Some time ago, someone on this forum posted about his "non-resident UK Ltd."
This sounded a bit strange - after all, the UK doesn't have non-resident companies in the same way e.g. Hong Kong does.
Of course this sparked my interest, so I've investigated a bit more - and I've been considering for a while whether I should share this at all, as it seems to be such a well-kept secret.
But given that the information was already on the forum anyway, albeit less accessible, I decided to share my findings:
By default, a company that is incorporated in the UK is tax resident in the UK, as is the case in most jurisdictions.
However, it is possible for a UK company to be considered tax resident in another country per that country's domestic rules. Many countries deem a foreign company to be tax resident there under rules for management control.
Excursion: In the 2000's, many European countries had rather high minimum share capital requirements for limited liability companies. To circumvent this, many people incorporated in the UK instead, where the minimum share capital is just 1 GBP. The company would then be considered tax resident in their country due to being managed and controlled from there.
In theory, this could lead to double taxation, but here's the kicker: The UK has signed a staggering number of tax treaties. And under such a treaty (Article 4), the UK would agree that the company should only be considered tax resident in the country where it is being managed and controlled.
In other words, the UK would agree that the company shouldn't be considered tax resident in the UK per a tax treaty - in short: It would be "treaty non-resident" per "section 249" of the UK tax code.
So many European residents would use UK Ltd. companies despite having no relation with the UK. These companies didn't enjoy a very high reputation as they were considered to be owned by people who were too poor to pay the minimum share capital, but for a lot of people, that didn't matter, so it was still a popular option.
Fast foward a few years, and most EU governments had lowered the minimum share capital requirements, or introduced new entity types with lower requirements, so UK companies became mostly irrelevant.
But here's the interesting part: The same mechanism can still be applied, and it seems like it's rather simple to receive the status.
In short, you simply have to declare to the HMRC that the company is being managed and controlled from a country with which there exists a tax treaty.
Here's some information from the UK governmen about this:
The accountant I spoke to told me that in the 1990's and 2000's, this used to be a popular option for Eastern Europeans, e.g. Ukrainians, to avoid tax:
They would create a branch of the company and appoint a nominee director and then apply for the treaty-nonresident status. The UK would then no longer tax the company if there was no UK-source income. But it gets better: Cyprus wouldn't tax the company either as it would consider the company's income to be "foreign-sourced".
They would then pay "dividends" to themselves in their Eastern European home country - where the tax authorities were led to believe tax had been paid in the UK. And such income wasn't taxed there either.
Those countries have since cottoned on to the practice and become better at enforcing their own laws for corporate tax residence and permanent establishment, so this trick no longer works today.
However, it's still entirely possible to apply the same method. For example, a UAE tax resident should be able to be the director of such a UK Ltd. company, and it would then be taxed like a UAE company.
The UAE requirements aren't quite clear here, especially with the new corporate income tax. It would probably be advisable to set up a branch in a free zone to reduce the risk of the company being subject to 9% corporate income tax.
Why is this so interesting?
UK Ltd. companies are very easy an cheap to form, even cheaper than US LLCs. The company would still be required to have a UK address, so it would look like any other UK company and benefit from the UK's excellent reputation.
Unlike a UK LLP, no additional partner is required. And unlike an LLP, the entity is opaque, so no one would expect that the company isn't subject to UK tax.
If there is no UK business, the company would have to file nil tax returns in the UK every year. Accounts would still have to be filed with Companies House, but for "small companies" (up to GBP 5M of revenue or so), profit and loss sheets wouldn't be published (though there have been discussions to change this). Only the balance sheet is public information. The company register is public as well, so it would be easy to verify who the shareholders of the company are, which again would help to build trust.
Banking should be simpler than with a US LLC as there obviously are no FATCA requirements. It would probably also look "nicer" to European clients than a US entity.
What I haven't yet figured out is whether it would be possible to obtain a VAT ID from the UK and/or a corporate tax residency certificate from the other country. I could imagine that it would be possible to apply for a UK VAT ID before applying for the treaty-nonresident status, but I haven't verified this yet.
It should also be possible to use this approach to move the tax residency of the company around as one moved from country to country. I guess this could be interesting for Brits who want to move from the UK to e.g. Malta. I'm not sure if this could trigger exit tax, though.
I'll share more information here as I find out more. Let me know if you have any question or if you've got more information yourself.
By the way, this should also work with other jurisdictions, but it seems extremely simple with the UK because there's an official process for this.
I remember the person posting about this mentioning that he doesn't use his UK company to invoice UK clients, just in case.
For that purpose, he has a separate Irish company, if I remember correctly. However, according to Google, if the Irish Ltd. doesn't have a director who is resident in an EEA country, a EUR 25k bond must be deposited with the Irish authorities as an "insurance", so this probably isn't as interesting if one wants to manage the company from e.g. the UAE. I also don't know which countries Ireland has signed a tax treaty with.
"Just in case" meaning to avoid any risk of HMRC considering the income from UK clients as "UK-sourced income", to which UK tax would still apply. This would be similar to tax-transparent US LLCs being managed by a non-resident. With US clients, even though the US LLC would be a pass-through entity, there always remains some risk that the IRS would consider it to be "engaged in a trade or business in the US" (ETBUS) and thus subject to US tax, if there are US clients.
