Offshore company: any tax advantage?

codetown

I am thinking to set-up a company to sell services.
Customers will be in Europe mainly (mostly not UK) but all transactions will go over the Internet anyway.

One possible form to set this up is via a UK limited company (good to keep separate personal assets), but I would like your opinion on offshore companies.
These type of companies (often IBC, International Business Companies) are also offered by all the 'company formation' services at affordable prices (below 1000 pounds, usually ~500 pounds).

My question is:
a) is there any legal restriction in having an offshore company?
b) is there any (legal) tax advantage in setting up this company and trade all from there?

My residence will still be UK, but the formation services company say this is not a problem. I am only and exclusively interested in tax advantages that can be legally gained by setting an offshore company and not privacy of data, customers etc or anything else.

What is clear to me is that such countires allow companies to operate tax free, so no Corporate Tax is due there.
But what happens if capital is passed back to me as salary or a share dividends. What (any) sort of tax would then be due to UKHRM/PAYE?

If this is the same as UK income, where is the gain in setting this offshore company?

Bermuda_John

As you are a domiciled in the UK your worldwide income will be subject to UK tax.

inmypocketnottheirs

Imho, a very risky strategy.

Far better setting up a proper UK company, registering for VAT/PAYE if applicable and getting yourself a decent accountant.

Any other course of action will more than likely land you in deep trouble. Of course all the formation agents pedalling these companies will advise you to the contrary, but as advised above if you are resident here then you will be liable for tax here.

Extreme caution is advised!

codetown

I am not rushing in a decision. Just trying to think to reasons why people would do it and asking you experts. At present I cannot see any (tax) reason why you would build an offshore company.

a) the liabilities on personal income will be the same (so no difference if you receive salary from a limited company in UK or from an offshore limited company).

b) Even assuming you take a low salary and the rest in dividends, in UK the profit will be taxed 19% at source and then distributed as dividend. But will you pay any further personal tax on these dividends, or is the 19% at source all you have to pay?

In an offshore the company would have no fixed tax on profits, but once dividends are distributed I assume they would be considered gross income, which should be subject to taxation which would be 20% at basic level. Is this correct?

In this case you would be even 1% worse doing this offshore round trip!!!
So what is the advantage? Why do these company sell this package?

inmypocketnottheirs

People do it because they think they are immune from taxation. Companies sell them because they make money from providing a false impression that one can avoid tax in this way.

Sadly both are wrong. Well, they are wrong if the revenue catch up and investigate and find that tax has been evaded.

And who pays the price, the company providing the information, or the person avoiding the tax?

Plus these companies that sell offshore jurisdictions are usually offshore companies. If their advice was poor, and an individual wanted to sue for the poor advice given, what success do you think they would get from a Belize company trading from Panama with a bank account in the Turks and Caicos Islands. Very little I imagine.

Bermuda_John

You will be subject to tax unless you can prove the company is operating out of the offshore company and the central management function is based there.

Thats why im sat here in Bermuda!!!! :rotfl:

pin

There are many tax advantages in setting up your company offshore. However there are quite a few costs involved as well. Best bet would be to get some proper professional advice from a tax advisor and/or lawyer.