Remember all those months ago when we looked at Turks and Caicos Islands? What a journey it’s been since then. Incidentally, this is the 100th post my little blog.
And this is the end of that journey. We are back on mainland: the United Kingdom.
Now, the UK both is and at the same time is not a tax haven.
How can a country that taxes non-resident companies on world-wide income be a tax haven? Let’s find out.
Geography and Demography[table]
Full Name:;United Kingdom of Great Britain and Northern Ireland
Other major languages:;Welsh, Scots, Irish Gaelic, various immigrant languages
Type of government:;Monarchy
GDP per capita:;42,000 GBP
Currency:;Great British Pound (GBP)[/table]
The UK is Europe’s second largest economy after Germany. The country is known for being business-friendly, ranking 8th in the world according to the latest World Bank’s Ease of Doing Business rankings.
It is the undisputed leader in Europe for incorporations including formation of non-resident UK companies, being many freelancers’ go-to location for incorporations.
With low costs, ample tax treaties, English common law, excellent e-government facilities, and one of the best reputations a jurisdiction can have, it’s easy to understand why the UK is so popular for start-ups, established businesses, and financial service providers of all sizes.
UK in this section only refers to England and Wales. I will cover Scotland later. Northern Ireland will not be discussed.
Why not Great Britain? Let’s not go there. This is already convoluted enough.
Only the US with its LLCs can compete with the UK when it comes to ease of incorporation for a non-resident. It is fast, it is easy, and it is cheap.
The cheapest providers out there can form a UK company for you for little more than 20 GBP. For a non-resident, you are looking at typically no less than 100 GBP for company and registered office.
Of course, you can’t expect a lot of help at that price point. If you need professional advicement, expect to pay closer to 1,000 GBP.
Timeframe for forming a UK company can be as little as a few hours but often a couple of days for non-residents.
Stellar. It is an onshore jurisdiction, not seen as a tax haven.
Some criticism has been raised against UK authorities for taking a long time to respond to foreign requests, with the OECD stating that “on average takes 12 months to complete before information is provided to the requesting jurisdiction.”
This means that the UK is able to and does engage in exchange information but it can take extremely long.
However, its overseas territories and other dependencies at times tarnish the UK’s overall reputation. The UK has been criticised for being heavy-handed against tax havens, while touting no less than ten tax havens of its own; eleven including the UK itself.
Private Limited Company
This is the most popular type of company. The laws governing UK private limited companies go back to the incorporation laws in the 1600s that laid the foundation for the modern corporate entity.
As of October 2015, corporate directors are no longer permitted unless a special exception is granted. However, even then,
- One director (as of October 2015, corporate directors are no longer permitted unless an exception is granted).
- One shareholder (corporate shareholders are permitted).
- No restrictions or requirements on residence or nationality of directors and shareholders.
- No minimum share capital need be paid up.
- Registered address in UK (but not Scotland).
20% as of April 2015. This eliminates the previously existing small companies rate, also of 20%, which was in place as an incentive for smaller businesses while the corporate tax rate for larger companies has dropped from 30% in 2008.
Companies resident in the UK are taxed on worldwide income (profits and gains). A company is resident in the UK if it is incorporated there, or if it’s operated and controlled from the UK.
A UK non-resident company is a company which is not incorporated in the UK and which is not run from the UK.
This is where tax treaties become attractive. Because a UK company is considered resident in the UK simply be being incorporated there, tax treaties should permit for tax credit on taxes paid in the UK. This isn’t always entirely that straight-forward. If you don’t seek professional advice about your current situation, you are not being responsible about your company and personal finance and – absolute worst case – liberty.
And as always, there are numerous ways to reduce the effective tax burden by making deductions and setting up different ownership structures. But unless you are a very large corporation, forming a private limited company in the UK means paying 20% tax on profits net of deductions. The UK has strong anti-avoidance laws and is hard on tax dodgers.
LLP – Limited Liability Partnership
This is the premier tax planning vehicle in the UK. LLPs are largely comparable to LLCs.
- Two members (corporate members are permitted).
- No residence or nationality restrictions or requirements on members.
- No minimum (or maximum) capital required.
- Registered address in the UK (but not Scotland).
Comparable to LLC in that the entity is not liable for corporate tax. Instead, members are taxed on personal income or, if they are corporate entities, profits or revenue as determined in their country of tax residence.
All members, directors, and shareholders of companies are listed on public records, as are annual returns and financial statements.
UK is a very transparent jurisdiction.
Record Keeping (Bookkeeping)
Required by law. Annual filings must be made.
Scottish Limited Partnership
There has been an increased interest in Scotland and its LP (Limited Partnership). They are very similar to UK LLPs without any significant advantages.
A Scotish LP, unlike a UK LP (which is different from UK LLP and which I did not cover earlier since it is a rarely used type of company), is a legal person.
Formation costs are generally much higher than UK (England and Wales) companies.
- Two members (corporate members are permitted).
- No residence or nationality restrictions or requirements on members.
