We should start by clarifying that the United Kingdom has never positioned itself as an offshore jurisdiction. However, this does not mean that savvy businessmen cannot take advantage of available legislation to save their money. Let’s have a look how to do it.
UK corporate legislation allows entrepreneurs to register companies that can be called offshore because of two attributes though they are not legally offshore. Besides, do not forget about several tax havens that are part of the Commonwealth headed by the Queen.
Though the term itself first appeared in American press in the 1950s, offshoring has been practiced for centuries. It was reenergised after the United Kingdom gave extensive powers to its far-away colonies while ending its financial support.
The main reason for a foreign businessman to register an offshore company is to optimise tax costs in a legal way. However, this might not be the only reason behind it. Sometimes, offshoring is the only way for those entrepreneurs that do business in unstable and corrupted political environments to keep their business safe from takeover and governmental abuse.
If you do business in a country that has switched to market economy not that long ago and your company is registered in an overseas jurisdiction, it will be treated with caution. Moreover, the more exotic your incorporation country is, the less trust it will enjoy from clients and suppliers. The above said does not apply as much to large companies and international corporations. A small or medium-size company, however, will find it hard to negotiate better payment terms with suppliers if it is registered in the Caribbean. It might be even asked to work on 100% prepayment terms that will significantly reduce its working capital and a chance to operate more healthily.
No country would like and support capital flight and tax avoidance and will do its best to impose draconian measures against offshore companies. Administrative pressure might be also exercised on business owners of such companies if the government in their home country becomes aware of their activities.
At the same time, authorities would often amnesty businesses that decide to re-shore. If this does not happen, they lead crusades against offshore companies.
Tax havens are often used by shadowy and criminal structures for money laundering which puts them in the spotlight and under constant criticism of both individual governments and respected international organisations that have enormous political and economic leverage.
Because of pressure from global community, many traditional offshores start unilaterally changing their rules of the game for foreign businesses and breaching their obligations by exchanging confidential information with tax authorities of other countries, freezing business bank accounts and raising tax rates.
All these changes and measures would not normally kill an offshore company, but they cause enough disruption and damage and create additional costs. Mass media tends to cover such stories of offshores that not long ago seemed to be like a solid rock in a sea of criticism and now share information with global powers in exchange for loans and other incentives.
All the issues we described above can be avoided if you incorporate a company in a country with a developed real sector of economy that does not rely on offshore revenues to form the biggest part of its budget. Ideally, on the one hand, this country should not be perceived as an offshore by global community and on the other hand, it must offer tax optimisation tools for businesses.
At first glance, this contradicting scenario can be seen in the UK. Here is why:
Imperial & Legal recommends to set up a business as a limited liability partnership (LLP) or Scottish limited partnership (SLP) to benefit from tax optimisation tools and enjoy relaxed reporting regime.
It is a unique business structure where a legal entity is not liable for taxes. Instead, taxes are paid by partners after LLP profit has been distributed among them. If a partnership operates outside the British Isles and partners are not UK tax residents, they will be paying income tax in the country of their residence.
An LLP is independent of its members and can sign deals and contracts, buy and sell assets, including properties, on its own. At the same time, when dealing with real estate, an LLP does not have to pay a stamp duty which is a standard tax in property transactions.
Partners are liable for any financial obligations of the LLP but only within the amount they paid on incorporation.
Both legal and natural persons can be partners in an LLP. There are no restrictions as to nationality, domicile and tax residency of owners. Two partners must be designated partners liable for on-time filing of mandatory reports. At the end of its financial year, an LLP must file accounts. On top of that, each partner must declare all income received from the LLP in their personal tax declarations.
An SLP incorporates all advantages of an LLP such as no corporation tax (taxes are paid by partners), legal independence, no stamp duty when buying and selling real estate.
What is the difference then between an SLP and an English LLP?
For your convenience, here is a comparison table for two types of UK partnerships.
Up to the amount they have put into the partnership – for limited partners
Unlimited – for general partners
Check incorporation documents and partnership agreement for information on relationships between partners, profit distribution and management principles for each type of the company. A partnership agreement is not mandatory, but our advisers strongly recommend having it as it might save you from trouble if there is a misunderstanding between partners.
If you want to incorporate an LLP or SLP in the United Kingdom, you will need a reliable legal support from trusted experts.
Qualified advisers at Imperial & Legal are happy to assist foreign entrepreneurs in registering a partnership in England, Wales or Scotland. Our London office offers several packaged solutions for business – from the most basic, ideal for a dormant company, to the most comprehensive Imperial package that includes opening a business account in a UK bank, VAT registration and visa support.
Our experienced staff will help you prepare and file your first accounts at the end of the financial year, provide accounting services and business consultations and advise on tax optimisation.
If, however, you are not impressed by all the benefits of UK corporate laws and you want to register an offshore company in Europe or in the Caribbean countries, our competent advisers will help you save time and money. To discuss your options, get in touch with one of our representatives.
An offshore is a country or a group of countries where foreign companies enjoy special relaxed regime:
Apart from the above-mentioned characteristics, offshores often do not have foreign exchange regulations, customs duties for certain goods are lower or nil, and individuals benefit from personal tax incentives.
The term “tax haven” refers to a traditional offshore where a foreign company that operates overseas enjoys a beneficial tax regime and sometimes does not pay a corporation tax on foreign profit.
There are many big companies, both national and international, that are registered in offshore jurisdictions. However, if you are a small or medium-size company, offshoring can give you more problems than advantages:
Though the UK is one of the reasons why offshoring as we know it now exists, the country itself cannot be considered a tax haven. Therefore, it’s not possible to register an offshore company in the UK.
However, corporate laws of this jurisdiction allow foreign entrepreneurs to set up a business here with characteristics of a traditional offshore, provided it meets the following criteria:
As a limited partnership is not resident in the UK for tax purposes, its profit is distributed among partners who are liable for income tax in the country of their residence.
It is quite easy to register a UK partnership; besides, reporting requirements are also easier for LLPs, LPs and SLPs that operate overseas. A Scottish limited partnership does not have to file annual accounts if it has not been trading in the country.
The only key attribute of an offshore company that is unavailable in Great Britain is confidentiality. As the UK is not an offshore, information about business owners, including LLP beneficiaries, is publicly available on the Companies House website.
To benefit from all business opportunities, talk to one of our experts at Imperial & Legal. We have several packaged solutions for you to choose from. We help foreign entrepreneurs solve a wide range of issues from opening a company to preparing first annual accounts to accounting to visa support and relocation to the UK.
We will work with you to find a customised solution for your immigration, second citizenship, business, tax and other needs.
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