LOOKING FOR CROSS-BORDER FINANCIAL & TAXATION ADVICE / UK <> VARIOUS COUNTRIES

[Mike_at_Virdis]

Hi

I assume there are plenty of Accountants / Tax Advisors here browsing for business ? We are a potential customer.

Looking for advice on legal & tax specifics of monetary movements across several national borders. We are a business developing a service of KEY ASSET RENTAL for niche / specialist international markets.

Owing to the medium-term contract nature of what the offer we are developing, we are locating an operating company (to act as contract counterparty) in each territory where we have market interests: we already have three, one in each of UK, UAE and India.

NEXT part of the development of this is to pin down the tax & legal issues arising for TWO categories of money moved :-

- A) Capital - raised most likely as Bond finance in London but deployed acquiring an Asset fleet in the target country, and (usually) manufactured in the same Target country - we have a number of partner suppliers for this.
CAPITAL movement thus has two strands (i) Deploy UK-sourced funds in Country2 to acquire asset stock; (ii) at some later point on disposal of those assets, RETURN of that capital to the UK;

-B) Post-Tax Ceuntry2 Profits - rental of the key assets in the target country ('Country2') generates profits which will bear local taxation; post-tax profits we want to
repatriate and hence FIND the most efficient structure to do that ;

ANY ADVISOR with the experience to advise on this terrain is invited to get in touch. We are seeking to resolve this for UK<>India this quarter and then possibly for UK<>UAE in Q1-25. We have ideas in mind obviously and have researched a googly chunk of the India tax code already / but we're very open to lateral thinking / new ideas and would like to find an advisor who can "travel with us" on this as it unfolds.

Bond financing for this has been / is under discussion in London with the relevant sources but is not finalised yet.


Look forward to hearing from any firm or advisor who knows where the bodies llie on this. Volumes of business will grow rapidly after new service kicks off.

MANY THANKS

Mike H / I presume my email is visible to members in some way (new here).
13 Sept 2024

 

[Mark T Jones]

Hi Mike

Whilst this is way outside my personal area of expertise, I do have many connections in the area of trade finance and cross-border leasing. And they will undoubtedly have strong legal/tax connections.

If you want to DM me details of you company and key persons I'll be happy to introduce you.

 

[Mike_at_Virdis]

Hi Mike

Whilst this is way outside my personal area of expertise, I do have many connections in the area of trade finance and cross-border leasing. And they will undoubtedly have strong legal/tax connections.

If you want to DM me details of you company and key persons I'll be happy to introduce you.

Hi Mark - that is very kind of you, thanks. Forgive me I've been signed up a few hours and am not sure where the DM button is yet. Is that this, here, or do I need to go elsewhere ?

 

[fisicx]

Click on a member’s name and there is a link to ‘start a conversation’

 

[Mario - TFA]

Hello Mike,
Thank you for sharing the details of your business situation. There are a few key areas we should clarify to ensure we’re addressing all the important factors:

1) Where is the parent company registered?

2) Are the foreign entities in India and the UAE wholly-owned subsidiaries of the parent company, or are there joint ventures or local partnerships involved? This will help determine the tax obligations both locally and in the UK.

3) If the parent company is UK-registered, you'll need to ensure that the foreign entities in India and the UAE do not fall under the CFC rules.

4) Given that you’re raising bond finance in London but using it to acquire assets in other currencies, you should consider the impact of potential currency fluctuations. It may be worth exploring hedging instruments to protect against unfavourable movements that could affect your ability to repay the bond.

5) If the foreign companies are subsidiaries of a UK parent, we need to assess whether they will be liable to pay corporation tax both in the UK and the foreign jurisdictions. It’s also important to check for double taxation treaties that might help mitigate this.

 

[Mike_at_Virdis]

Click on a member’s name and there is a link to ‘start a conversation’

AH ! Thank you fisicx. much appreciated.

