Is offshore dead? Small business tax shield advice - UK & Offshore

[zozon]

Is Offshore dead?

I am a UK resident and have a small business that mostly works with US/EU companies. We are talking about relatively modest profits here and I don't pay myself much so most of the profits stay in the company. Given that I don't do much UK business I was looking at ways to minimise the UK corporation tax and started looking at BVI or Bahamas.

My idea was simple. I would set-up a new business in BVI where I would be the sole shareholder and UBO. My BVI company would then sell to my non-UK customers (wire transfer only to an EMI) and then my BVI business would sub-contract my UK business to deliver part of these services (e.g. BVI would pay 20% of the order value to the UK company for services). Any UK customers would fully go through the UK company. If I wanted to take dividends from the BVI company, as a UK resident, I would be happy to pay UK dividend tax on that. So I am really trying to minimise corporation tax and keep profit as cash/retained earnings in the company.

Would this work?

I read somewhere that because of the increased financial/UBO transparency the HMRC would "find out" and claim my BVI company is tax resident in the UK as it is controlled from the UK by the UK resident and I would have to presumably pay corporation tax in the UK for the BVI company. So, what is the approach to minimising corporation tax in 2022 for small companies... or is the offshore really dead?

 

[NicolasMaduro]

Yes it wouldn't work.

 

[zozon]

Is there anything (relatively simple) that *would* work though?

 

[Sols]

No, not in a sustainable and/or lawful manner.

Offshore in the sense that was discussed 10 or so more years ago is dead. Many websites by dormant, dead, or deceptive service providers still paint (or at least strongly hint of) a picture of a reality where you can form a BVI company, pay zero tax, and somehow that's the end of the story. In reality, your BVI company becomes tax resident in the UK and while that has been the case for quite a long time, it's practically enforceable nowadays.

Today the short of it is that if you don't like UK tax, stop living in the UK.

 

[zozon]

The only problem is that it seems that significant number of businesses (and politicians) still do use a scheme to reduce their (at least corp) tax to zero. Every time there is a leak from one of the offshore havens and their names appear - the mantra is that it's all legal and it's more an ethical issue. This is confusing.

 

[NicolasMaduro]

The only problem is that it seems that significant number of businesses (and politicians) still do use a scheme to reduce their (at least corp) tax to zero. Every time there is a leak from one of the offshore havens and their names appear - the mantra is that it's all legal and it's more an ethical issue. This is confusing.

I dont think so. Usually it was incorporations done in the 2000s.

And now the latest leaks was just about people who own real estate in Dubai

 

[Sols]

It's a very different story when there is significant wealth and/or political influence involved.

They play by the same rules but have access to far greater means to make their structures legitimate.

 

[zozon]

Thank you, looks like I am 20 years late to the party

 

[JohnnyDoe]

Thank you, looks like I am 20 years late to the party

The party is still running, only the entry ticket is more expensive

 

[InnocuousNomad]

Is there anything to stop this member from setting up in Bulgaria? It's what I'm looking at right now. They have the lowest Corp tax in the EU at 10% and double-taxation treaties with the UK.

There's some interesting things about Bulgarian companies and tax, and I'm researching what is fact and what is fiction. For example I'm reading in some places that it's 0% for non-residents, and in others it's definitely 10% but the company won't be taxed if you don't distribute the profits.

This surely seems like the cleanest, legal way for UK residents to run an offshore company with very little tax burden? Access to good banking and merchant services as well with it being in the EU...

 

[Sols]

Is there anything to stop this member from setting up in Bulgaria? It's what I'm looking at right now. They have the lowest Corp tax in the EU at 10% and double-taxation treaties with the UK.

With tax treaty you will not have to pay Bulgarian plus UK corporate tax. It means you will pay Bulgarian corporate tax and then the difference (remainder) in the UK. Overall your tax burden is unchanged. That's if you qualify for the terms of the DTAA.

https://assets.publishing.service.g...tachment_data/file/515450/UK_Bulgaria_DTC.pdf

Bulgarian tax payable under the laws of Bulgaria and in accordance with this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within Bulgaria (excluding, in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the Bulgarian tax is computed;

Credit = you can deduct it from your UK tax bill. It does not mean that it replaces UK tax.

a dividend which is paid by a company which is a resident of Bulgaria to a company which is a resident of the United Kingdom shall be exempted from United Kingdom tax, when the conditions for exemption under the law of the United Kingdom are met;

Tax exemption for dividends only apply if they would also apply under UK law.

the profits of a permanent establishment in Bulgaria of a company which is a resident of the United Kingdom shall be exempted from United Kingdom tax when the exemption is applicable and the conditions for exemption under the law of the United Kingdom are met;

Cough up UK tax unless you can prove you are exempt.

