Tax residency in UK

[rdevalex]

Hello,

I am a citizen of ex-USSR country and currently live in Dubai. I am a sofware developer and have FZE company in UAE which I use to sell mobile applications on app stores like Google Play. The yearly company's profit is 1M+ USD. It is an one person company so I am the only shareholder and director with no employees. The company has an office and a bank account in UAE. Our family is considering relocating to UK (my wife has a job offer in UK and also has the Global Talent visa). I am planning to make the next changes regarding the company structure:

1. Appoint a director (general manager) who will be responsible for the company management and control (make strategic decisions, etc). The director is UAE resident.

2. Appoint myself as an employee with salary who will be responsible for all operating activities (development, support, etc). I will be UK resident and will pay an income tax on salary in UK.

My questions are:

1. How high are risks that the company will be considered as UK tax resident?

2. Do CFC rules apply here? To my understanding, they apply for legal entities only and not for individual persons in UK.

3. Is it safe to pay myself dividends in UAE and not transfer them to UK as a non-dom resident? Or is it better to leave profit in the company and maybe invest it?

Thanks

 

[Martin Everson]

1. How high are risks that the company will be considered as UK tax resident?

Not high if you move to UK and claim non-domicile status for yourself and UAE company operates at arms length. So ensure the UAE company has real economic substance in UAE alongside corporate control and decision making being made in UAE with suitable qualified staff and costs in UAE. Economic substance is a major requirement anyway in UAE to stop your company being automatically reported to UK - as a non-UAE tax resident company under OECD rules...see below. As you will always be the UBO the entity needs to avoid been seen as a sham tax avoidance vehicle by HMRC which is the highest risk you face.

https://www.offshorecorptalk.com/th...es-with-no-substance-with-ubos-country.36103/

2. Do CFC rules apply here? To my understanding, they apply for legal entities only and not for individual persons in UK.

Yes.

3. Is it safe to pay myself dividends in UAE and not transfer them to UK as a non-dom resident? Or is it better to leave profit in the company and maybe invest it?

It is safe to pay yourself dividends in UAE and not remit them to UK.

 

[Houdini]

Not high if you move to UK and claim non-domicile status for yourself and UAE company operates at arms length. So ensure the UAE company has real economic substance in UAE alongside corporate control and decision making being made in UAE

do you think he will come along with it?

 

[turtle]

Do you file a notification and report for ESR in UAE?

 

[rdevalex]

Yes

I am learning CFC rules to find out more details. I have found the next info:

The CFC charge however will only be charged for an accounting period on a relevant person if they are a company and meet the UK residence condition set out at TIOPA10/S371BC(2).

The CFC charge therefore will ultimately only apply to chargeable profits of the CFC that are apportioned to UK resident companies that have a relevant interest in the CFC.

https://www.gov.uk/hmrc-internal-manuals/international-manual/intm194400https://www.gov.uk/hmrc-internal-manuals/international-manual/intm194500
Do I understand correctly that I as an individual will not be a subject for CFC charge?

It is safe to pay yourself dividends in UAE and not remit them to UK.

What if the UAE company will be considered as a UK tax resident by HMRC eventually? Will I have to pay the dividends tax in UK for the entire past period since moving to UK even as a non-dom resident?

Do you file a notification and report for ESR in UAE?

I think no but I will check this with the law firm which provided the company registration services.

 

[Marzio]

What if the UAE company will be considered as a UK tax resident by HMRC eventually? Will I have to pay the dividends tax in UK for the entire past period since moving to UK even as a non-dom resident?

If the UAE company will be considered resident in UK you'll also have to pay UK CIT on your income which in a couple of months will rise to 25%

 

[rdevalex]

If the UAE company will be considered resident in UK you'll also have to pay UK CIT on your income which in a couple of months will rise to 25%

Yes, I know it. But it is better to pay 25% tax than 25% + 45% tax. This is why I am wondering if I should pay myself dividends or leave the profit in the company (and maybe invest it somehow) to be prepared for the worst scenario. Maybe in the future I will leave UK and will pay the dividends in some low-tax jurisdiction.

 

[Marzio]

If i were in you i'd contact @Fred and work together to create a UAE company with bulletproof substance and pay yourself only some dividends as a non-dom passive shareholder who isn't involved in any operations.

I mean if your app is already generating money it's basically a finished product.

Yes, there's support but this could be delegated.

As for the development part it depends how far you want to take your project.

I would outsorce the development and for the really importnat stuff i'd plan on the calender some UAE holidays with family so you can do the important stuff yourself.

BTW aren't you also paying 30% withholding taxes on royalties paid by Google since UAE and US don't have a double tax treaty?

 

[rdevalex]

BTW aren't you also paying 30% withholding taxes on royalties paid by Google since UAE and US don't have a double tax treaty?

Actually, I am not sure but I think I don't pay it. As I know, this tax is related to YouTube, AdSense, Google Play Books, but not Google Play developers. Also, I didn't find US in the list of countries for the withholding tax:

https://support.google.com/googleplay/android-developer/answer/9384608

 

[Marzio]

Actually, I am not sure but I think I don't pay it. As I know, this tax is related to YouTube, AdSense, Google Play Books, but not Google Play developers

Lets take a step back, if you are paid by Google the you are most likely familiar with this screen

If you earn from in-app purchases for example it falls in the last category.

