Incorporating in the Caymans to escape Corporation tax

[Where do we go from here?]

Hi guys!

I own an online business where 95% of staff are non-UK based, and 80% of sales are non-UK. I'm trying to understand WHY I am required to be incorporated here.

The advantages of incorporating in the Caymans are clear... no corporation tax, and potentially no VAT on UK sales, although I'm not sure of the latter.
Negatives? Any money paid from the Caymanian company to me would be classed as personal income and so taxed at a higher rate.

Does anyone here have experience or knowledge of this issue? What are the rules regarding when an individual is obliged to conduct their business through a UK LTD company?

Thanks in advance! Anyone who can answer this well will be rewarded in Bitcoin

Additional info: For the tax year coming to an end we will owe over £200k in Corp Tax

 

[Clinton]

The advantages of incorporating in the Caymans are clear... no corporation tax...

Wrong!

The exact opposite is clear.

When dealing with tax matters, don't assume anything. And if you want to know "What are the rules", you expect us to break the whole lot down for you here? Just to make it easy for you?

Go pay a freaking accountant and get proper advice instead of trying to do it on the free. It's not even like you're struggling for a few quid!

 

[Where do we go from here?]

Wrong!

The exact opposite is clear.

When dealing with tax matters, don't assume anything. And if you want to know "What are the rules", you expect us to break the whole lot down for you here? Just to make it easy for you?

Go pay a freaking accountant and get proper advice instead of trying to do it on the free. It's not even like you're struggling for a few quid!

I guess I thought this is a forum where people ask questions and seek answers. If it's not, then I suppose this a forum where we... erm, what do we do here then?

 

[UK Contractor Accountant]

There are basically two ways of achieving offshore structure for your business

1. Make your UK company treaty residence overseas

2. Set up overseas company and transfer the UK
trade to new overseas company.

Not easy to achieve so as @Clinton says engage professionals to achieve your desired result.

 

[Where do we go from here?]

There are basically two ways of achieving offshore structure for your business

1. Make your UK company treaty residence overseas

2. Set up overseas company and transfer the UK
trsde to new overseas company.

Not easy to achieve so as @Clinton says engage professionals to achieve your desired result.

Thanks for this helpful response.

I think I would need to reach out to a different accountant than the one who currently deals with my accounts - this might be beyond their experience. Do you have any suggestions for what I should be looking for, or even particular accountants you would recommend?

 

[UK Contractor Accountant]

You will have to make yourself non UK tax resident to avoid UK personal tax rates on the income you receive from your company.

 

[UK Contractor Accountant]

You will definitely need Accountants and Advisers who have a presence in the Cayman Islands.

 

[Ozzy]

Don't mind @Clinton, he hadn't had his coffee. He's always grumpier in the mornings

Personally, I'm very anti-TAX avoidance and would always encourage anyone to just be legitimate. I'd ask anyone do you really want to spend your time running your business and always looking over your shoulder to see if HMRC are onto you? Why would you want to spend a fortune every year constantly paying a tax avoidance specialist a fortune constantly changing your company and personal setup trying to stay one step ahead of HMRC all the time, as they close each loophole being exploited.

Do you use the health service, do you drive on the roads, do you expect the police to turn up if you get attacked or burgled? That's how I look at things personally, and am happy to pay my share in tax. I don't take dividends with a low salary either to reduce my tax, I'm full PAYE.
You mention you're only trying to save just £200k in corporation tax, that really isn't worth it either. Your professional fees alone are going to eat up way more of that than you'll save!

If you reach the millions liability then there are far simpler and more ethical means of managing your tax liabilities, and closer to home too.

 

[Darren_Ssc]

Do you use the health service, do you drive on the roads, do you expect the police to turn up if you get attacked or burgled? .

Sorry but none of these things are great examples of why someone should pay tax in the UK.

 

[Where do we go from here?]

Don't mind @Clinton, he hadn't had his coffee. He's always grumpier in the mornings

Personally, I'm very anti-TAX avoidance and would always encourage anyone to just be legitimate.

I want to pay for everything that I am required to by law, honestly.

But I don't want to be at a disadvantage because I am paying more tax than I am required to by law. At this point, I make no decisions, do no work, as I have a manager and staff that undertake all tasks and decision-making. All staff are based outside the UK besides two employees who perform packing/posting in the UK.

Additionally, as previously stated, 80% of all sales are outside of the UK.

It really seems to be the case that to call the business a UK business is wrong.

 

[Mark T Jones]

You will definitely need Accountants and Advisers who have a presence in the Cayman Islands.

This is a key point.

From personal experience (actually customer experience), unless you are talking very large sums of money (usually in the form of multi-million property assets), you will be bulding yourself a right royal PITA.