 

[InnocuousNomad]

With tax treaty you will not have to pay Bulgarian plus UK corporate tax. It means you will pay Bulgarian corporate tax and then the difference (remainder) in the UK. Overall your tax burden is unchanged. That's if you qualify for the terms of the DTAA.

https://assets.publishing.service.g...tachment_data/file/515450/UK_Bulgaria_DTC.pdf

Credit = you can deduct it from your UK tax bill. It does not mean that it replaces UK tax.


Tax exemption for dividends only apply if they would also apply under UK law.


Cough up UK tax unless you can prove you are exempt.

Yeah more or less just caught up with all of this today.

I think the best option for any UK resident now is just to up and leave and go to somewhere like Cyprus. It's mostly English speaking, drive on the left, 300+ days a year of sun and good beaches, with 12% corp tax and 0% on dividends as a non-dom. Only 2 hour time difference as well.

 

[bubbledouble]

What about a Offshore- or low tax company with full office and management, you can avoid to get taxed in your home country! I know it's not going for cheap, but that is what wealthy people may do ?

 

[desertonahorsewithnoname]

In reality, your BVI company becomes tax resident in the UK and while that has been the case for quite a long time, it's practically enforceable nowadays.

Today the short of it is that if you don't like UK tax, stop living in the UK.

What about if you were Non-domiciled UK Tax Resident?

Would the BVI company still assume UK Tax Residency? Even though your domicile and 'place of operation' is not in the UK since you're not living there?- would it be in the place of domicile?

I ask this because I currently have domicile in a highly-taxed Scandinavian country whilst maintaining my UK residency- therefore I am able to achieve non-dom resident status in the UK, and personally not be taxable on worldwide income, and not be taxable in the Scandinavian country as I am only domiciled there.

I am yet to speak to a Tax Professional about this, but since my last post in the Gold Group I have been knee deep in research in regards to UK non-dom + what the possibilities are before thinking about company structures.

I am also thinking about opening an BVI but I am restricted with time- I need a bank account open fast and from what i'm reading I could be waiting months.

 

[Gravity]

What about a Offshore- or low tax company with full office and management, you can avoid to get taxed in your home country! I know it's not going for cheap, but that is what wealthy people may do ?

Depending on the income, there's ways to do it. The wealthier you are, the more options you have. But without relocating or being very creative, you'll always be taxed where your center of operation is. Let's not talk about all the issues that arise from BVI and such setups.

 

[InnocuousNomad]

What about a Offshore- or low tax company with full office and management, you can avoid to get taxed in your home country! I know it's not going for cheap, but that is what wealthy people may do ?

That could be done very cheaply in places like Bangladesh, India etc but nothing desirable about having your company/brand there. All the places that are good for tax have high cost of living and wages, so yes it would only be a wealthy man's game, or those with a significant sized business to make it worthwhile. In which case, you have to wonder what the point would be in the first place.

 

[Gravity]

That could be done very cheaply in places like Bangladesh, India etc but nothing desirable about having your company/brand there. All the places that are good for tax have high cost of living and wages, so yes it would only be a wealthy man's game, or those with a significant sized business to make it worthwhile. In which case, you have to wonder what the point would be in the first place.

And you have to worry about trusting people in a country where even 100k could make a big difference in their lives, which gives them an incentive to scam. Not being racist here, but that's like offering someone one million here.

With a moderate amount of money there is ways possible of achieving the goal and you don't need to spend a 6 figures or even 5 figures to achieve it. But it doesn't work for everyone and depends on turnover, countries involved and the type of business.

No cheap trustee structure will save him from paying taxes as well as giving relaxing sleeps. lol

 

[forbidd3nknowl3dg3]

Software CEO Robert Brockman charged in $2 billion tax evasion case

Offshore is still very much alive. CRS, FATCA, AML/KYC, etc. just makes it a much more complicated and expensive endeavor.

 

[RealDude]

Software CEO Robert Brockman charged in $2 billion tax evasion case

Offshore is still very much alive. CRS, FATCA, AML/KYC, etc. just makes it a much more complicated and expensive endeavor.

I have already read such schemes here:
„
Allegations against Brockman include operating a complex web of foreign companies and bank accounts; using unreported taxable income to buy a luxury yacht called "Turmoil;" creating an encrypted email system to communicate with employees using code names such as "Bonefish" and "Snapper;" asking a money manager to attend a "money laundering conference" under an assumed identity; and persuading that same money manager to destroy documents and electronic media using shredders and hammers.
"Dollar amounts aside, I have not seen this pattern of greed or concealment and cover-up in my 25+ years as a special agent," Jim Lee, chief of the IRS Criminal Investigation Unit, said during a press conference.
“

 

[cuno]

The problem is that people tend to try to evade taxes rather than reduce them. Also most are not willing to relocate or build something with substance (real substance) to make their tax reduction possible.