Working for own UK company whilst living in UAE

[Billybob69]

Hello good people of OCT!

If one were a director of a UK LTD company, and they were to live and work in the UAE, it would appear to me that this salary would be taxable in the UAE. I have had service providers tell me otherwise, I suspect that they would prefer to be paid for the incorporation of a UAE entity. They claim that HMRC may claim that the salary had been "inflated artificially", however if the renumeration of the director were in line with a fair market rate for the work being done, could HMRC really claim something ominous is going on? In my view, this would reduce the profit of the UK entity, and the salary would only be taxable on the UAE side, and this could in theory be an attractive solution for a UK director, given they remain outside of the UK.

Thanks.

 

[Sols]

Are you the sole shareholder of the UK company? Maybe dividends would be a better solution for you?

There seems to be a tax treaty between UK and UAE. Maybe you can use that to not pay tax twice on the same income.

 

[Billybob69]

Are you the sole shareholder of the UK company? Maybe dividends would be a better solution for you?

There seems to be a tax treaty between UK and UAE. Maybe you can use that to not pay tax twice on the same income.

Indeed, there is a tax treaty, and it seems to imply the situation I have described where the work is taxed based off the location it is done.

I'm not sure why dividends would be better, you would pay 25% CIT to the UK, only then can a dividend be distributed.

 

[Sols]

Indeed, there is a tax treaty, and it seems to imply the situation I have described where the work is taxed based off the location it is done.

That might mean your UK company is tax non-resident in the UK and not in scope for UK corporate income tax, only UAE tax.

INTM120070 - Company residence: 'Treaty non-resident' companies - HMRC internal manual - GOV.UK

www.gov.uk

Since the introduction of tax in UAE is new, there might be limited guidance available. Probably a discussion worth having with a UK tax adviser.

I'm not sure why dividends would be better, you would pay 25% CIT to the UK, only then can a dividend be distributed.

Pay yourself the highest possible (reasonable) salary and take out the rest as dividends. If your salary is too high and looks like artificial reduction of taxable basis, there is a risk that the HMRC will come asking questions.

 

[Billybob69]

That might mean your UK company is tax non-resident in the UK and not in scope for UK corporate income tax, only UAE tax.

INTM120070 - Company residence: 'Treaty non-resident' companies - HMRC internal manual - GOV.UK

www.gov.uk

Since the introduction of tax in UAE is new, there might be limited guidance available. Probably a discussion worth having with a UK tax adviser.


Pay yourself the highest possible (reasonable) salary and take out the rest as dividends. If your salary is too high and looks like artificial reduction of taxable basis, there is a risk that the HMRC will come asking questions.

The company would be in scope of UK corporate tax for previous profits before the move, though I think you are correct that in future it may be taxable in the UAE at the corporate level. One thing I'm very curious about is if that happens, and the company makes a loss next year, would it be possible to carry back a loss to the previous year - no doubt a question for a specialist...
Work out and claim relief from Corporation Tax trading losses

The director would be paid a justifiable amount considering the value of the work, however, it would be a significant increase to what the director was taking in the UK - that would need to be increased regardless to even get the working visa, as currently the director takes around £700 a month. The service provider advised against this, but I struggle to understand the issue if the director is paid the market rate for their work.

Can anyone else see a potential pitfall in this situation?

 

[yngmind]

You better hire a good accountant.

My accountant told me to take everything as an "outsourcing fee" since it's a UK/US company. However, since you don't live there and still work in the company, you outsource work, and that's how you can reduce your UK LTD taxes to zero.

 

[Billybob69]

You better hire a good accountant.

My accountant told me to take everything as an "outsourcing fee" since it's a UK/US company. However, since you don't live there and still work in the company, you outsource work, and that's how you can reduce your UK LTD taxes to zero.

Outsource what? To a UAE company? I don't think a director of a UK company is able to invoice their own company, they can only take a salary or dividend.

 

[yngmind]

Outsource what? To a UAE company? I don't think a director of a UK company is able to invoice their own company, they can only take a salary or dividend.

You outsource work to yourself as an employee/contractor.

You can invoice yourself. What's the problem with that?

If you do some work for the company, you should get paid.

