It is normal practice to establish an entity in the UK to conduct trading business in the UK, but a UK company may also be used to engage in international trade. The UK offers considerable advantages because the use of ‘offshore’ entities can often be viewed negatively. Any such perception can be easily resolved by using a UK company as part of a wider international structure.
The methodology is straightforward. A UK company enters into an agreement with its international counterpart to carry on trade on its behalf as its nominee. All sale/purchase contracts and related invoicing will be undertaken by the UK company.
The agreement should also state that all monies received are accepted as nominee for the principal in exchange for a pre-agreed fee, which will be retained by the UK company. The amount retained is usually expressed as a percentage of the gross revenues received. Commonly, some 10% of the profits can be retained in this way by the UK company, resulting in an effective rate of corporation tax of just less than 2%.
In order to be effective and compliant, this arrangement must be seen to be transparent. It is essential that no trading activity takes place in the UK and that no UK-source income is generated. The UK and international companies must have a different board of non-UK resident directors and the ultimate beneficial owners of each company must also be distinct and non-UK resident.
The UK company can register for VAT in the UK, open a bank account in the UK and have its accounting and administration provided in the UK.