 

[Ozzy]

All staff are based outside the UK besides two employees who perform packing/posting in the UK.

Additionally, as previously stated, 80% of all sales are outside of the UK.

My interpretation of this, so could be wrong, but it sounds like your tech team and management are overseas, but fulfilment are all UK based postage and packing, you're a company shipping your UK products overseas. This makes you a UK exporter in my mind.

Nonetheless though, it doesn't sound like you're making enough profit to make it worth your while to undertake a complex tax "management" scheme.

 

[WaveJumper]

This is a key point.

From personal experience (actually customer experience), unless you are talking very large sums of money (usually in the form of multi-million property assets), you will be bulding yourself a right royal PITA.

Agree with Mark unless there are considerable sums involved you will find the costs involved are going to out weigh any advantages in my previous life in the commercial property sector all the portfolios were held in offshore funds and it was a complete nightmare .......... especially if you needed something signed on the quick.

 

[Mark T Jones]

Agree with Mark unless there are considerable sums involved you will find the costs involved are going to out weigh any advantages in my previous life in the commercial property sector all the portfolios were held in offshore funds and it was a complete nightmare .......... especially if you needed something signed on the quick.

Years ago I had a client whose assets were hideden n this way - he confidently informed me it was on accountant's asvice.

When I spoke to his accountant, the response was' He's his own worst enemy trying to be smart. It costs a fortune evey time we have to go through this process'.

 

[simon field]

Health service broken, roads a disgrace, and police unwilling to do anything apart from issue a crime reference number.

Hmmm...

 

[Financial-Modeller]

Its relatively straightforward to move taxable profit offshore, which is fine if you want to spend it there.

It can be far harder to repatriate it tax-efficiently and cost-effectively if you want to spend it here.

To reiterate what others have said, be ready to pay a significant amount of money for advice, and be aware that the advice may be "don't do it" or "do it in another jurisdiction, for which you will have to pay for more advice".

 

[John Hemming]

Health service broken, roads a disgrace, and police unwilling to do anything apart from issue a crime reference number.

Although I don't agree with Simon about the health service or the police. (I agree with him about the potholes).

The principle which is that we get something for tax paid viz a country to live in that functions reasonably well. Hence I don't personally agree with the idea of making profits here and then moving them out of the country simply to avoid paying a reasonable amount of tax.

 

[Ozzy]

I've also been to the Cayman Islands, and if you think the roads here are a disgrace you ain't seen nothing

 

[Paul Norman]

If your company is effectively hardly trading in the UK, then incorporating here may well not be the best thing, as you suggest.

Indeed, if your business is truly international, and of any kind of scale, then you get choices! For most of my career I was working in multi national PLC's that traded in multiple jurisdictions.

And of course, we were required by law to do the best by our shareholders, which included not paying massively more tax than required.

And the rules become complex. Indeed, they are not clear. Even top tax planners would end not having absolutes. Most years our tax bill was arrived at by considerable negotiation, and often complex law cases.

Why not just pay up, I hear you cry. Well, because it is just not that simple. Pay up where, exactly? And it is possible, if you get this wrong, to end up paying tax twice on the same income or profits.

So I am saying this. You will almost certainly have some more tax efficient solutions available to you. But get some really good people in to calculate them.

 

[Paul Norman]

And on a slight tangent, which I shall blame entirely on Ozzy, let me mention the tax avoidance thing.

Because at many levels, I agree with him. But paying tax in country A may, or may not, be considered less worthy than paying it in country B. That is a deeply subjective thing.

I suspect that of the tax hand over that I have had a hand on over the years, the biggest payments will not have been in the UK. Although, for example, whilst not paying any corporation tax in the UK for a while we were handing over a few million in payroll taxes there.

Anyway, I digress.

 

[Bobbo]

At this point, I make no decisions, do no work, as I have a manager and staff that undertake all tasks and decision-making.

Wonder if the manager will realise this and set up their own business so they keep the profit rather than it all going to you!

 

[Newchodge]

He's always grumpier in the mornings

Grumpier than when?????

 

[Financial-Modeller]

If Biden gets his way, there could be many more businesses looking to move operations offshore.

https://www.wsj.com/articles/treasu...ate-11617633701?mod=searchresults_pos2&page=1

 

[The Byre]

I don't want to be at a disadvantage because I am paying more tax than I am required to by law. At this point, I make no decisions, do no work, as I have a manager and staff that undertake all tasks and decision-making. All staff are based outside the UK besides two employees who perform packing/posting in the UK.

And I agree with you.

