hypothetical question offshore business

[pigface1000]

Could I set up a business account for example cayman islands.

The company I plan to set up is an online venture (a digital product) that people buy and use.
Could I just use that account to pay myself a dividend and just pay UK tax on it, or would I need to set up a UK business as well?

This can be a limited company or a sole ownership.

Or am I dreaming and should just open a UK account and be taxed to hell

I know I need to speak to an accountant, just getting ideas first

[wheelerc]

It doesn't matter where the bank account is, it's the company location which determines the tax charged. The overheads of operating out of a tax haven aren't small, so it won't be worthwhile unless you have fairly high profits (6 figures at a guess).

That's all before you consider the morality of it...

[pigface1000]

What about Isle man or even Ireland?

Income tax will be UK paid, so not totally immoral

would be around £5-700k per year

[Eric Mc]

For small limited companies the ability to claim that they are managed and administered in a different tax regime to where it operates is vanishingly small - indeed, HMRC thinks it is impossible.

If it was easy, everybody would be doing it.

[pigface1000]

Have decided to keep it UK only, what I would save is to little to be worth the hassle.

So now a VAT question

If most of the money is made for example in the USA and I want to bring the cash into the UK business account, would I pay VAT on that or just corporation tax on any profit?

[Eric Mc]

Normally, if the bulk of your sales are to the USA you won’t need to charge VAT as the supply is “Outside the Scope” ( note - this is not the same as.VAT at Zero Rate.). However, if over £85,000 of your sales in a given 12 month period are to UK customers you might have to register for VAT anyway.

[pigface1000]

UK sales would be less than £20k tops

Thanks for your help

[Geoffcapes]

Delaware USA is where you want to register it. It's a tax free haven!

My most recent company is registered there. Was totally unaware of its status until I tried setting up bank accounts that will have more than 100k in them.
The UK is a joke for banking right now, so I would avoid at all cost!

[ecs]

It's not about where the company is tax resident, it's about where it isn't. You can open up a company wherever you like, but if the management and control is in the UK then you're going to be paying UK tax.

[akirk]

where money is made is not the only driver for VAT (and incidentally you are not charged VAT - you collect it on behalf of the government)
so if you have a digital product HMRC will want to understand who can benefit from it in that market as to whether VAT should be charged to the end customer. Generally with a download or similar then the market is likely to define the VAT status of the transaction - if someone downloads a file in the USA then it is not subject to UK VAT - however, if for example you build a website for a customer in the USA then it might depend:
- website for their local community - end user is US based, no VAT
- website for them to sell to the UK market (e.g. tourism) - VAT may be applicable
HMRC's interpretation may well be the same as their manuals / may be different / may change over time

[PurpleFox]

What if the OP set up a company in the UK which was a subsidiary of a company overseas, Delaware as the above suggestion.

The US company charges the UK company a 'licence fee' for use of the software / brand name or similar to the point where UK company makes a minimal amount of profit. Profits transferred to the offshore company?

Isn't that what Starbucks, Microsoft, Google, McDonalds do?

[Eric Mc]

PurpleFox said:

What if the OP set up a company in the UK which was a subsidiary of a company overseas, Delaware as the above suggestion.

The US company charges the UK company a 'licence fee' for use of the software / brand name or similar to the point where UK company makes a minimal amount of profit. Profits transferred to the offshore company?

Isn't that what Starbucks, Microsoft, Google, McDonalds do?

Yes, it is effectively what they doi - because itr reflects the reality of how they genuinely manage their businesses.

If Joe the Plumber tries this, how would he be able to demonstrate that the holing company (which he owns and is a director of) actively and genuinely controls and manages his UK business from that remote location?

[pigface1000]

akirk said:

where money is made is not the only driver for VAT (and incidentally you are not charged VAT - you collect it on behalf of the government)
so if you have a digital product HMRC will want to understand who can benefit from it in that market as to whether VAT should be charged to the end customer. Generally with a download or similar then the market is likely to define the VAT status of the transaction - if someone downloads a file in the USA then it is not subject to UK VAT - however, if for example you build a website for a customer in the USA then it might depend:
- website for their local community - end user is US based, no VAT
- website for them to sell to the UK market (e.g. tourism) - VAT may be applicable
HMRC's interpretation may well be the same as their manuals / may be different / may change over time

The end user is buying item(s) for "ingame" entertainment"

[db10]

PurpleFox said:

What if the OP set up a company in the UK which was a subsidiary of a company overseas, Delaware as the above suggestion.

The US company charges the UK company a 'licence fee' for use of the software / brand name or similar to the point where UK company makes a minimal amount of profit. Profits transferred to the offshore company?

Isn't that what Starbucks, Microsoft, Google, McDonalds do?

lol i love these types of threads.

HMRC will say your US company is UK tax resident - so it will be taxed as a uk company - unless you are planning to fly to the US regularly to make decisions etc

[pigface1000]

db10 said:

PurpleFox said:

What if the OP set up a company in the UK which was a subsidiary of a company overseas, Delaware as the above suggestion.

The US company charges the UK company a 'licence fee' for use of the software / brand name or similar to the point where UK company makes a minimal amount of profit. Profits transferred to the offshore company?

Isn't that what Starbucks, Microsoft, Google, McDonalds do?

lol i love these types of threads.

HMRC will say your US company is UK tax resident - so it will be taxed as a uk company - unless you are planning to fly to the US regularly to make decisions etc

Spoke to an accountant and this is what they also said

Will stay UK based for now. Then see what Labour do when they get into power

[Geoffcapes]

db10 said:

lol i love these types of threads.

HMRC will say your US company is UK tax resident - so it will be taxed as a uk company - unless you are planning to fly to the US regularly to make decisions etc

You'd only need to fly over 4 times a year to prove that you're making decisions.

[Alpinestars]

PurpleFox said:

What if the OP set up a company in the UK which was a subsidiary of a company overseas, Delaware as the above suggestion.

The US company charges the UK company a 'licence fee' for use of the software / brand name or similar to the point where UK company makes a minimal amount of profit. Profits transferred to the offshore company?

Isn't that what Starbucks, Microsoft, Google, McDonalds do?

How did the US company acquire the intangible? That’ll be the problem. Along with maintaining it and developing it outside the UK.

[Alpinestars]

ecs said:

It's not about where the company is tax resident, it's about where it isn't. You can open up a company wherever you like, but if the management and control is in the UK then you're going to be paying UK tax.

It’s all about tax residence. I think you mean incorporation outside the UK is irrelevant to the UK tax status.

[Gary C]

Eric Mc said:

because itr reflects the reality of how they genuinely manage their businesses.

Yes, because Starbucks really does have to charge itself to use its own brand name.

[Alpinestars]

Geoffcapes said:

You'd only need to fly over 4 times a year to prove that you're making decisions.

Having a US company in itself is irrelevant. It’s whether you can get profits into it/low tax resident company, and ensure they are taxed outside the UK.