Using an offshore company to reduce corporation tax and CGT - USERNAME: ericd01 - 22/12/2014
Tax Question:
Hello,
I am planning on making an e-business [selling online advertisement on my website] and my goal is to avoid CGT and corporation tax in the UK [after I eventually move out of the UK]. I want to stay in the UK to get my business started, and move out if it becomes successful.
I have considered several options and I might be choosing to do this:
1] I want to create a holding in Malta, it will be Malta-domiciled [so I assume I wouldn't need to reside there if I own a house there, is that correct?]. This holding will receive the entire revenue from the advertisement I sold.
2] Then, I create a UK subsidiary of this Maltese holding. This subsidiary will be used to receive a small deposit from my UK clients as a guarantee. This deposit will be refunded to the client after 10 days. Therefore, there will be NO profit in this UK subsidiary.
Also, I might want to reward my clients with some bonus money so I would want to wire transfer some money from my Malta bank account to the UK bank account, and pay my UK clients off from the UK. Would that get me in trouble with the HMRC?
3] I am planning on remaining a UK resident for a while [a year or two] to run my company [and I will obviously accept to pay UK corporate tax] and if my business is successful, I want to move out of the UK permanently. [I am not British and do not own anything in the UK besides a flat rental contract for now]
Is what I am describing a viable option for avoiding CGT and corporate tax in the long run?
Thanks a lot.
Answer:
Yes you could do this and there's no problem with transfers to UK clients from Malta. Having a UK company to receive the deposits would be acceptable but ideally this company should receive a market rate for the service it provides for the holding company. This market rate would be taxed in the UK company.
The problem you'll have is in terms of the Maltese company whilst you are UK resident. If this is controlled from the UK it would be UK resident. As such it would be subject to UK corporation tax.
If you leave the UK and then transfer the control of the company overseas it would be non resident and exempt from UK corporation tax on foreign profits (ie no UK tax on the profits of a trade carried out overseas). However the transfer of the company overseas would be a disposal for the company as there is a "migration charge". Any assets of the company would be treated as being sold and then reacquired at the point of the migration with any gain being charged to corporation tax. The main asset could be any goodwill built up in the company. This should therefore be considered.
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=============================================================i) Please note that the articles/answers contain general guidance only and do not constitute accountancy, tax, investment or other professional advice.
ii) The contents of this article/answer are for information only and are intended to assist readers in identify any tax planning opportunities that may be available to them. The information contained in this answer is not intended to be a substitute for taking proper taxation advice and should not be relied upon in this way. Always consult a qualified accountant or taxation adviser. Your situation will then be looked at individually and specific advice relevant to your circumstances can be given. The Expert does not accept responsibility for any loss arising as a result of reliance on any information contained in this answer.
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