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Tax Planning Help - Digital nomad

Billneon

New member
I am looking for an ideal tax structure for my own consultancy business.

I am from Japan and I have recently incorporated a UK limited company. Through the UK entity, I have invoiced to two companies ; one in Europe and another one in Asia and payment will be made to the UK entity in a form of consultancy fees on a monthly basis.

Some of the revenue from the business will be used for business expenditures and I would like to know how to take out the left profit in the entity from the entity in a legal way in order to avoid a high personal tax / or any corporate tax in the UK.

I was thinking of setting up an offshore company in the country that i don't need to pay any tax and my UK entity would invoice such as service contract or salary to the offshore company. So, i can use the payment that the offshore company would receive from the UK entity as a personal money.

Please let me know any ideal tax structure that you can share with me.

Thanks in advance
 

xzars

Entrepreneur
1. Have you confirmed with Japan's tax office that you're considered a non-resident for tax purpose?

Your opinion of being a nomad and not liable for tax may not be in harmony with how they see things. Proceed to #2 if a confirmed non-resident. Otherwise, seek help to get rid of that residency. Becoming an ex-milking cow in a high tax country usually involves cutting all family and business ties and setting up another residency somewhere else in the world. My rough opinion is that a big chunk of digital nomad community is illegally, but not intentionally, evading tax in their home country. Myths of be-all end-all 183-day rules, etc.

2. UK Ltd. company is by default resident in the UK and liable for corporate tax.

DTA treaties change this, but aren't available to tax haven residents. You want to be a resident in a tax haven for an ideal solution (no tax). You could drain this UK corporate tax down to zero by taking out a high salary, but the accounting gets a little complex because you must ensure that no penny of taxable profit remains on the books. As an individual with no third party stakeholders, it's better to use a LP/LLP to remain tax transparent, and then your only concern is living in a country with low or no personal income tax. Add some dummy directors as placeholders to get the LP/LLP as needed.

Draining that UK Ltd. with invoices from another corporation under your control is needlessly complex, and more risky because your invoices and contracts must be in compliance with arms-length rules.
 
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Billneon

New member
1. Have you confirmed with Japan's tax office that you're considered a non-resident for tax purpose?

Your opinion of being a nomad and not liable for tax may not be in harmony with how they see things. Proceed to #2 if a confirmed non-resident. Otherwise, seek help to get rid of that residency. Becoming an ex-milking cow in a high tax country usually involves cutting all family and business ties and setting up another residency somewhere else in the world. My rough opinion is that 90% of digital nomad community is illegally evading tax in their home country.

2. UK Ltd. company is by default resident in the UK and liable for corporate tax. DTA treaties change this, but aren't available to tax haven residents. You want to be a resident in a tax haven for an ideal solution (no tax). You could drain this UK corporate tax down to zero by taking out a high salary, but the accounting gets a little complex because you must ensure that no penny of taxable profit remains on the books. As an individual with no third party stakeholders, it's better to incorporate a LLP to remain tax transparent, and then your only concern is living in a country with low or no personal income tax. Draining that UK Ltd. with invoices from another corporation under your control is needlessly complex, and more risky because your invoices and contracts must be in compliance with arms-length rules.
Thanks for your comments.

I can confirm that i am a non-resident in Japan and I am taken as a resident in the UK now. Even if i have to stay in the UK in the next few years, would a proxy residency in such as Cyprus still work for me ?

Is there any an ideal strategy for me to take out money from the UK entity for personal use ? such as sending money in a legal way to the place where i don't need to report any account and so on..
 

Billneon

New member
Draining that UK Ltd. with invoices from another corporation under your control is needlessly complex, and more risky because your invoices and contracts must be in compliance with arms-length rules.
If i am not mistaken, if my salary were to exceed above certain threshold i.e £12,500/Yr in the UK, I would be subject to more personal tax right ?
 

xzars

Entrepreneur
Thanks for your comments.

I can confirm that i am a non-resident in Japan and I am taken as a resident in the UK now.
That's the hard part done! Congrats!... But you obtained a new stamp of a milking cow from another medium-high tax country which limits your access to "ideal" solutions. I'm assuming that it's not a non-dom UK residency, but bona-fide full-on tax cow package from the UK cattle master, correct?

Even if i have to stay in the UK in the next few years, would a proxy residency in such as Cyprus still work for me ?
That will only get you a second residency and your liability in each country must be assessed in accordance with the UK-Cyprus DTA.

Is there any an ideal strategy for me to take out money from the UK entity for personal use ?
"Ideal strategy" - for zero tax and in compliance with the law? I'm afraid not, my friend. As for the second-best option, hire a smurf from overseas. Pay salary to a remote working "employee" who appears genuine (has LinkedIn with job history, works for your company according to LinkedIn, responds to E-mails, casually engages in conversations and adds comments to articles). The more work you put in, the lower your risk.

Edit: removed some illegal details which can't be discussed on the public forum.

And of course, consider the cost-benefit of committing ID fraud and tax evasion with this option. To me it's the second-best, but to a normal person, it's better to pay tax and sleep well.
 
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xzars

Entrepreneur
A slightly less radical alternative to #2:

Hire a filipina i.e. a low wage freelancer, a real person in a voulentary contract. Pay her salary of 500 pounds per week, but according to a private deal, she keeps 100 and sends 400 back to you in accordance with your instructions. Make use of your account in a non-CRS reporting institution/ jurisdiction to recieve funds.

a) She gets 100 per week for doing nothing. She has an incentive to not steal the 400 to get more business from you. b) You get funds embezzled out of the company without committing ID fraud.

Add more freelancers to move bigger sums.

Overall, lower punishments if caught, but more risk of getting caught because the bitch(es) can sneeze. Numbers don't add up (not worth it) if your aggregate tax burden is 20% or less. Taking too much risk with 1/10 ratios is not wise as it incentivizes theft much more.
 
