UK company 100% owned by SG LLP, taxes?

[Dandyline]

But it wouldn’t save him any taxes, would it?

No, but his question is not to save taxes. His question is to use a EU company for payment processors without getting taxed in the EU country itself, only taxed in Singapore as usual. LLP will solve this since he can use Stripe and will only pay taxes in his home country.

 

[JustAnotherNomad]

Sure, but why not save some taxes when you’re setting up a new structure anyway?

 

[Dandyline]

Sure, but why not save some taxes when you’re setting up a new structure anyway?

That would be good, he just need to make sure Singapore treats the income as foreign and at the same time make sure that he doesn't have to pay any taxes in UK.

 

[fshore]

Still don't understand why he can't use Stripe in Singapore?

 

[Dandyline]

Still don't understand why he can't use Stripe in Singapore?

Dont really know, since Singapore is a supported Stripe country.

 

[CaptK]

He simply wants access to payment providers UK LLP is sufficient.

Substance is what will be required to be more tax efficient. Unfortunately people dont know or truly understand this vital component to avoid a CFC slap in the face.

 

[JustAnotherNomad]

Singapore doesn’t have CFC rules. It’s not about CFC rules, it’s about PE rules. The result is of course the same, but people keep confusing them.

 

[sonato]

I have had extensive experience with this kind of setup in my practice.
Including two year long dispute with SG IRAS regarding place of management in other jurisdiction and proof of it. I must admit IRAS was rather insistent and all was not easy. But manageable. What helped in the end was rather aggressive legal defense & some tailor made accounting solutions.

More details on this kind of setups in PM only.

I read a few posts of the many you already have made since you signed up yesterday. I would like to know if you are a service provider or if you use all the many entities you write about for own business?

Singapore doesn’t have CFC rules. It’s not about CFC rules, it’s about PE rules. The result is of course the same, but people keep confusing them.

mind to elaborate what the difference is?

 

[JustAnotherNomad]

mind to elaborate what the difference is?

PE rules (permanent establishment) is about where a company does business or is managed. That could be an office, but it could also be something else. According to a tax lawyer I once spoke to, it could even be a server under certain circumstances, or a billboard.
If you manage your Malta company from Spain or if you sign contracts in Spain or work in Spain for Spanish customers over a longer time, there will most likely be a PE. And that PE is taxable like a Spanish company. So from a tax perspective, it will be as if you had two companies, one in Spain and one in Malta. In this case it doesn’t even matter if there is substance in Malta or not because you have simply created a PE in Spain. The only way to avoid this would be to have substance (=employees, a physical office, ...) in Malta and make sure that no work is carried out and no management takes place in Spain. You only need the substance to explain that there is no PE in Spain (where the owner of the company lives), to show that the company really operating in Malta, otherwise they won’t believe you anyway and just say that it’s all done from Spain. It doesn’t matter at all how much taxes the company would be paying in Malta.

CFC rules usually apply to companies with mostly passive income only, and which lack substance, and where you have a considerable tax advantage. Typically, all three conditions must be met. Like a company in a low-tax country that only holds IP or shares or licenses.
Say you have a company in Malta which is ordinarily resident there. It owns a trademark. A company in Spain that is part of the same group (same owner) wants to use the the trademark and pays €1M every year for the license to use the trademark. The Malta company does “nothing” except own the trademark. There is no office (only a secretary service) and no employees except a nominee director who gets paid €500 a year. You fly to Malta twice a year to sign some contracts. In this case, there is (probably) no PE in Spain because the company simply doesn’t do anything. It’s not operating in Spain at all. But it lacks substance, it has mostly passive income and the company pays way less taxes than it would in Spain. It’s a typical example of a CFC. In this case, if the owner lives in Spain, he will pay taxes in Spain for the company, even though the company doesn’t do anything in Spain.

 

[fshore]

CFC rules usually apply to companies with mostly passive income only, and which lack substance, and where you have a considerable tax advantage. Typically, all three conditions must be met.

Good post. Just want to add that a company will often be a cfc even with substance, if it's in a low tax or black listed country. Without substance it will often be tax resident where director or shareholder lives, and thus not a cfc.

 

[JustAnotherNomad]

Yes, it would depend on the local legislation of course.

And yes, they can also move the tax residency of the company (I left that option out for simplicity) - but how often does that happen? It has been my impression that they usually just declare that there’s PE, which has almost the same effect and is much easier to argue for because you don’t have to fight the other country’s authorities.