For a company to be resident in a country, it is necessary to show physical presence, control and management therein. The mere incorporation of a company in foreign territory does not on its own establish residence for tax purposes.
UK legislation now renders almost all companies incorporated in the UK automatically resident for tax purposes regardless of where the company conducts its trade or business.
So the first step is to incorporate outside the UK. Although we are based in Morocco, our services are available to companies incorporated in other jurisdictions throughout the world. We organise the incorporation of companies through specialists resident in the chosen jurisdiction tailored to meet each client’s needs. Our specialists, whether they be lawyers or company managers, in conjunction with ourselves, look after the ongoing statutory and legal constitutional matters of the company.
As previously indicated, even a company incorporated offshore can be regarded as resident in the UK if its management and control is located there. It follows therefore that an offshore company under the beneficial control, even indirectly exercised, of a UK resident tax payer is regarded by the Inland Revenue as being taxable in the UK.
This makes it essential that active administration, trading and all directors meetings be held outside the U.K. Criminal sanctions could be imposed if fraud is shown. In a recent U.K. case, not only were the professional advisers of an offshore company successfully prosecuted, but so too was the client even though acting under what was considered good professional advice. The legal point in this case was precisely whether the company was effectively managed outside the fiscal jurisdiction of the beneficial owners.
One other matter in the context of offshore structures must not be lost sight of. The trade must have real substance. The offshore arrangement must not be seen to be set up with the sole purpose of avoiding tax. There must be a genuine commercial advantage to it for the activity to be considered a bona fide trade or business.
Where goods are sold the place of business is not merely where the contracts are made but also where all the other elements of the business take place.
Great care must therefore be taken to ensure that the reality of trading and control is exercised outside the U.K. if the non-residence of the company is to stand up to the scrutiny of the UK Revenue.
We can impart genuine substance to the business activities of such companies which will assist in substantiating non tax residence, particularly when accompanied by overseeing the actual conduct by such companies of their trade and business.
Not all companies conduct trade. Many companies carry on the activity of holding and managing investments such as shares, land, properties, works of art, fine wines and cash in different currencies.
However, it is perfectly practicable for an offshore entity to make completely flexible investments (within the orbit of the client) without tax penalty.
A capital gain or trading profit made by an offshore company can be assessed on a UK individual as the beneficial owner unless an efficient offshore structure is in place.
It is important to understand the difference between residence and domicile for tax purposes. These terms do not have the same meaning as for immigration purposes.
Residence is annually determined by reference to the amount of time spent in the UK during any one tax year (6 April to 5 April).
Ordinary residence is one’s normal place of residence taken over a number of years.
Domicile refers to the country which a person regards as his permanent home. It is more difficult to change than residence. A person’s domicile depends initially on the domicile of his father. This “domicile of origin” is often difficult to shed!
A person can be resident, and ordinarily resident without being domiciled in the UK.
A resident but non-domiciled person in the UK has tax advantages over a person who is both UK resident and domiciled.