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CaptK

Nominee Company Bank Account Real Estate Passport
Mentor Group Gold
UK LTD was not the best structure to use as there are issues regarding VAT and Corporation tax. What you require is an LLP or dare I say it a US LLC. You require a pass through entity that simply collects payment charges a small handling fee and then remits on.

As my learned colleague @xzahas pointed out a fantastic situation for you I would sprinkle a little LLP/LLC in there for added flavour.
 

Billneon

New member
Draining that UK Ltd. with invoices from another corporation under your control is needlessly complex, and more risky because your invoices and contracts must be in compliance with arms-length rules.
Thanks for your a lot of supportive advises. After reviewing your comments, I have come up with three questions;

1. Would an offshore company using a nominee services help me get around arms-length rules ? For example invoicing to the offshore company through the UK entity such as trademarks, services fees and so on so that i can freely take out the money from the offshore company which does not require any accounting practices places such as Belize

2. my top-priority is to take out the money from the business entity with a lowest tax possible, is there any such a good way to do this apart from paying to myself, dividend or director's loan ?

3. I have a pooled account with one of Asian EMI bank and i have come across some information claiming that pooled account can be also leveraged to achieve my objective.. any idea ?

Really appreciate !
 
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Billneon

New member
UK LTD was not the best structure to use as there are issues regarding VAT and Corporation tax. What you require is an LLP or dare I say it a US LLC. You require a pass through entity that simply collects payment charges a small handling fee and then remits on.
Thanks for your comments. I have been already aware of US LLC but one quick question here, when i pay to myself through US LLC where i would accept payment from clients across Europe and Asia only, I would like to confirm that i don't need pay any personal tax in the UK even if i am a UK tax resident

Thanks
 

CaptK

Nominee Company Bank Account Real Estate Passport
Mentor Group Gold
USLLC draw backs are the accounts need to be opened face to face, so not anytime soon.
The UK LTD is basically tax residency so it wont work for any tax mitigation.
If you live or are deemed as liable for tax in the UK then even the LLP becomes useless.
You could risk it and set up an foundation in a 0% jurisdiction, You are the general Partner and the foundation the controlling partner. If an investigation is launched and a warrant for information is sent to the offshore bank you are in trouble.

So arms length is your best bet or royalties.

Company A (CA) in an tax efficient jurisdiction sells a licence to Company B (CB) on a 90/10 split.
CB does all the donkey work for 10% and will remit as per the contract to CA.
CB then is the payment gateway in the UK.
So all the work is done by CB with a registered office and staff but the franchiser CA retains the profit.
 

Billneon

New member
Company A (CA) in an tax efficient jurisdiction sells a licence to Company B (CB) on a 90/10 split.
CB does all the donkey work for 10% and will remit as per the contract to CA.
CB then is the payment gateway in the UK.
So all the work is done by CB with a registered office and staff but the franchiser CA retains the profit.
Thanks for your kind explanation. Thoroughly understood how it would work. My key question around this structure is that how can i take out profit from Company A (CA) without being charged income tax or other tax in the UK ? What i have confused is that what if i just shift the profit from CA to my personal account in the UK, it can be taken as an income or whatever so will be taxable right ?

Or Maybe CA does not need to the accounting practice, Can i just take its profit as my asset and spend it directly from the CA's corporate account ?

Thanks
 

CaptK

Nominee Company Bank Account Real Estate Passport
Mentor Group Gold
Thanks for your kind explanation. Thoroughly understood how it would work. My key question around this structure is that how can i take out profit from Company A (CA) without being charged income tax or other tax in the UK ? What i have confused is that what if i just shift the profit from CA to my personal account in the UK, it can be taken as an income or whatever so will be taxable right ?

Or Maybe CA does not need to the accounting practice, Can i just take its profit as my asset and spend it directly from the CA's corporate account ?

Thanks
Your learning!!
Still pay yourself from CB a salary and or dividends. That keeps you off the radar.
 
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Billneon

New member
Or Maybe CA does not need to the accounting practice, Can i just take its profit as my asset and spend it directly from the CA's corporate account ?

Thanks
Thanks for taking me this far. Last thing i would like make sure is whether if there would be any issue with getting the profit to my UK personal account from CA’s corporate account or not in terms of legal issue or tax wise

thanks !
 

CaptK

Nominee Company Bank Account Real Estate Passport
Mentor Group Gold
CA never receives a penny from you and neither do you personally send money there.

All your money is paid from CB but you can use the CA account for everything else except your bills .
 

JustAnotherNomad

Entrepreneur
Hire a filipina i.e. a low wage freelancer, a real person in a voulentary contract. Pay her salary of 500 pounds per week, but according to a private deal, she keeps 100 and sends 400 back to you in accordance with your instructions. Make use of your account in a non-CRS reporting institution/ jurisdiction to recieve funds.
But if she receives £500 per week, wouldn’t she have to pay taxes? Let’s assume she pays just 20% in taxes, then your cost would be 20% x £2000 + 4 x £100 per month. So you would pay £800 a month on those £2000, a 40% “tax”. Am I missing something?
 

xzars

Entrepreneur
But if she receives £500 per week, wouldn’t she have to pay taxes? Let’s assume she pays just 20% in taxes, then your cost would be 20% x £2000 + 4 x £100 per month. So you would pay £800 a month on those £2000, a 40% “tax”. Am I missing something?
Not my sleep interrupter if she's not a honest tax payer. My cost doesn't increse :)

That 100 which remains in the account is indeed income for tax purpose. On her side, it remains to be determined if there's any PIT to pay after personal allowances. The better example would have been a freelancer from Antigua as she would be automatically compliant on tax side.
 
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