- No minimum (or maximum) capital required.
- Registered address in Scotland.
Same as UK LLP.
The UK banking sector is among the most well-developed in the world and offers generally great quality at a typically fair price — if you are a resident in the UK.
Non-resident banking in the UK is challenging. While a lot of UK banks take on non-residents, those clients’ accounts usually end up being domiciled in Isle of Man, Jersey, Gibraltar, or – rarely – Guernsey.
Private banking is a fairly big branch within the UK banking sector but, again, non-residents typically end up having their accounts domiciled elsewhere: Switzerland, Liechtenstein, Monaco, Luxembourg, or the aforementioned islands and peninsula.
Non-Resident UK Company Bank Account
So what exactly are your options when it comes to banking for a UK company with non-resident shareholders and directors?
There are agencies that claim they can place such UK companies with local banks in the UK. While this is true, it’s not entirely as simple as making an introductiong. Unless your company has a large turnover (in the vicinity of 1 million GBP), it will take some sort of nominee solution to secure a bank account.
Nominee bank account signatories
UK banks often require more than 50% of the directors or members to be UK resident natural persons, meaning that 1 out of 2 (50%) isn’t enough. At minimum, it would have to be 2 out of 3 directors.
What other options are there?
Quite simply – bank somewhere else. UK being a reputable jurisdiction is relatively easy to open bank accounts across the world, especially EU and territories with good relations with UK such as Hong Kong and Singapore, and of course British territories.
One of few jurisdictions that lack a banking secrecy law. There are professional confidentiality laws and data protection laws in place to ensure that financial information doesn’t seep out to the public.
Banks in UK
In terms of turnover and assets, the UK banking sector is greatly dominated by five banks. This includes Standard Chartered, which although headquartered in the UK has most of its operations and assets abroad.
- Lloyds, includes Bank of Scotland
- Royal Bank of Scotland (RBS), includes NatWest and Ulster Bank
- Standard Chartered
Other noteworthy banks in the UK include:
- Adam & Company (RBS)
- Arbuthnot Latham
- Brown Shipley
- Butterfield Bank
- Close Brothers
- Coutts (RBS)
- Europe Arab Bank (Arab Bank)
- Jordan International Bank
- Raphaels Bank
A full list can be found on the Bank of England website.
UK Gambling Company
A UK license is required to (legally) offer gambling to UK residents. Many EU-based operators are honouring this due to the value of the UK gambling market.
License requirements are among the most stringent in the EU and with the high costs of running a gambling company out of the UK, many opt only for the license while keeping operations (and primary license) in for example Malta.
Taxes are favourable but not as favourable as other jurisdictions, even within the EU.
Living in UK
Quality of Life
Standards of living in the UK are among the highest in the world – whether it’s central London or a smaller city or a picturesque village.
Those who qualify as non-domiciled residents (non-dom res) can enjoy a very favourable tax regime.
Otherwise, taxes in the UK are typically average to slightly below average. Watch our for council tax when deciding where to live.
How to Become Non-Domiciled Resident in the UK
The UK Government states that:
UK residents who have their permanent home (‘domicile’) outside the UK may not have to pay UK tax on foreign income.
What does this mean in reality?
Persons who have a domicile outside of the UK, although resident in the UK, can claim non-domiciled resident status and thereby only pay income tax on foreign income. Since 2008, this has been made much more difficult with a minimum tax of 30,000 GBP per year to keep the status long-term.
There are some 120,000 non-dom residents in the UK.
Immigration and Residence
EU and EEA nationals – at least as of writing – have right to free movement in the UK, although UK is not a member of the Schengen area.
The UK government website is an excellent source of information and it would be superfluous of me to go into greater detail. Simply start at Visas and Immigration to learn more.
It it possible to apply for British citizenship by naturalisation if you are 18 or older, have no criminal history, speak English, live in the UK legally, and intend on continuing to live in the UK. Additionally, you must have lived in the UK for five years prior to applying, during which you cannot have been outside of the UK for more than 450 days and no more than 90 days in the last 12 months.
The UK is a phenomenal jurisdiction for incorporation, offering the easiest means to form a zero tax company for non-residents – the UK LLP.
Banking in the UK is excellent but effectively limited to residents.
The UK has one of the best reputations of all jurisdictions in the world today, thanks to high transparency, strong but fair regulatory bodies, and a business-friendly environment.
But if you want something traditionally offshore, you are better off with one its overseas territories and dependencies:
- British Virgin Islands
- Cayman Islands
- Isle of Man
- Turks and Caicos Islands
- Becoming a British citizen (also has a list of TIEA and DTA)
- Financial Secrecy Index United Kingdom
- FATF documents on United Kingdom
Thanks again for the post!
I tried to reach some UK accountants, can you explain how is it possible to structure 0 zero tax UK company for non residents?
All of them explained that you have to pay taxes. If you can direct me please to an agent or what is the system?
You were informed correctly. As I wrote in the article: “A UK non-resident company is a company which is not incorporated in the UK and which is not run from the UK.”