This sounded a bit strange - after all, the UK doesn't have non-resident companies in the same way e.g. Hong Kong does.
Of course this sparked my interest, so I've investigated a bit more - and I've been considering for a while whether I should share this at all, as it seems to be such a well-kept secret.
But given that the information was already on the forum anyway, albeit less accessible, I decided to share my findings:
By default, a company that is incorporated in the UK is tax resident in the UK, as is the case in most jurisdictions.
However, it is possible for a UK company to be considered tax resident in another country per that country's domestic rules. Many countries deem a foreign company to be tax resident there under rules for management control.
Excursion: In the 2000's, many European countries had rather high minimum share capital requirements for limited liability companies. To circumvent this, many people incorporated in the UK instead, where the minimum share capital is just 1 GBP. The company would then be considered tax resident in their country due to being managed and controlled from there.
In theory, this could lead to double taxation, but here's the kicker: The UK has signed a staggering number of tax treaties. And under such a treaty (Article 4), the UK would agree that the company should only be considered tax resident in the country where it is being managed and controlled.
In other words, the UK would agree that the company shouldn't be considered tax resident in the UK per a tax treaty - in short: It would be "treaty non-resident" per "section 249" of the UK tax code.
So many European residents would use UK Ltd. companies despite having no relation with the UK. These companies didn't enjoy a very high reputation as they were considered to be owned by people who were too poor to pay the minimum share capital, but for a lot of people, that didn't matter, so it was still a popular option.
Fast foward a few years, and most EU governments had lowered the minimum share capital requirements, or introduced new entity types with lower requirements, so UK companies became mostly irrelevant.
But here's the interesting part: The same mechanism can still be applied, and it seems like it's rather simple to receive the status.
In short, you simply have to declare to the HMRC that the company is being managed and controlled from a country with which there exists a tax treaty.
Here's some information from the UK governmen about this:
The accountant I spoke to told me that in the 1990's and 2000's, this used to be a popular option for Eastern Europeans, e.g. Ukrainians, to avoid tax:
They would create a branch of the company and appoint a nominee director and then apply for the treaty-nonresident status. The UK would then no longer tax the company if there was no UK-source income. But it gets better: Cyprus wouldn't tax the company either as it would consider the company's income to be "foreign-sourced".
They would then pay "dividends" to themselves in their Eastern European home country - where the tax authorities were led to believe tax had been paid in the UK. And such income wasn't taxed there either.
Those countries have since cottoned on to the practice and become better at enforcing their own laws for corporate tax residence and permanent establishment, so this trick no longer works today.
However, it's still entirely possible to apply the same method. For example, a UAE tax resident should be able to be the director of such a UK Ltd. company, and it would then be taxed like a UAE company.
The UAE requirements aren't quite clear here, especially with the new corporate income tax. It would probably be advisable to set up a branch in a free zone to reduce the risk of the company being subject to 9% corporate income tax.
Why is this so interesting?
UK Ltd. companies are very easy an cheap to form, even cheaper than US LLCs. The company would still be required to have a UK address, so it would look like any other UK company and benefit from the UK's excellent reputation.
Unlike a UK LLP, no additional partner is required. And unlike an LLP, the entity is opaque, so no one would expect that the company isn't subject to UK tax.
If there is no UK business, the company would have to file nil tax returns in the UK every year. Accounts would still have to be filed with Companies House, but for "small companies" (up to GBP 5M of revenue or so), profit and loss sheets wouldn't be published (though there have been discussions to change this). Only the balance sheet is public information. The company register is public as well, so it would be easy to verify who the shareholders of the company are, which again would help to build trust.
Banking should be simpler than with a US LLC as there obviously are no FATCA requirements. It would probably also look "nicer" to European clients than a US entity.
What I haven't yet figured out is whether it would be possible to obtain a VAT ID from the UK and/or a corporate tax residency certificate from the other country. I could imagine that it would be possible to apply for a UK VAT ID before applying for the treaty-nonresident status, but I haven't verified this yet.
It should also be possible to use this approach to move the tax residency of the company around as one moved from country to country. I guess this could be interesting for Brits who want to move from the UK to e.g. Malta. I'm not sure if this could trigger exit tax, though.
I'll share more information here as I find out more. Let me know if you have any question or if you've got more information yourself.
By the way, this should also work with other jurisdictions, but it seems extremely simple with the UK because there's an official process for this.
I remember the person posting about this mentioning that he doesn't use his UK company to invoice UK clients, just in case.
For that purpose, he has a separate Irish company, if I remember correctly. However, according to Google, if the Irish Ltd. doesn't have a director who is resident in an EEA country, a EUR 25k bond must be deposited with the Irish authorities as an "insurance", so this probably isn't as interesting if one wants to manage the company from e.g. the UAE. I also don't know which countries Ireland has signed a tax treaty with.
"Just in case" meaning to avoid any risk of HMRC considering the income from UK clients as "UK-sourced income", to which UK tax would still apply. This would be similar to tax-transparent US LLCs being managed by a non-resident. With US clients, even though the US LLC would be a pass-through entity, there always remains some risk that the IRS would consider it to be "engaged in a trade or business in the US" (ETBUS) and thus subject to US tax, if there are US clients.
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