Tax Question - UK Companies and Non-Resident Status

[business_hero]

Hi all,

I'm exploring tax implications of becoming a non-UK resident while maintaining business interests in the UK. Looking for advice on the following structure:

Current Setup:

• UK holding company that owns a UK trading subsidiary
• Trading subsidiary generates most of the income
• Salary of £12,750 pa
• I receive dividends from the holding company

Proposed Future Setup:

• Non-UK tax resident status, residency in another country
• Market-rate salary via EOR structure (using service provider)
• Maintained UK director role with minimal duties
• Potential restructuring of company ownership (tbd)

Key Questions:

1. Employement going forward
2. Dividend Treatment
3. Structure Options
4. Operational Questions


1. Employment Structure
- Currently drawing minimal salary from UK company
- Considering using an Employer of Record (EOR) service, such as DEEL, with market based salary of around £100-150k (+ Bonus) while maintaining director role
- Need to understand how to properly separate director duties from employment

I see the risk that combining an EOR employment structure with UK director duties could create compliance issues. My concern is that while an EOR could legally employ me for consultancy work, I would still need to maintain my director responsibilities for the UK company. This dual role might blur the lines between my directorship duties and consulting work, potentially creating tax residency risks or raising questions about the genuine separation of these roles.

2. Dividend Treatment
- Will dividends from the UK holding company qualify as "disregarded income" if I become non-UK resident?
- How does having a UK trading subsidiary affect the tax treatment of these dividends?

I see the risk that even though dividends to non-UK residents can sometimes qualify as "disregarded income," this might not apply in my case. Since the holding company's income primarily comes from a UK trading subsidiary, these dividends might be considered UK-sourced income. My understanding is that when income originates from a UK trading company, it may not qualify for disregarded income treatment even if it's received through a holding company structure. This could mean I'd still be liable for UK tax on these dividends despite being non-resident.

Questions 1 and 2 would have to be looked at in isolation as well as in conjunction.

3. Structure Options I'm Considering
2.1 Keep current structure
2.2 Wind down all of the companies
2.3 Sell trading subsidiary to a holding company in another jurisdiction


4. Operational Questions
- Can the UK trading company operate effectively with a non-resident director?
- What's needed for major business decisions to comply with both UK law and non-resident status?


Looking for general guidance rather than specific tax advice. Any experiences or insights would be appreciated.

 

[WaveJumper]

My general guidance - what does your accountant suggest

 

[NickGrogan]

If you want to be non-resident, then be non-resident. Anything else, and certainly what you've described above it just asking for trouble.

What is the benefit to you of keeping any of the UK companies or any business connection to the UK?

 

[Gyumri]

- Will dividends from the UK holding company qualify as "disregarded income" if I become non-UK resident?

If you are tax resident in a country which has a double taxation treaty with the UK then you pay dividend tax depending on where you reside. That can be beneficial. In Germany for example dividend tax is 25% - lower than in the UK.

2. Dividend Treatment
- Will dividends from the UK holding company qualify as "disregarded income" if I become non-UK resident?
- How does having a UK trading subsidiary affect the tax treatment of these dividends?

It doesn't - it doesn't matter the source of the dividends if there is a double taxation treaty in place. There is a list of relevant countries on the internet.

I see the risk that even though dividends to non-UK residents can sometimes qualify as "disregarded income," this might not apply in my case. Since the holding company's income primarily comes from a UK trading subsidiary, these dividends might be considered UK-sourced income. My understanding is that when income originates from a UK trading company, it may not qualify for disregarded income treatment even if it's received through a holding company structure. This could mean I'd still be liable for UK tax on these dividends despite being non-resident.

You are taxed only where you are resident for tax purposes. What country will you be resident in for tax purposes? There has to be in place a double taxation treaty otherwise you will of course be taxed in the UK on your dividends.

What is the benefit to you of keeping any of the UK companies or any business connection to the UK?

Because that is where and how his businesses make their money! The same trade may not work in another country. And if the business has a lease or owns a building from which it trades then that cannot be relocated.

 

[Ziggy2024]

The general guidance is that this is a specific question that a lot of UK accountants will never deal with. You need bespoke advice from an adviser who deals with this regularly and also an adviser who has knowledge of the tax laws in the country you are wanting to move to.

In terms of logistics, it can work but I have noticed banks being quite difficult if there is nobody in the UK making the business decisions.

