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the UK Company
For the purposes of this information sheet a UK company is incorporated in England or Wales and registered in Cardiff, Wales. Details on incorporating in Edinburgh, Scotland or Belfast, Northern Ireland are available on request.
The UK company has the following characteristics:

TAXATION

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 € 492.00 and a tax rate of 30% is levied where the profits are over £1.5 million.  There is a marginal rate of 32.5% between these two levels.  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 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 7.5% 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 1.5% (1.5% of the normal 20% 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.

SHAREHOLDERS

A UK company must have a minimum of one shareholder who may be a corporate body or an individual. Details of the shareholders appear on public record but anonymity may be retained by the use of nominee shareholders or holding companies.

DIRECTORS

A UK company must have at least one director and a company secretary. A sole director cannot also be the secretary.  The Director can be an individual or a company.  If there is more than one director, one of them can also be the secretary but, as UK company law is complex, it is strongly recommended that a professional secretary with relevant experience is appointed.  Details of the directors appear on the public file but anonymity can be retained by the use of third party professionals.

ANNUAL REPORTING

Generally a UK company must appoint an auditor and audited accounts must be filed with the Companies Registry within 9 months of the financial year end.  Companies with sales of less than € 575.000.00 are exempt from audit requirements.  An annual return giving details of directors and shareholders is required for all companies.

TIMESCALE

Incorporation of a new company can take up to three weeks but ready-made companies are available for immediate use.  However, a premium can be paid of £300 for a 48 hour incorporation service.

RESTRICTIONS
ON NAME AND
ACTIVITY

The Registrar has the power to refuse registration of any name which he considers undesirable or too similar to an existing company.  A name will not be allowed if it is misleading - for example, if it suggests  that a company with small resources is trading on a great scale or over a wide field.  Names cannot ordinarily be allowed if they suggest connection with the Crown or Government Departments.

LOCAL
REQUIREMENTS

As a matter of local company law the company MUST maintain a registered office address within the UK and must also appoint a company secretary who, for practical reasons, must be resident in the UK.  We would normally provide these services as part of our domiciliary service fee.

SECRECY

There are no specific laws relating to the unauthorised disclosure of information on a UK company, its directors or owners but UK law recognises the common law duty that professionals have towards their clients to keep their affairs confidential.
 
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