Sovereign Accounting Services Limited

 

About the United Kingdom

Background: Great Britain, the dominant industrial and maritime power of the 19th century, played a leading role in developing parliamentary democracy and in advancing literature and science. At its zenith, the British Empire stretched over one-fourth of the earth's surface. The first half of the 20th century saw the UK's strength seriously depleted in two World Wars. The second half witnessed the dismantling of the Empire and the UK rebuilding itself into a modern and prosperous European nation. The UK currently is weighing the degree of its integration with continental Europe. A member of the EU, it chose to remain outside of the EMU for the time being. Constitutional reform is also a significant issue in the UK. Regional assemblies with varying degrees of power opened in Scotland, Wales, and Northern Ireland in 1999.

Location: Western Europe, islands including the northern one-sixth of the island of Ireland between the North Atlantic Ocean and the North Sea, northwest of France.

Independence: England has existed as a unified entity since the 10th century; the union between England and Wales was enacted under the Statute of Rhuddlan in 1284; in the Act of Union of 1707, England and Scotland agreed to permanent union as Great Britain; the legislative union of Great Britain and Ireland was implemented in 1801, with the adoption of the name the United Kingdom of Great Britain and Ireland; the Anglo-Irish treaty of 1921 formalized a partition of Ireland; six northern Irish counties remained part of the United Kingdom as Northern Ireland and the current name of the country, the United Kingdom of Great Britain and Northern Ireland, was adopted in 1927.

Economy - overview: The UK, a leading trading power and financial center, deploys an essentially capitalistic economy, one of the quartet of trillion dollar economies of Western Europe. Over the past two decades the government has greatly reduced public ownership and contained the growth of social welfare programs. Agriculture is intensive, highly mechanized, and efficient by European standards, producing about 60% of food needs with only 1% of the labour force. The UK has large coal, natural gas, and oil reserves; primary energy production accounts for 10% of GDP, one of the highest shares of any industrial nation. Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance. Economic growth has been slowed in 1999; recovery to 3% is in prospect for 2000, based on a rise in exports and domestic demand. The BLAIR government has put off the question of participation in the euro system until after the next election, not expected until 2001; Chancellor of the Exchequer BROWN has identified some key economic tests to determine whether the UK should join the common currency system.

Time

The United Kingdom is on Greenwich Mean Time (GMT).

 

1. Tax Planning using English Companies
   The corporation tax rates are the lowest in the European Union. Tax is levied at 20% on a UK company which has net profits under £300,000 and a tax rate of 30% is levied where the profits are over this figure. Generally speaking, a UK company is taxable on its world wide income at the rates indicated above but various possibilities exist to create low tax or no tax UK entities which can be used to great advantage.
   
   UK NON RESIDENT COMPANY
   A UK incorporated company may be classified as non-resident for tax purposes, and therefore non taxable in the UK on non UK source income, if it is managed and controlled from a country with which the UK has signed a double taxation treaty which contains a recognised "tie-breaker clause". By careful selection of the country from which the UK company is managed it may therefore be possible to create a non-taxable UK entity. For example, Portugal has a suitable tax treaty with the UK so a UK company managed from Madeira (Madeira being part of Portugal) would neither be taxable in Madeira nor the UK It is important to note that such a UK company would not qualify to receive benefits under the tax treaty signed by the UK but might qualify for Portuguese tax treaty benefits so the major benefit of this structure is to create a non-taxable entity which has the added respectability of a UK persona.
   
   UK INTERNATIONAL HEADQUARTERS COMPANY
   Another recent innovation Section 246S of The Taxes Act 1988 (as inserted by Schedule 16 of The Finance Act 1994) creates the UK International Headquarters Company ("IHC"). This status may be accorded to ordinary UK companies which are at least 80% beneficially owned by non-residents. An IHC is an extremely useful vehicle for the collection of foreign dividend income as, in general terms, a full credit is given against UK tax for any tax paid on the remitted profits before arrival in the UK Thus as long as the dividend income has already suffered tax at a rate higher than or equal to the applicable UK rate (30%/20%) no UK tax will be payable on that income either on arrival or on distribution. For example, a Danish subsidiary of a UK IHC would pay tax on its profits at 34%. If the Danish subsidiary distributed profit by way of dividend to the IHC parent no further tax would be levied on arrival in the UK because a credit would be given for tax paid in Denmark. This makes the UK IHC an extremely attractive holding company vehicle for investment into Europe or otherwise and in most cases will be more attractive than competitive structures available through the Netherlands, Austria, Switzerland etc. It should be noted that any sale of shares would be subject to capital gains tax but there are a number of methods which can be used to reduce or avoid this tax. It should also be noted that it is necessary to declare to the Inland Revenue details of the ultimate beneficial ownership of the IHC and this information may be made available to a foreign tax authority under the exchange of information clause within a relevant tax treaty or otherwise. If this is problematical then an alternative, but similar, result may be achieved by using the Foreign Income Dividend Scheme. Details are available upon request.
   
   UK COMPANY TRADING AS FIDUCIARY
   A UK company is incorporated and enters into an agreement with the offshore company. Under that agreement, which is committed to writing and executed by both parties, the UK company agrees that it will trade on behalf of the offshore company as its agent. All contracts of purchase and sale, all the invoicing and all the general correspondence will be made in the name of the UK company and the UK company receives all the revenues from such business as nominee or trustee for the offshore principal. The agreement should state that all monies received are received as nominee or trustee for the principal save insofar as there will be an agreed fee which will be retained by the UK company. That fee may either be expressed as a flat fee for all the trading done on an annual basis or, more usually, expressed as a percentage of the gross revenues received. The standard form is that 5% of the invoice total in respect of each transaction is retained by way of fee by the UK company.
   
