Two non-resident directors Salary options | UK Ltd

[zxvr700]

Hi there,

We're two non-resident directors/shareholders residing in the Middle East and we have company incorporated in the UK with virtual office, there is no P.E in UK or in the country we're residing. According the double taxation treaty, we will only pay UK CIT unless there is P.E in the country we're residing.

I've seen a community post on HMRC website, and they mentioned that if we meet the conditions below we do not need to operate payroll and send Real Time Information (RTI) to HMRC. However, if you choose to do so, the tax code operated would be ""NT"" for Nil Tax, and the category letter for NIC would be ""X"".

• working wholly outside the UK
• not been resident in the UK before
• do not intend to and will not perform any duties in the UK.

Link: Non resident director salary - Community Forum - GOV.UK

We've did a consultation with four different accountants/advisors and each one is giving us a different answer. These are the answers we got:

• 1st accountant: we need to register the company in the PAYE, operate a payroll and apply for NT code to no tax is deducted from payroll and we need to report the salary through self assessment.
• 2nd accountant: Invoice the company for our services as a directors which would be considered "Director Management Fee" not "Director Salary" from legal standpoint, this will be taxed in the country we're residing.
• 3rd accountant: Invoice the company for our services if they are different from the trade of the company and not in the capacity of being a director such as consulting.
• 4th accountant: You can't register for PAYE and operate payroll because we're non-resident, however if the salary is more than 9k pounds per year, there will be UK income tax.

The company's financial year will end in 2 months, the estimated profit will be $15k. It would be helpful if someone who is experiencing a similar situation could provide us with guidance on the proper legal procedure to withdraw the salary.

 

[Sols]

We're two non-resident directors/shareholders residing in the Middle East and we have company incorporated in the UK with virtual office, there is no P.E in UK or in the country we're residing.

Have you verified this with a local tax adviser? If control and management is where you are, that usually establishes a PE or tax residence.

• 2nd accountant: Invoice the company for our services as a directors which would be considered "Director Management Fee" not "Director Salary" from legal standpoint, this will be taxed in the country we're residing.
• 3rd accountant: Invoice the company for our services if they are different from the trade of the company and not in the capacity of being a director such as consulting.

These are your best and easiest options. It's what most people in similar situations do. When the company grows, you need to be careful not to invoice too much this way as it can be seen as artificially lowering the company's taxable basis. But for 15,000 USD/year profit it's not likely to raise any concern.

 

[ShillGates]

Accountant 1 is best option - reduce to zero profit (well make it 500 profit)

 

[zxvr700]

Have you verified this with a local tax adviser? If control and management is where you are, that usually establishes a PE or tax residence.


These are your best and easiest options. It's what most people in similar situations do. When the company grows, you need to be careful not to invoice too much this way as it can be seen as artificially lowering the company's taxable basis. But for 15,000 USD/year profit it's not likely to raise any concern.

Unfortunately, my country's accountants are inexperienced. However, having read the treaty, I believe that even if we are considered P.E in my country, only income from businesses in my country is subject to CIT. I also confirmed this with an international advisor.

Accountant 1 is best option - reduce to zero profit (well make it 500 profit)

If we're non-resident how we will be able to register for PAYE?

 

[Sols]

Unfortunately, my country's accountants are inexperienced. However, having read the treaty, I believe that even if we are considered P.E in my country, only income from businesses in my country is subject to CIT. I also confirmed this with an international advisor.

The question then is how "income from business in my country" is defined. In many countries, business is considered derived from that country if the directors are located there, because the directors decide what the business does (regardless of where the customers are).