UK Tax - Don't Get Caught!

Companies that are not incorporated in the UK can become liable

for UK tax (i) by virtue of their central management and control

being exercised in the UK which results in them being UK tax

resident, (ii) if they carry on a trade in the UK through a

permanent establishment, or (iii) if they have UK source income

(e.g. rental income).

If an Offshore Company is resident within the UK for UK tax

purposes, it will be taxable on its worldwide income and gains,

wherever arising, and whether the income or gains are received in

the UK or held overseas.

Where an Offshore Company carries on a trade in the UK through a

permanent establishment, those associated profits will be

chargeable to UK corporation tax as will chargeable gains realised

on property used or held for the purposes of the trade carried on

by the permanent establishment.

The structure, management and operation of offshore property

structures with onshore UK assets are therefore critical in

minimising UK taxation incurred.

Even in cases where a majority of directors are non-UK resident,

consideration needs to be given to the directors' experience

and expertise in investment in real property and their ability able

to attend all Board meetings in person. Any alternate director

should have at least the same level of experience and expertise as

the person he is replacing. It is strongly desirable for any UK

directors not to be persons who are employees or directors of any

UK Management Company.

The Offshore Company's articles of association must give the

directors (and not the shareholders) the authority to exercise

broad powers of management and control over all aspects of the

company's affairs, with particular reference to its real

property investment activities. Other than normal shareholder

powers, any UK resident shareholders should not have the power to

override the decisions of the directors, thereby managing and

controlling the Offshore Company themselves.

Board meetings should be held outside the UK, be at least

quarterly and should ensure that the directors debate and decide

all policies and strategies. The Board should determine clearly the

role of any UK Management Company and should if necessary be able

to challenge a recommendation from a UK Management Company.

It is important that non-UK resident directors are able to

demonstrate to HMRC that their support of recommendations emanating

from the UK Management Company is based on a sound understanding of

the potential risks and...