International Consultants and Tax
As the world becomes a smaller place and with consultants in a variety of different sectors becoming increasingly mobile, Newshams Tax Solicitors in London are seeing a steady increase of instructions from international consultants.
These are individuals who are UK resident (and usually UK domiciled) who are moving overseas to provide consultancy services to a UK company and/or with overseas parties.
So what do such individuals do about their UK tax liabilities?
To continue using their own UK company (assuming they have already been providing their consultancy services through such vehicle) or to set up a new UK company would not be the most tax efficient route.
That’s because UK companies are subject to UK tax on their worldwide income and gains. So any consultancy fees being received by the UK company would be subject to UK tax at the standard rate of 23% (unless taxable profits are below £300,000 where the 20% rate applies). It has already been announced that the main rate will be reduced to 21% for the 2014 financial year and then to 20% with effect from 1st April 2015 (meaning a single corporation tax rate of 20% for all UK companies regardless of their level of profits).
Instead, it is usually worth exploring the use of an offshore company.
There are many countries around the world which provide a range of tax incentives (including no, zero and low corporate income tax rates) in order to attract offshore business.
In addition, some overseas jurisdictions may provide better legal protection from third party creditors and potential litigants who might attempt to seize an individual’s or company’s assets.
Asset protection is often the most important aspect (or one of the most important aspects) of why offshore countries continue to remain popular. Most offshore governments uphold strict confidentiality laws for corporate registries, banks and trust companies. These confidentiality laws operate to afford protection to offshore investors (although generally excluding any proven criminal activities) from third parties, including both private and governmental authorities.
When deciding upon what location may be right for an individual going overseas to provide their consultancy services (whether it’s for the short, medium or long term), it is necessary to consider an individual’s objectives (personal, family and business), their needs for the cash (do they need it all or can some roll-up within the vehicle) together with their tax residence status and the tax laws in that individual’s new home country.
Recently, one individual we advised was moving to a country which had a very generous tax regime for foreign residents which meant that any foreign source income (i.e. from his overseas consultancy company) would not be subject to personal tax for the first 5 years and he was planning to stay for less than that. However, continued use of his own UK company would have meant paying UK tax unnecessarily.
Ultimately, the choice of jurisdiction will depend upon a variety of different factors, such as political security, the business, regulatory and legal environment, asset protection, exchange controls, ease of incorporation, set-up and ongoing maintenance costs, audit requirements, the amount and type of corporate, personal and beneficial ownership disclosures required, as well as the tax considerations such as the corporation/income tax, capital gains and withholding tax rates.
Any decision to move operations offshore should also be considered in light of the continuing international clampdown, led by the OECD and the G8 member countries, on the use of offshore tax havens.
The UK has been at the forefront of this clampdown and recently reached agreement with a number of Overseas Territories and Crown Dependencies to disclose beneficial owners of offshore companies. These territories include Bermuda, the BVI, the Cayman Islands, Gibraltar, Anguilla, Montserrat, the Turks and Caicos Islands, Jersey, Guernsey and the Isle of Man.
Accordingly, the use of any offshore company does come with a number of health warnings given the increasing scrutiny they face and the desire of many Western governments, particularly the UK, in wanting to prohibit their use.
Nonetheless, if you are about to go offshore to provide consultancy services, it is highly recommended that you seek professional tax advice before you enter into agreements with your client and so that you can ensure your commercial objectives can be met whilst at the same time minimizing any unnecessary tax charge.
Newshams Tax Advisers in London are tax experts in this area of international tax law, particularly for consultants and contractors.
If you would like to talk to one of our expert London Tax Advisers, please contact us on 020 7470 8820 or e-mail us at enquiries@newshams.com or visit our website http://www.newshams.com