 

[business_hero]

If you are tax resident in a country which has a double taxation treaty with the UK then you pay dividend tax depending on where you reside. That can be beneficial. In Germany for example dividend tax is 25% - lower than in the UK.

It doesn't - it doesn't matter the source of the dividends if there is a double taxation treaty in place. There is a list of relevant countries on the internet.

You are taxed only where you are resident for tax purposes. What country will you be resident in for tax purposes? There has to be in place a double taxation treaty otherwise you will of course be taxed in the UK on your dividends.

The way I understand how DTT works would be the following:

Under double taxation treaties, dividends from a UK company to a non-UK resident are typically taxed first in the UK at the treaty rate, then in your country of residence at their rate, with credit given for the UK tax - not the other way around.

• Under the "disregarded income" rules, a non-UK resident might be able to claim that UK dividends are exempt from UK tax - HOWEVER, this won't apply if the dividends originate from a UK trading company (which is true in this case).
• Under double taxation treaties, dividends are typically taxed as follows:
  • If UK tax is higher (39.35%) than the residence country's rate (e.g., German in your example 25%), you pay the full UK rate and nothing in Germany
  • If UK tax is lower than 25%, you pay the UK rate plus enough additional tax in Germany to reach their 25% rate

My general guidance - what does your accountant suggest

Yes, of course. But I need to get a better understanding of risks first to have an efficient conversation with the tax advisor.

 

[Gyumri]

Under double taxation treaties, dividends from a UK company to a non-UK resident are typically taxed first in the UK at the treaty rate, then in your country of residence at their rate, with credit given for the UK tax - not the other way around.

Hi - have a look here and then refer specifically to the treaty terms with the country in which you are resident for tax purposes and then report back!

https://www.mytaxaccountant.co.uk/post/disregarded-income-non-resident

 

[Gyumri]

The way I understand how DTT works would be the following:

Under double taxation treaties, dividends from a UK company to a non-UK resident are typically taxed first in the UK at the treaty rate, then in your country of residence at their rate, with credit given for the UK tax - not the other way around.

• Under the "disregarded income" rules, a non-UK resident might be able to claim that UK dividends are exempt from UK tax - HOWEVER, this won't apply if the dividends originate from a UK trading company (which is true in this case).
• Under double taxation treaties, dividends are typically taxed as follows:
  • If UK tax is higher (39.35%) than the residence country's rate (e.g., German in your example 25%), you pay the full UK rate and nothing in Germany
  • If UK tax is lower than 25%, you pay the UK rate plus enough additional tax in Germany to reach their 25% rate

Yes, of course. But I need to get a better understanding of risks first to have an efficient conversation with the tax advisor.

It is the double taxation treaty between the UK and the relevant country where you are resident for tax purposes that ultimately determines where you pay dividend tax that is derived from a UK registered company.

I do not think it comes under the specific heading of disregarded income which applies to UK citizens who might for a period such as a year be resident in another country.

if you are permanently resident in another country for tax purposes as well then the treaty terms would apply so that a person does not have to pay tax in the UK at all on dividends, since the taxpayer is obliged to pay tax on that income in the country where he is resident. That would particularly apply to a person who is not even a UK citizen!

See here as an example for Germany:

Double tax treaty UK Germany: Everything you need to know

🇩🇪 🇬🇧 The double tax treaty between the UK and Germany aims to prevent double taxation. Click here to know more and avoid mistakes.

www.stephaniedeiters.com

 

[NickGrogan]

Because that is where and how his businesses make their money! The same trade may not work in another country. And if the business has a lease or owns a building from which it trades then that cannot be relocated.

Sticking to your example of Germany, nothing is stopping a German company from having customers in the UK and making money from them, particularly if the relationship already exists.

If the money is made in Germany, and the OP is living in Germany then there are no double taxation issues to consider.

Getting rid of UK tax residence is also not as simple as living abroad, especially if the OP has properties in the UK.

 

[Gyumri]

Sticking to your example of Germany, nothing is stopping a German company from having customers in the UK and making money from them, particularly if the relationship already exists.

If the money is made in Germany, and the OP is living in Germany then there are no double taxation issues to consider.

Getting rid of UK tax residence is also not as simple as living abroad, especially if the OP has properties in the UK.

I thinktrhe OP is intending to draw a dividend from a uk based business. Anyway he will have to get specific advice as there is only so much that can be achieved on a forum.