How we used a UK Trading Company to assist our client
Our client had an existing non-EU trading company which sought to trade with companies located within the European Union.
Due to their company being Non-EU registered, prospective contracting parties would not engage in trade. By establishing a UK company acting as an agent to transact business on behalf of the Non-EU company, the structure allowed EU trading where invoice receipts from a Non-EU company were not acceptable.
Not only did this structure serve our client's ability to do business the EU companies, it also assisted from a tax viewpoint: the UK Agent was subject to corporation tax only on the commission it received in its role as an 'agent'; whilst the remaining profit was remitted to the principal non-EU company.
Tax Structuring using a UK company as an agent for an offshore company
One of the benefits of a UK Company is that it conveys a degree of respectability to other entities in which it trades. However; as the rate of UK corporation tax is between 20% and 23%, for non-residents looking to legitimately mitigate chargeable tax, it is possible to incorporate a UK company to act as an 'agent' on behalf of an overseas company ("Principal").
In its capacity as Agent, the UK Company is authorised to enter into transactions on behalf of its Principal. In essence, therefore, one would run a business through an offshore company but use a UK company as a form of nominee with most of the income being passed back to the Pincipal.The key issues in respect of UK tax is to ensure there is a commercial contract setting out the terms of an agency relationship and a market rate commission (say 5%) for services rendered.
Points to Note:
Commissions : ensuring a market rate
Crucially, the UK and offshore company must operate at 'arms length'. In other words, the rate the UK company charges for its services must reflect a genuine market fee rate. Careful consideration should be given to 'transfer pricing' rules but generally, the way to approach commission fee levels is to value the extent of services provided - a simply invoicing/reinvoicing company could legitiately charge 5% of receipts.
The agency contract is the important feature here and whilst such a documents will be regarded as evidence of a 'presumption' that an agency relationship exists, as long as the activities of both companies are consistent with the agreement, any challenge is likely to have little merit.
Whilst the UK company can own legal title to goods, to avoid any issue that the Agent is realising a profit in its own right, the beneficial ownership must remain with the overseas company.