 

[Mike_at_Virdis]

Hello Mike,
Thank you for sharing the details of your business situation. There are a few key areas we should clarify to ensure we’re addressing all the important factors:

1) Where is the parent company registered?

2) Are the foreign entities in India and the UAE wholly-owned subsidiaries of the parent company, or are there joint ventures or local partnerships involved? This will help determine the tax obligations both locally and in the UK.

3) If the parent company is UK-registered, you'll need to ensure that the foreign entities in India and the UAE do not fall under the CFC rules.

4) Given that you’re raising bond finance in London but using it to acquire assets in other currencies, you should consider the impact of potential currency fluctuations. It may be worth exploring hedging instruments to protect against unfavourable movements that could affect your ability to repay the bond.

5) If the foreign companies are subsidiaries of a UK parent, we need to assess whether they will be liable to pay corporation tax both in the UK and the foreign jurisdictions. It’s also important to check for double taxation treaties that might help mitigate this.

HI Mario thank you very much for your note. My responses to your queries:

Re 1.& 2.:

The "notional" Parent is in the UK, because that is where capital is going to be raised. But we have deliberately kept the structure loosely defined for now, precisely because we realise the whole corporate structure likely needs to be "tuned" to the money-movement challenges.

So we can say that, the actual 'Parent' could move to either other territory if appropriate (we have considered the DIFC in Dubai because of its UK-law recognition) but, I'm also aware (as the founder on our board most experienced in corporate finance) that if we are raising capital in London, at least as 'first preference', new equity and bond participants here would likely prefer that the parent company (and owner of the asset fleet), should also be here in the UK.

SO - for the moment, we are at the 'in discussion with investors but pre-funded' point, we have established the three companies fully, but the ownership of all THREE, remains 'nominal' and adjustable. Before we commit to a prospectus/raising and before value is vested in any of
the three companies, we want to "bottom" this advice, adjust which owns which, and get the structure right for the purpose.

I should say that, in internal discussion currently, the India market & the GCC (Gulf area) being our primary initial markets, we may "swap" the 'start order' and make India a "year-2 project" and instead kick off the business in year-1, selling in the GCC, based out of Dubai, *specifically because* of the much simpler tax / funds movement situation between UK & UAE. We are aware of taxation treaties (though not the detail yet) and we're aware the UK & UAE have one currently.

If we do take this step to 'push India back to year2' then that gives us more time to structure this - though we would still like the same advice in relation to UAE.

Our CEO is also a Brit, but resident in UAE (Abu Dhabi) and has 15 years experience in the exact sector we're in / has extensive contacts across the region & far beyond.


3: Thank you for the tip on CFC - I am absolutely certain you don't mean Chloroflourocarbons - so I'll go and look that up

4: Yes, valid point. Inevitably working between different currency zones we are likely to need to do that, and I will chalk 'currency hedging' as a whole separate strand we need to plan for.

5. Yes - we realise we cannot escape every tax of course but the volume of business we know we can win is large and the margin strong, so we are keen to structure as efficiently as we can, paying tax where of course we must/should. At the moment we are considering the idea that Assets are purchased in the remote territory (e.g. India or UAE) DIRECTLY from our UK CO, so that title remains on the UK balance sheet (which will please investors). That means that, our service being Asset rental, provided we purchase in-target-country with delivery to our associate Co. also in-same-target country, then we can sell the rental as a service within target country (our-associate-Co renting TO End-customer-Co) and our UK company (where investors are) can also RENT - as a Service sold internationally - the use of those Assets which we own, for onward rental in the target country. That would suggest, repatriation of post-India-Tax profits, would be done by simply remitting against service-rendered invoices from the UK, (NB so a service IMPORT in India, but which afaik attracts 0% import duty - at the moment).

