ELI5 How a UK Ltd can become tax free?

[bibing]

As per title. Can anybody explain me like I'm 5 yo, how somebody registering a UK Ltd can effectively pay 0% tax?

(I'm asking because somebody offered me a UK Ltd setup paying 0% tax, that's what they said, last I checked UK Ltd pay 25% corporate tax). Thanks

 

[James Turner]

I would suggest using someone else to incorporate your company. a UK Ltd Company will pay corp tax.

 

[Cloudbanck]

I would suggest using someone else to incorporate your company. a UK Ltd Company will pay corp tax.

Not if it is a non-resident UK Ltd. There is a whole thread about that.

 

[James Turner]

All UK Ltd Companies have a liability for UK corporation tax on profits. There is no such thing as a None resident UK Ltd Company.

 

[Cloudbanck]

All UK Ltd Companies have a liability for UK corporation tax on profits. There is no such thing as a None resident UK Ltd Company.

Yes, there is, they are called "Treaty non-resident" companies by HMRC, see INTM120070 - Company residence: 'Treaty non-resident' companies - HMRC internal manual - GOV.UK

And here is the thread about it: The treaty non-resident UK Ltd. - the best-kept offshore secret?

I think the main catch is that the country the owner of the UK Ltd lives in must have a DTA with the UK, and one must apply for this "Treaty non-resident" status, it's not automatic.

 

[Sols]

A few options:

1. Make no profit.
2. Declare no profit.
3. Qualify as treaty non-resident: i.e. the company is tax resident somewhere else and there is an applicable tax treaty whereby the company owes no tax in the UK but instead is taxed somewhere else.

 

[James Turner]

Of course TNR. Didn't think about that. Good point! Still the TNR requires the correct set of circumstances to meet the enquirers criteria of - how somebody registering a UK Ltd can effectively pay 0% tax? and the fact a DTA exists means HMRC expect the company to be taxed somewhere, not not taxed at all. If the management and control and other criteria is in a country where the tax is already zero, would they be looking to establish in the UK and go through the TNR process. Maybe, but unlikely. Good point though.

 

[Cloudbanck]

Of course TNR. Didn't think about that. Good point! Still the TNR requires the correct set of circumstances to meet the enquirers criteria of - how somebody registering a UK Ltd can effectively pay 0% tax? and the fact a DTA exists means HMRC expect the company to be taxed somewhere, not not taxed at all. If the management and control and other criteria is in a country where the tax is already zero, would they be looking to establish in the UK and go through the TNR process. Maybe, but unlikely. Good point though.

Typically high tax countries don't have DTAs with tax heavens. The UK is an exception though, as many tax heavens are former protectorates / colonies of the UK (like the UAE).
I see the UK even has a DTA with St Kitts and Nevis signed in 1948.
So if you live in St Kitts, getting a local company and good banking for international business seems very difficult. Instead a TNR UK Ltd would make sense I guess (or a US LLC of course).

 

[Marzio]

Not if it is a non-resident UK Ltd.

It's highly unlikely that this was the case when he was approached with 0% UK LTD setup.

It was more probably some sort of scam.

 

[Cloudbanck]

It's highly unlikely that this was the case when he was approached with 0% UK LTD setup.

It was more probably some sort of scam.

Agreed, but how to actually set up a 0% UK LTD is a worthy and relevant question.

 

[JohnLocke]

Agreed, but how to actually set up a 0% UK LTD is a worthy and relevant question.

As @James Turner already pin pointed I don't believe that this is possible.