 

[daniels27]

If you as the director move abroad, your company will be subject to taxation on unrealised profits, i.e. goodwill. You better close the company before the move and open a new one in UAE.

CG42370 - Migration of companies: exit charges - HMRC internal manual - GOV.UK

www.gov.uk

Thanks this as a friendly advice.

 

[Xshore]

I don't think a director of a UK company is able to invoice their own company, they can only take a salary or dividend.

A director can invoice for non director work he does for the the UK company.

 

[daniels27]

Are you the sole shareholder of the UK company? Maybe dividends would be a better solution for you?

There seems to be a tax treaty between UK and UAE. Maybe you can use that to not pay tax twice on the same income.

There is a double taxation treaty. But most likely, the company will the cease to be tax resident in the UK as it is managed in UAE. He will then be subject to exit taxation on goodwill, which most likely will be in the usual order of about 14 the annual profit. A huge bill to pay.

I'm not sure why dividends would be better, you would pay 25% CIT to the UK, only then can a dividend be distributed.

You would pay CIT in UK and then no withholding on dividends. But this would only come into force if you still have a resident director effectively managing the company (see above comment on exit tax).

Outsource what? To a UAE company? I don't think a director of a UK company is able to invoice their own company, they can only take a salary or dividend.

You could outsource any work to UAE as self employed/employed by the UK company. See this comment

As director, can I invoice my self-owned company?

As being self-employed, can I invoice my self-own non-VAT Limited company (used for IT contracting)? If so, in what circumstances (e.g. making my own Ltd company website)?

money.stackexchange.com

If you were in the UK and would be doing this, you need to check IR35, which would probably prevent you from doing so. Check this comment:

Invoicing your own company - accounting community forum | Clear Books

secure.clearbooks.co.uk

Hi Anna - the only time I've worked with this sort of arrangement is if the director has an existing self employed business and the company is similar to his/her existing customers. In this way HMRC would see the arrangement with the company as being a commercial decision.

if there's any hint that this is happening to avoid having to show a salary or dividends as a director/shareholder, HMRC would see it as an engineered avoidance scheme. Even if a self employment were OK, if part of his duties involved running the company, it would be sensible to process a salary through PAYE for that element.

Again, and @Sols please correct me if I am wrong, I very very deeply recommend you to shut down asap (before the move) and set up a new company. Exit taxation is a big issue and in your case a very deep pitfall. The only way around is to hire a resident director in the UK who is able to run the company while you draw salary from UAE. Expect the HMRC to come for an audit and check if your guy is actually managing the company. If you are still in UK, save the hassles and close everything.

If you like non UAE-companies tax resident in UAE, you can do this pretty much with any European jurisdiction. You just open a company in any country, hire a nominee director and manage the company from UAE. You can then apply for an advance ruling on non tax residence of the company and not pay tax in Europe. We recently had a discussion on the UK part. (Note that you cannot do UK when you just closed a company with the same business as this would then trigger exit taxation.)

The treaty non-resident UK Ltd. - the best-kept offshore secret?

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...

www.offshorecorptalk.com

 

[Billybob69]

There is a double taxation treaty. But most likely, the company will the cease to be tax resident in the UK as it is managed in UAE. He will then be subject to exit taxation on goodwill, which most likely will be in the usual order of about 14 the annual profit. A huge bill to pay.

14 times the annual profit!? Do you have a source on that? :O

 

[daniels27]

14 times the annual profit!? Do you have a source on that? :O

It depends on what you actually do. But I am aware that at least Switzerland and Germany normally assume a 7% ROI, which results in a company valuation of 14 times your annual profit. Of course, you then enter the discussion of the real value of the goodwill of the company, which costs you time and energy but will lower the bill. But there will remain something to pay.

Relocation, relocation, relocation - Macfarlanes

www.macfarlanes.com

When a company ceases to be a UK tax-resident, it may be subject to a variety of exit charges. These look to capture: any gains accrued on capital assets whilst the company was resident in the UK (TCGA 1992 s 185); and any profit arising on disposal at a market value at the time of exit of intangible fixed assets (CTA 2009 s 859(2)(a)), financial loan relationships (CTA 2009 s 333), and derivative contracts (CTA 2009 s 609).