As far as I can see, those remitted service invoice sums would generate Gross Profit in the UK CO, but from which we could then deduct Asset depreciation, because the assets would be owned in the UK; and then, I think, the Bond coupons we pay to our Bond investors, are a "cost of finance" deductable also from GP, before computing Taxable profit in the UK. So that might work quite smoothly we hope.
It is an interesting conundrum. Thanks very much for engaging / your input is most welcome.

MH

 

[Frank the Insurance guy]

You need professional advice - Client's of mine has used Vistra: https://www.vistra.com/locations/emea/united-kingdom

They are able to help with global entity management (ie. managing your overseas companies) and supporting you on the financials/tax.

 

[Mike_at_Virdis]

You need professional advice - Client's of mine has used Vistra:

They are able to help with global entity management (ie. managing your overseas companies) and supporting you on the financials/tax.

Thank you Frank, they're a new name to us for sure.

 

[Mario - TFA]

Hi Mike,

Very interesting situation indeed. You need to consider the next few things based on your response:


1) It’s important to note that while depreciation can reduce accounting profits, it is not an allowable expense when calculating profits for corporation tax purposes in the UK. Instead, companies use capital allowances, which allow businesses to deduct a percentage of the cost of qualifying assets over time. If you’re planning to offset UK profits by claiming depreciation on assets held by the UK company, you won’t be able to reduce taxable profits directly through depreciation. Instead, you should explore how capital allowances might apply to your asset fleet.


2) While you are open to adjusting the company’s location based on tax efficiency (e.g., relocating to the UAE), it’s important to consider the tax residency of the directors. If any directors are UK tax residents and derive income from the company (e.g., salaries, dividends), they may still be liable for UK taxes, even if the company is registered abroad.

UK tax residents are taxed on their worldwide income, so any payments from the UAE-registered company to UK-resident directors could be subject to UK tax, potentially diminishing the tax benefits of relocating the company.


3) Controlled Foreign Company (CFC) rules are designed to prevent UK-based companies from artificially shifting profits to low-tax jurisdictions to avoid UK tax. These rules can apply if a UK parent company controls a foreign subsidiary that benefits from lower local taxes.

If CFC rules apply, a portion of the foreign subsidiary’s profits could be taxed in the UK, even if they were earned abroad. This could undermine your efforts to minimise tax liabilities by setting up operations in low-tax jurisdictions like the UAE.


4) Given your plan to have the Indian subsidiary invoice the UK parent company, you’ll need to be aware of transfer pricing rules. These rules require that transactions between related entities (e.g., your UK and Indian subsidiaries) be conducted at arm’s length, i.e., at market rates. The tax authorities in both the UK and India will expect any intra-group transactions to reflect fair market value.

5) If it’s an option, it’s worth considering raising the finance in the foreign country in order to avoid translation risk. Translation risk refers to the risk that exchange rate fluctuations will negatively impact the value of foreign currency-denominated transactions when they are converted back to the company’s home currency. In your case, raising bond finance in the UK (GBP) but deploying it in foreign markets (e.g., INR or AED) exposes you to this risk.


6) You’ve mentioned the strategy of remitting profits to the UK via service invoices from the Indian subsidiary. Ensure this method aligns with local regulations in India, particularly with respect to withholding taxes on cross-border payments. Some countries may impose withholding taxes on payments made to foreign companies, which could reduce the amount of profit you can repatriate.

And finally…

7) If your UK company provides services or rents assets directly to your Indian or UAE subsidiaries, you’ll need to be cautious about triggering permanent establishment (PE) rules. If the UK company is deemed to have a permanent establishment in India or the UAE, it could become subject to local taxation in those countries, even if it is based in the UK.


In general, there are many things to consider, even beyond this list, as this type of operation is very complex. Happy to help if you have further questions!

Mario

 

[Mike_at_Virdis]

Mario - thank you for further detail / would be pleased to talk further / would seem sensible to take this offline now ? I will DM you with my contacts and ask you to drop me an email, so we can pick up a more specific dialogue.

Many Thanks
Mike