This means that a private limited company (a stock company) which is formed in the UK must pay tax there.
LLPs (similar to LLC), however, are not subject to corporate tax – irrespective of the members’ residence. In the eyes of HMRC, an LLP with non-resident members, is not subject to UK taxation at all: neither corporate tax nor personal income tax.
“In the eyes of HMRC, an LLP with non-resident members, is not subject to UK taxation at all: neither corporate tax nor personal income tax.”
Are you 100% positive about that? You ensure you have residency in a low income tax rate country and you have yourself a safe haven in the middle of the civilization 🙂
The next interesting part is how DTAs work in such cases if they work at all. Normally you get a document from HMRC stating the income you have received in the tax year + any NICs and income tax you have paid (which would be both zero in this case).
I’m not in a position to give binding tax advice. However, since neither LLPs nor non-residents are taxed in the UK under normal circumstances, an LLP with non-resident members would typically be out of scope for UK tax. You can probably find circumstances where tax would be owed in the UK but it wouldn’t be the norm.
A DTA would not apply since you have not paid any taxes to apply as tax credit.
Do you have experience with any UK accountants and/or law firms? I’m trying to setup a tax-compliant structure but I can’t find knowledgable enough people for that job.
Btw this reCaptcha thing is extremely annoying – you need to do it at every login attempt + every X minutes when the token expires. I’m spending 15 mins on average every time I want to send a message on your website.
Lots – too many to list. The big four are of course always worth mentioning – Deloitte, EY, KPMG, and PwC. What you’ll find with most firms is that they only know local law. If you want an international structure, you need international expertise — or multiple local experts and then try to piece it all together although that’s risky.
I’ll try to lower the reCaptcha sensitivity. A lot of spam was getting through a few weeks ago, though.
Let me help you a bit.
If you’re a non-resident in the UK and your LLP doesn’t have any UK sourced income and your LLP is not trading in the UK then all the LLP’s income is free from any UK taxes.
However whether you’re resident for UK tax purposes or not your LLP’s trading income will be subject to the UK taxes even if the LLP’s members are non UK residents.
Basically we can say that trading income is always and UK sourced income is almost always subject to UK taxes whether you’re using an LLP, LTD, trust, foundation, etc.
So if you have UK sourced income and you want to minimize your tax burden then it’s a highly complex area. If you sell products on the local market then you can use transfer pricing techniques, you can setup an offshore company to be able to deduct royalties and know-how fees or you can operate a UK LTD as an agent company for your non-resident offshore company to do certain things for for an agreed commission.
The exact solution depends on your situation.
If you feel like I could help then share your exact situation below and I will share my opinion with you.
– a UK resident who hates taxes.
“The UK has moved from a system of worldwide taxation for UK companies to a broadly territorial tax system, where the focus is on taxing profits earned in the UK. The key planks for this new approach are a dividend exemption, an elective branch exemption and a reformed Controlled Foreign Company (CFC) regime.”
If you are expecting UK to be like Hong Kong or Panama in terms of taxation, that isn’t quite accurate. The territoriality of UK corporate tax is effectively only applicable (or at least practical) to multinational corporations where the UK entity is a piece in a larger puzzle.
Thank you for great article. As expected it brings tons of useful information.
However I was wondering if you could explain if there is a way for non UK LTD company directors to open a business bank account in the UK. I understand that it may be difficult but there are agents who claim that it is possible and that the main point is to have signatory service. More details can be found on: http://www.accountsandlegal.co.uk/small-business-advice/how-to-open-a-uk-business-bank-account
This process seems very difficult for someone who does it for the first time. Providing more details and indicative procedure would be very helpful.
Thanks for your kind words!
Since you posted your comment, I made a number of revisions to the post, most importantly adding a section about Non-Resident UK Company Bank Account. In essence – yes, nominee bank account signatories are available and possible. Many won’t sign for anything that issues credit as that may affect the nominees personally.
I really doubt it’s worth the hassle for a small company. You may end up in a situation where you need to ask your nominees for trivial banking activities. It’s not unusual for bank account signatories to charge per hour (rounded up) or for every transaction they perform, so make sure you understand exactly what the costs are going to be. For a company that’s large enough to tolerate the costs but not large enough to hire people in the UK to act as directors, it might be worth considering.
Thank you very much one again. Very useful as always!
Is there any reliable agent you are aware of that will perform this service for a reasonable fee? I have been searching such solution but have not find the one. Unfortunately, banking somewhere else is not an option for me for more reasons, so I guess I will have to put extra effort and get UK bank account.
Keep up the great blog up and running! Great work!
Try reaching out to Trident Trust, Appleby, Butterfield (both a bank and a fiduciary), Sovereign Group, Jordans Trust, Conyers Dill & Pearman, Mossack & Fonseca, and OCRA.
Those are fairly high-end (to use that term) providers so costs may be quite high but if you are motivated and find it affordable, those are the type of agents that provide auxiliary services beyond what incorporation mills offer.