs, please contact a member of our team on 01474 853856.