This australian guy explained it well ATO Community

 

[Fred]

Not high if you move to UK and claim non-domicile status for yourself and UAE company operates at arms length. So ensure the UAE company has real economic substance in UAE alongside corporate control and decision making being made in UAE with suitable qualified staff and costs in UAE. Economic substance is a major requirement anyway in UAE to stop your company being automatically reported to UK - as a non-UAE tax resident company under OECD rules...see below. As you will always be the UBO the entity needs to avoid been seen as a sham tax avoidance vehicle by HMRC which is the highest risk you face.

https://www.offshorecorptalk.com/th...es-with-no-substance-with-ubos-country.36103/

Clarifying here that the fact the he as the UBO is actually a UAE Resident makes the company not reportable under waht was mentioned here.

The whole article is referring to Non-Resident Offshore Companies like a RAK ICC and not a Freezone Onshore Company the OP mentions here.

Having the necessary substance to UK not claiming the UAE Company a UK Tax Resident is another story.

Lets take a step back, if you are paid by Google the you are most likely familiar with this screen

If you earn from in-app purchases for example it falls in the last category.

This australian guy explained it well ATO Community

@rowena can shed light on this as he is Dubai based app developer as well and is using a UK LLP with a FZCO and him as Partners to collect the Play Store income without witholding tax.

 

[Martin Everson]

Do I understand correctly that I as an individual will not be a subject for CFC charge?

No. You need to examine UK's tax avoidance legislation that follows GAAR. You need to ensure what you setup is not an abusive arrangement. If what you have is considered an abusive arrangement which it is unless all is done at arms length you will get shafted at HMRC's discretion.

What if the UAE company will be considered as a UK tax resident by HMRC eventually? Will I have to pay the dividends tax in UK for the entire past period since moving to UK even as a non-dom resident?

If it is considered UK tax resident that it will be treated like a UK company and UK corporate tax applies. For reference this is far more preferable than it being considered transparent for tax purposes in which case UK personal income tax rates apply.

I think no but I will check this with the law firm which provided the company registration services.

A few firms are now offering substance packages for UAE companies. You better just double check.

Clarifying here that the fact the he as the UBO is actually a UAE Resident makes the company not reportable under waht was mentioned here.

He is moving to UK. So what has UAE residency got to do with this?

 

[Marzio]

@rowena can shed light on this as he is Dubai based app developer as well and is using a UK LLP with a FZCO and him as Partners to collect the Play Store income without witholding tax.

AFAIK he only sells on the App Store.

 

[turtle]

BTW aren't you also paying 30% withholding taxes on royalties paid by Google since UAE and US don't have a double tax treaty?

Apple App Store sales are not subject to withholding taxes.

 

[Fred]

He is moving to UK. So what has UAE residency got to do with this?

It was related to what you have mentioned to shell company reporting you have linked to the other topic.

"no-substance" companies this is referring to non-resident Offshore Companies like a RAKICC - not an Onshore Freezone Company with the UBO being UAE resident.

Apple App Store sales are not subject to withholding taxes.

Thanks for confirming - after searching for posts of @rowena he mentioned the same as well.

 

[rdevalex]

Lets take a step back, if you are paid by Google the you are most likely familiar with this screen

If you earn from in-app purchases for example it falls in the last category.

This australian guy explained it well ATO Community

I have checked the financial reports in Google Play developer console and have not found any mentions regarding US Withholding tax but I see deductions for Brazil Withholding tax.

If it is considered UK tax resident that it will be treated like a UK company and UK corporate tax applies. For reference this is far more preferable than it being considered transparent for tax purposes in which case UK personal income tax rates apply.

Apart from UK corporate tax, will the dividends tax be also applied even with non-dom status and not remitting the dividends to UK?

 

[Marzio]

I have checked the financial reports in Google Play developer console and have not found any mentions regarding US Withholding tax but I see deductions for Brazil Withholding tax.

Do you generate US sales?

 

[rdevalex]

Do you generate US sales?

Yes.

 

[Martin Everson]

It was related to what you have mentioned to shell company reporting you have linked to the other topic.

"no-substance" companies this is referring to non-resident Offshore Companies like a RAKICC - not an Onshore Freezone Company with the UBO being UAE resident.

He will be living in UK. So what I said is accurate. The topic has nothing to do with being resident in Dubai.

Apart from UK corporate tax, will the dividends tax be also applied even with non-dom status and not remitting the dividends to UK?

If the UAE company is operated at arms length and in accordance with GAAR then there is no UK corporate tax on it or dividends paid out outside the UK. Non-dom status is generally suited to someone receiving passive income. The issue arises furthermore that if he is doing all the work on his laptop from UK and the UAE entity is a hollow nominee sham entity he will get problems in UK. We are in 2023 no longer 2013.

 

[Fred]

He will be living in UK. So what I said is accurate. The topic has nothing to do with being resident in Dubai.

Again referring to the quoted shell company reporting "12 Countries start Reporting Companies without Substance".

UAE doesn't report the Company if he as the UBO is UAE Resident.

I get your point about the UK.