If the company is trading, it will be treated as ceasing to trade when it ceases to be UK tax resident and will be required to take into account the value of its trading stock, at its market value, when calculating the profits of the trade (CTA 2009 s 162 and CTA 2009 s 41).

You may want to check with a lawyer yourself. Please report back to us what the outcome is. For Germany and Switzerland, I can tell you that any sound lawyer will recommend you to close the company while you are resident and set up a new one elsewhere without creating suspicion that you just effectively migrated the company.

 

[JustAnotherNomad]

If you like non UAE-companies tax resident in UAE, you can do this pretty much with any European jurisdiction.

Typically only if there is a tax treaty. Also, the company would then become taxable in the UAE.
It might be a better option to use a nominee in the European country (e.g. Estonia) and just draw a salary in the UAE, as salaries are still tax-free at the moment.

 

[daniels27]

Typically only if there is a tax treaty. Also, the company would then become taxable in the UAE.
It might be a better option to use a nominee in the European country (e.g. Estonia) and just draw a salary in the UAE, as salaries are still tax-free at the moment.

Typically yes. But you can always apply for a private letter ruling and have certainty even without treaty. I would recommend the ruling in any case as it gives you peace of mind.

 

[JustAnotherNomad]

Most countries consider companies tax resident based on their place of incorporation - they wouldn't be able to rule otherwise, unless there is a tax treaty.
You'd need a country like HK or SG that only care about where the company is managed/work is performed when considering tax residency for that to work.

 

[daniels27]

Most countries consider companies tax resident based on their place of incorporation - they wouldn't be able to rule otherwise, unless there is a tax treaty.
You'd need a country like HK or SG that only care about where the company is managed/work is performed when considering tax residency for that to work.

Hong Kong is a bad example as they will eventually ask for proof of tax payment elsewhere. Singapore works better is that sense.

Are you sure they won't rule that otherwise?

 

[JustAnotherNomad]

Ok, I wasn't sure about the exact rules in HK.

Yes, how could they rule otherwise.
You can look up the corporate tax residency rules on the Pwc website. It usually says: "A company is resident in country X if it is incorporated there or has its effective place of management in the country."
So even if it is managed elsewhere, the first part of the sentence would still be true, so that company would be tax resident under national law.
You would need a tax treaty to overrule that national law.

 

[yngmind]

Hong Kong is a bad example as they will eventually ask for proof of tax payment elsewhere. Singapore works better is that sense.

Are you sure they won't rule that otherwise?

I feel that HK is easier than SG. To not be taxed in SG, you have to apply for that, have an office, etc.

"

Hong Kong​

CT taxes in HK are technically 0% for any business conducted outside Hong Kong borders. However, for businesses conducted inside of Hong Kong, the two-tier corporate tax applies.

For companies incorporated within Hong Kong, the tax sits at 8.25% for any assessable profits value under HKD 2 million, whereas for companies with profits over HKD 2 million, the tax is 16.5%.

Unincorporated companies are subjected to the same assessable profit thresholds. However, the taxes are 7.5% and 15%.

This means that if you make sales within Hong Kong, you’ll owe tax on those sales. The offset for this taxation is that there are also no VAT or Foreign Exchange Controls in place for businesses in Hong Kong.

Singapore​

In Singapore, corporate taxes are 17%, which is slightly higher than in most other countries. Corporate income tax is based on profits rather than revenue. For example, a company earning HKD5 million (USD 735,000) per year would pay no tax on its first HKD2 million (USD 280,000) but would pay 30% on the remaining HKD3 million (USD 420,000).

However, this does not mean that your business will be taxed twice. Instead, Singaporean companies are exempt from paying income tax on their foreign earnings, just like Hong Kong. To qualify for this exemption, you must meet specific requirements, including:

• Being incorporated into Singapore

• Having an office in Singapore

• Making profits in Singapore

• Paying dividends in Singapore

• Holding assets in Singapore

• Not being a resident of another country

The good news is that these conditions are easy to meet. For example, many multinational corporations already operate in Singapore.

"

 

[JustAnotherNomad]

I feel that HK is easier than SG. To not be taxed in SG, you have to apply for that, have an office, etc.

You have to apply for offshore status in HK. I have heard it is not so easy to get it approved.
In SG, you only have to prove you don't manage the company from SG. Should be much easier.