   The practice of the UK revenue is to accept, subject to certain conditions, that all non UK source monies which are passed over to the offshore company are received as agent and are not therefore subject to tax in the UK On the basis that 7.5% of profit is retained the effective rate of UK taxation on the gross receipts is 1.58% (7.5% of the normal 21% rate).
   
   In order to protect the trading profits from UK taxation it is essential that no trading activity must occur within the UK. What constitutes UK trading activity would be construed by reference to the normal indicia such as the place where the contracts of sale are executed and the place of acceptance of an offer made outside the UK. The offshore company must of course be non-resident in the UK for tax purposes itself. This means that its central management and control must reside outside of the UK.
   
   The agent's fees received by the UK company will of course be liable to taxation insofar as they generate a profit for the UK company. The amount of remuneration which the UK company receives may also be subject to UK transfer-pricing legislation as contained in the Income and Corporation Taxes Act 1988. Such legislation is likely to apply where the UK agent and the offshore principal are under common control.
   
   One solution to the problem of common control is that the UK company should be beneficially owned by a third person. If the client has doubts as to the safety of such an arrangement he should realise that the contract between the two companies is enforceable and that in any event the vast majority of monies will be immediately passed over to the offshore company. However, even when there is common control between the two companies, provided a commercially viable relationship exists between the two companies and the rate of fee retained by the UK company is in line with what might be expected of an arms-length transaction, there is no reason why the inland revenue might make a direction adjusting the UK company's deemed remuneration.
   
   UK GENERAL PARTNERSHIP FOR TRADING
   Under this arrangement a UK resident company enters into a partnership with an offshore company. The UK company is designated as the minority partner carrying out the paperwork with the offshore company actually acting as the principle in the trading activities. The partnership agreement would stipulate that the UK company receives 5%-10% of partnership profits on which it is taxable at normal UK rates but the majority of those profits accrue to the offshore company and are not taxable. The existence of the partnership agreement does not have to be disclosed to any third party and all communications and correspondence are carried out by the UK company giving the arrangement a UK persona. The arrangement is similar to the fiduciary trading arrangement with the added advantage that the UK Inland Revenue will give an advance ruling on the acceptability of the scheme.
2. The United Kingdom - A Tax Haven for Non-Domiciled Individuals
   Substantial tax benefits accrue to those UK residents who are not UK domiciled. In fact, it is perfectly possible for a non-UK national who has no UK capital or income to live indefinitely within the UK whilst legally avoiding paying any UK tax whatsoever.
   A person who is UK resident but not UK-domiciled, and most foreign nationals living in the UK will fall into this category, pays income tax only on income and capital gains which arise within the UK and foreign income which is remitted to the UK. In practice this allows a non-UK domiciled person to reside in the UK virtually free of tax as long as they have foreign source of income.
   
   If a non-UK domiciled individual creates an offshore trust with non-UK assets then these assets will be protected against UK taxation.
   
   We can arrange an application for clients to obtain UK resident status. In association with this we can provide assistance and advice in setting up a UK business, providing consultation and assistance in all aspects of living and working within the UK. At the same time we will be able to create an offshore trust and company structure to shield assets and income from UK taxation.
   
   We are closely associated with specialist lawyers, accountants, banks and financial institutions therefore we can effect introductions to these specialists when required.
3. A London Business Address for Offshore Companies
   Very often our London office provides a comprehensive bureau and office support service for client companies, in particular companies domiciled in British Caribbean jurisdictions, such as Turks and Caicos Island, Bahamas, BVI and Belize. These types of companies are not obliged to show where they are registered, who the directors are and where the registered office is situated. Clients can subscribe to use our London bureau services and show on official correspondence and documentation that the business address of the company is located in London's West End.
4. VAT Registration for UK & Offshore Companies
   It is becoming increasingly difficult for companies which are not registered for VAT in a European Union member state to trade with other companies in the EU. Most offshore jurisdictions are outside the EU VAT area (Isle of Man, Ireland and Madeira being the obvious exceptions) and therefore are not easily able to make the necessary VAT registration. However, it is possible for such companies to register for VAT in the United Kingdom by setting up a UK limited company which acts as its VAT agent.
   
   We are able to set up the necessary UK company and attend to every aspect of the VAT registration including the ongoing requirements to prepare quarterly VAT returns and end of year accounts.
   
   Further information on any of the above services is available on request. Specific consultation without any obligation can be offered by any one of our London office-based consultants.
5. The opening of Bank Accounts in the United Kingdom for English & Offshore Companies
   We are able to assist UK, other onshore entities as well as offshore companies to open bank accounts in London with major UK banking institutions. Due to our long standing business partnership with several UK banking institution we are able to assist with bank account opening formalities swiftly and at very reasonable cost. In addition to the above we are able to effect introductions to key banking personalities which will only be too pleased to assist with documentary credits, trade financing, real estate mortgages, investment services and a whole range of other specialist services.
6. Offshore or Onshore?
   A particular specialisation of our London office is in relation to offering low tax solutions often utilising onshore tax resident companies in combination with an undisclosed tax exempt company. Jurisdictions such as Malta for royalty routing, the United Kingdom for international trade, The Netherlands for licensing and finance and Cyprus for Eastern European joint ventures are amongst the preferred domiciles. These jurisdictions have negotiated favorable tax treaties world-wide, are not black listed and with skilful planning, effective taxation can be reduced to single figures.