The good news is that you are living in a tax haven. The bad news is that it requires specialist knowledge to unlock the tax advantages the UK can offer - and there are severe penalties for those who get it wrong or overdo things!

The first thing you must do is to make yourself international and Europe and the EU provides oodles of scope for that kind of thing - I obviously cannot go into time, manner and place of these things, so instead I'll tell you a story about an Irish architect friend of mine.

He lived in Germany and his office was in Germany, but he worked through a London-based company that took the commissions. The company sent him cheques every month, leaving it up to him to sort out his taxes. "You are working in Germany, so as far as we are concerned, that's where you must pay your taxes. That's the law!"

Being a law-abiding fellow, he toddled down to the Finanzamt (HMRC) and asked how he was to pay his taxes. An officious blighter* behind a desk sighed deeply as he realised that he was going to have to explain the basics of German tax law. The company, my friend was informed, is responsible for tax and they pay taxes where they are registered. You must pay your taxes within the jurisdiction in which the company is registered!**

The exact sentence was "Was interesiert es uns was ein Engländer in England verdient!" (Of what interest is it to us what an Englishman earns in England!)

He was about to make a fuss about being called English, but then the implications of what the officious blighter* had told him sunk in. The underlying message was that he should go away and not bother hard-working tax officials with such complications as any differences between UK tax laws and German tax laws!

So over the years, he put about one-third of his income into property which, on retirement, he sold tax-free as he had owned it longer than ten years.
______________________

*PG Wodehouse short story - "Without the Option!"
** The law has probably changed since then!

 

[japancool]

Finanzamt (HMRC)

Unless I'm very much mistaken, they don't refer to Angela Merkel as "Her Majesty" (yet).

 

[OldWelshGuy]

I have a UK company and I pay all my taxes. I have operations in the USA that trades only inside the USA, I have very little input into it and when I do I raise an invoice on which I pay tax as that money has been repatriated.

The rest of the money is subject to state tax and filing laws.

 

[ctrlbrk]

Personally, I'm very anti-TAX avoidance and would always encourage anyone to just be legitimate.

As I read Wikipedia's definition for Tax Avoidance:

the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law.

Isn't there a disconnect between the two quotes?

 

[Ozzy]

@ctrlbrk What is legitimate one day becomes illegitimate the next day as loopholes get closed down continuously, so by exploiting loopholes for tax avoidance you're continuously running and looking over your shoulder, and paying expensive lawyers and accountants to find the next loophole.
Personally I prefer to enjoy a pint down the pub.

 

[The Byre]

@ctrlbrk What is legitimate one day becomes illegitimate the next day.

e.g. forgivable debt.

And HMRC can and do go back 20 years and if you have failed to keep a record of every movement and every receipt for the entire 20 years, they assume the worst - and with interest and costs!

 

[ctrlbrk]

Thanks @Ozzy, I see what you say but, from a biz point of view, shouldn't the answer be linked to whether it's worth doing that or not?

What I mean, for some businesses the trouble may be more worth than for others, surely?

 

[ctrlbrk]

e.g. forgivable debt.

And HMRC can and do go back 20 years and if you have failed to keep a record of every movement and every receipt for the entire 20 years, they assume the worst - and with interest and costs!

Thanks The Byre but I am assuming we are talking about a regime where everything is in order records-wise.

 

[The Byre]

I am assuming we are talking about a regime where everything is in order records-wise.

Many people assume that they can bin their record after seven or eight years - you are obliged to keep everything for that period, but HMRC can go back 20 years and if the records are not there, they can make assumptions.

Because politicians have made such an unholy mess of UK tax laws, HMRC has been 'reinterpreting' the existing rules and literally changing the rules retrospectively to close the more blatant loopholes. It is probably only a matter of time before bogus foreign holding companies in known zero-tax havens are regarded as tax evasion. When that happens, those using that hitherto 'legitimate' trick will owe 20 years back taxes with interest.

 

[ctrlbrk]

I see, thanks @The Byre

 

[John Hemming]

I think G7s most recent approach on a minimum CT rate will make the sort of thing proposed in the OP otiose.

 

[Glenn Martin]

You say the goods are packed and shipped in the UK but mostly go overseas. Have you looked at distance selling rules as it likely you may need to be registered for VAT in many of the countries you supply certainly to EU you will be. These schemes sound attractive but rarely work in practice and for the numbers you are talking about will spend the tax saving on fees and inconvience of what you are trying to do. You might pay a fortune to set it all up and find it all falls foul of the ecom tax they are talking reaching a global agreement on.

As said above also getting the money offshore is one thing the issue is often getting it back to you as that is where you will pay the personal tax.

If you are looking to avoid £200k tax also pay for some advice dont expect to get water tight advice on a free forum.