UK Agency companies are frequently used on behalf of an undisclosed offshore company. By using a UK registered company, which agrees to transact business on behalf of an offshore company, a structure is available which gives an on-shore profile yet allows the benefits of offshore taxation. This structure is ideal for use as a European trading structure where the receipt of invoices from an offshore company would not be acceptable. Fides partners Limited can provide such a structure, which has been accepted by the UK tax authorities, in English law.
Principles of an Agency Company:
Difficulties are normally experienced while directly dealing with offshore companies. Taking the below diagram as an example the Irish company whilst buying goods/services would be obliged to withhold tax when paying for goods to a tax haven entity. At the same time, the French company may prove to be reluctant to sell goods/services to an offshore company.
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A UK Company can be formed specifically to operate as an agent for the offshore company while the turnover and profit belongs to the offshore company being the beneficial owner. The UK Company will allow the offshore company to use its name and registered number. The two companies sign an agency agreement which specifies the terms of the agreement between them. All business is then conducted in the name of the UK company, but on behalf of the offshore company. The existence of the offshore company behind the UK company need not be apparent to customers; as far as they are concerned; all they will see is the UK company. The customer enters into a contract with the UK company, is invoiced by them and pays the invoices into the bank account of the UK company. Income is then remitted to the offshore company by the UK company after deduction of an agreed commission. The UK company is managed and controlled by the offshore company and its officers, as is the bank account of the UK company. To be able to use this structure the following key conditions must be met:
- The agreement must be properly executed before the UK Company starts trading.
- The UK Company cannot trade within the UK or with any UK businesses. If it does then this income would be subject to UK taxation.
- The agency agreement must include a proper commercial fee.
- The beneficial owner of the offshore company must not be subject to UK taxes.
- The relationship between the UK and offshore company must purely commercial.
Key Facts about a UK Agency Company:
Accounts: Annual accounts must be filed which may need to be audited. In its statutory and tax accounts the UK Company will only acknowledge the commission it received through this arrangement, it does not need to recognize the turnover and profit of the offshore company. The amount of commission received by the UK Company is either calculated as turnover for consultancy services or on gross profit for a trade in goods. The rates of commission may vary between 2.5% to 10% depending on the volume and business activity.
Taxation: The UK Company pays UK Corporation Tax on its commission although all allowable expenses incurred in carrying out its business will be deducted first. The ultimate success of this type of structure relies on the fact there is no UK source income. Since the company is being controlled and managed from outside the UK, the UK Inland Revenue can only assess the UK Company for tax on the fees it earns by way of commission for effecting the business of the offshore company. The payments made to the offshore company by customers are therefore not subject to UK taxes.
VAT Registration: If the company's turnover exceeds £67,000 in a 12 month period the company must register for VAT (Value Added Tax). We can handle all VAT registration formalities, and also complete and file all VAT returns to HM Revenue and Customs. Since the UK Company has a VAT number, there will not be any VAT charged in the transaction described above.
Our responsibility as the UK Company will be invoicing your clients, preparation and filing of VAT Return, preparation and filing of accounts and Tax computation.
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