There are problems which offshore companies face when they involve in international trade. Certain problems related to VAT receipts, payment, registrations, tax withholdings etc. inevitably crop up. There is also an extra scrutiny of the accounts of the trading partners of the offshore companies. The result of course is fiscal as well as commercial problems related to the offshore company and its trading partners.

In such a situation a UK company acting in conjunction with the offshore company can eliminate all these problems. There is an agreement between the two companies related to this conjunction. The agreement is not merely a verbal one but one that is in paper. Both parties sign the agreement which states that the UK Company will work on behalf of the offshore company and act as the agent of the offshore company. The agreement clearly states that all the transactions which will take place would be done in the name of the UK Company. Therefore all the purchases, invoices, and sales would be in the name of the UK Company. The agreement will also state very clearly that all the payment which the UK Company therefore receives would be received in the nature of a trustee. This means that although the UK Company receives all the payments it will not be able to use that money. The commission which the UK Company is to receive from the offshore company will also be clearly stated in the agreement, and therefore the UK Company can’t treat any money it receives beyond that amount as its own. The fee of the UK Company can be decided in two manners. Either it will be a flat rate on an annual basis or a percentage of the gross revenues. Generally it is the second system which is preferred over the first one.

Strictly from the point of the UK the revenue which is gained on behalf of the offshore company would be accepted only on certain conditions. The profits should not be made from any UK business. They should also be received merely as payments received by an agent on behalf of its clients. This means that no UK tax liability arises out of the revenue. Only the income which the UK Company receives as its fee will be taxed.

It is important to keep all trading activities outside the UK in order to exempt the profits made from taxation. Therefore special attention has to be given to the place of signing of contracts related to sales and new offers. The offshore company should of course not be a resident of the UK for tax purposes. This ensures that the main management of the offshore company lies outside of the UK.

The fee which the agent company receives would be subjected to taxation to as much as that fee would contribute to the profit of the company. This remuneration may also be subject to the transfer-pricing legislation under the Income and Corporation Taxes Act 1988. Whenever the UK Company and the offshore company are under the same control such legislations are likely to be considered.

The way in which this problem can be solved is to ensure that the UK Company is owned by a third person beneficially. The client can remain assured of the safety of such an arrangement as the money would, under all circumstances, flow immediately to the offshore company under the agreement signed by all parties.

There is no reason for the Inland Revenue to adjust the remuneration of the UK Company even if there is common control between both the companies if a commercially sound relation exists between the two companies and the remuneration is in accordance with the agreement.

By following the above mentioned outline the total tax rate on the gross receipts of the UK Company will be 3%.

The UK Company will have to show its accounts obviously although small companies need not reflect the commission they have received. And expenses which are incurred in the process of generating such profits will be allowed against trading profits for the purpose of taxation.

The UK Company can register for VAT in the UK. This allows the company to purchase goods within the Customs Union. Also, while selling goods to a customer staying in any EU country other than UK the company only has to quote its VAT and not actually charge it.

The combined advantages of VAT and taxation are so great that the cost of such a set-up will be outweighed.

Contact us for more information.