This is the second part of a two part blog where we attempt to address some of the practicalities that face them. The first part was a general overview and now we will look in more detail at the various trading options open to moving a limited company abroad.
If you have committed to your plan of leaving the UK entirely, in in order to have truly left behind the administrative and legislative framework in place there cannot be any UK limited companies associated with your trade. So how can you accomplish this?
Creating a new company overseas and dissolving your UK company
One method would be to, firstly, establish your new operating company in the country of your choosing and then for this new company to purchase the shares in your existing UK limited company.
In order to avoid any unnecessary Capital Gains Tax (CGT) obligations associated with the purchase of shares in your UK limited company, this transfer can be achieved through a process called a ‘share for share exchange’. Simply put, this involves selling your shares in the UK company in exchange for shares in the parent company. So long as your share in the overall ownership of the companies remains unchanged, there should be no chargeable event for CGT purposes. It is vital that you seek HMRC clearance in the first instance to make sure this is the case.
After the share for share process has completed you then need to transfer the trade and assets which previously belonged to the UK company to the new foreign entity. Greaves West & Ayre could work alongside your lawyer to make sure that the supporting legal titles are all sufficiently transferred.
Once your trade and assets have successfully been moved abroad you should then strike off your old UK company as soon as all liabilities are clear and the bank account is closed. At this point your business will have successfully left the UK and will be fully under the jurisdiction of your new country. However, it is important to note that if you still have trading activities in the UK you may still be liable to UK Corporation Tax on those activities.
Having transferred your employment to a foreign country, and assuming you are also now fully resident there, you should be able to prove you are non-resident for UK tax purposes (the rules governing non-residency were outlined in the earlier article).
Should you foresee a return to the UK in your future, perhaps following retirement, then you may wish to make voluntary UK National Insurance contributions on a non-employed basis. This will ensure that when you return you have a state pension waiting for you.
Creating a group of companies
A second option would be to create another limited company in the country of your choosing, whilst maintaining your original UK entity, and creating a group.
Arguably, this is the most time consuming and costly option of the two and therefore probably isn’t the most sensible solution for a small entity. Where it can provide opportunity is for medium sized entities who have the resources available and who can afford to manage their affairs over two different jurisdictions and optimise their management of the two for commercial and tax purposes.
When you create a foreign limited company, you may wish to transfer the ownership of your UK limited company shares – as in the scenario described above. Alternatively you could create a third company to effectively act as a ‘holding’ company which owns both your UK and foreign entities. You would in turn own the shares in the holding company and would be based in the country of your choosing.
By creating this ‘group’ structure your trading in each country will be subject to each country’s respective tax authorities.
Any losses incurred in each company could be offset against profits made in the other’s tax jurisdiction.
Furthermore, any goods or services (for management etc) provided between the two entities could be charged and, so long as this charge is done on an ‘arms-length basis’, it should be an allowable expense for tax purposes for the receiver of the services.
There are complex ‘anti-avoidance’ measures put in place both within and outside of the EU to ensure that having a foothold in two jurisdictions is not exploited by companies through ‘transfer pricing’ regulations and so on. What this means is that there should be legitimate commercial and tax benefits for pursuing this option rather than just to exploit the loopholes in international tax legislation.
Maintaining a UK company and trading overseas
With corporation tax rates in the UK the lowest they have been in years, it is therefore perfectly possible to keep your UK registered company and, instead, move yourself and your trade overseas.
When you set up an overseas office or branch you are effectively extending your UK trade abroad. This means you will still be subjected to UK corporation tax on the profits generated abroad at the current rate of 19%.
If you have established a fixed presence in the chosen country in which you are now trading, then it is likely that the activities overseas will also give rise to a tax presence in that country and you will be required to register with the equivalent tax authority there.
Despite being registered with two tax authorities; you will never be exposed to a tax liability in excess of your UK tax on overseas profits due to ‘Double Taxation relief’.
Moreover, if your venture abroad doesn’t generate your desired profit, then any losses made overseas could potentially be offset against any profits generated back home in the UK. Likewise, any UK capital allowances on items of plant & machinery purchased abroad can also be redeemed here.
The availability of these various reliefs are unlikely to change following Brexit.
Typically, a director of a UK company would be subject to UK income tax. However, if you have moved abroad along with your trade you may become a non-resident for income tax purposes which could mean you do not have to pay UK income tax.
In summary we would reiterate that moving your business abroad could be an onerous and costly administrative burden which could have potentially huge implications not only financially but personally. It is therefore not one we would recommend taking lightly or hastily. However if you have considered the pros and cons and would like to know more then please get in touch.
Greaves West & Ayre