Guidance note for establishing and maintaining non-UK (off shore) corporate tax residence

12 April, 2019

Whether or not a business is UK ‘resident’ will determine the level of UK corporation tax it has to pay. A UK resident company will have to pay UK corporation tax on all of its worldwide profits. A company which has a permanent establishment in the UK (like a branch or an agency), but is not ‘resident’ in the UK, will still be liable to pay UK corporation tax, but only on the amount of its profits which are attributable to the trade it carries out through its UK establishment, trade or are attributable to real estate owned by the non-resident.

The two factors determining UK residency are:
• incorporation; and
• central management and control

A company that is incorporated in the UK is resident in the UK for UK tax purposes (subject to the operation of any applicable double tax treaty) so the first step will be to ensure that your company is incorporated and registered outside the UK.

A company may still be UK resident for tax purposes, even if it is not incorporated in the UK, if it is ‘centrally managed and controlled’ from the UK.

Management and control for these purposes is related to high level control, rather than day-to-day management, but it is location of the directors, rather than shareholders, that would be a more important consideration (unless the shareholders are in reality controlling the company).

HMRC has provided some guidance here, but the following lists give some practical tips.

To help demonstrate that the central management and control of the company rests outside of the UK, it is best practice to:
• ensure that a majority of the directors are resident outside the UK and ideally in the off-shore jurisdiction of incorporation;
• ensure that a quorum of the board of directors (i.e. the minimum number directors that is needed to hold a valid board meeting) is not resident or present in the UK at the same time;
• ensure that the chairman of the board is resident outside the UK at all times if he has a casting vote; and
• avoid the appointment of UK resident alternate directors.

In order to lessen the risk of the directors being seen by HMRC as not exercising real control over the company (and deciding that actually control happens in the UK) the board of directors must be, and be seen to be, autonomous and have real decision- making authority. The board can take advice from third parties (like professional advisors) but it must retain a genuine and significant involvement in decision-makings and must not allow its decisions to be subject to approval by anyone else, especially if they are located or resident in the UK.

The directors should be making the decisions in at least the following areas:
• the general business strategy and activities of the company;
• appointing executives, directors, the secretary, bankers and auditors, and setting their pay;
• material contracts, investments and expenditure (including premises);
• setting the authority, and reviewing the performance, of agents and employees of the company;
• matters relating to shares and dividends;
• compliance with corporate law and regulations; and
• matters relating to banking and finance.

The directors can delegate powers, but this needs to be done carefully. The individual or committee to which the authority is delegated should be non-UK resident and act from outside the UK at all times or if not possible then actively supervised, in board meetings held outside the UK.

  • Hold board meetings regularly, at least four times a year if possible.
  • Hold all directors’ (and, preferably, all shareholders’) meetings and make all decisions outside the UK. Using the same place within the off-shore jurisdiction is best.
  • Ensure that a majority of directors present at any particular board meeting are non-UK resident
  • If directors participate in board meetings by telephone, ensure that they do so from outside the UK.
  • The company’s registered office and postal address should both be in the offshore jurisdiction
  • Keep all company documentation (such as the register of members) outside the UK.
  • Draft board meeting agendas and notes of issues to be discussed by the board outside the UK.
  • Sign all board minutes and board resolutions outside the UK.
  • Maintain the company’s bank accounts outside the UK.
  • Ensure that the company secretary is, at all times, non-UK resident (if company secretarial type of services are provided by a third party ensure it is non-UK resident too).
  • Comply with the rules and regulations, including in relation to tax, of the offshore jurisdiction and if possible obtain a certificate of tax residency from the offshore tax authority

As far as possible it is recommended to include provisions to within the company’s articles of association to ensure that the principles and restrictions above adhered with – the argument that to act in a way that makes the company at risk of becoming resident for tax purposes would be unlawful should help in building a case for non-residence.

Whilst no single thing a business can do can be guaranteed to secure non-resident status, the more of the above steps it takes the better chance it will have. Taking professional advice and keeping comprehensive and up-to-date records will be key.

For further information on corporate tax residency or any other aspect of corporate tax, please contact Elizabeth Middleton at 01892 506 080 or on elizabeth.middleton@crippspg.co.uk