Inter-company Invoicing and Corporation Tax Working Abroad (Potential Transfer Pricing?)

BTLLL123

Hi all,

My wife and I are contemplating a move to Dubai as we have family and many friends there.

I have a limited company (finance brokerage) which employs me and only me. From what I understand, it should be fairly straightforward (however, very costly) to set up a UAE business, become a UAE resident and work from there whilst my clients still pay into my UK Ltd company.

However, this would be a very costly move, both personally and for my business, so I would need to drastically reduce my corporation tax bill or this won't be viable. 

Does anyone have any experience of intercompany invoicing and whether or not my UAE business invoicing my UK business for management fees or consultancy fees would be tax deductible in HMRC's eyes?

The plan is to earn a fee from a client which would be paid into the UK business, then bill that exact same fee from the UAE business, so I'm hoping that would be simple enough to prove it was a fair price?

My accountant isn't able to give me a straight answer.

Thank you in advance!

BTLLL123

[Deleted User] said:

BTLLL123 said:

Hi all,

My wife and I are contemplating a move to Dubai as we have family and many friends there.

I have a limited company (finance brokerage) which employs me and only me. From what I understand, it should be fairly straightforward (however, very costly) to set up a UAE business, become a UAE resident and work from there whilst my clients still pay into my UK Ltd company.

However, this would be a very costly move, both personally and for my business, so I would need to drastically reduce my corporation tax bill or this won't be viable. 

Does anyone have any experience of intercompany invoicing and whether or not my UAE business invoicing my UK business for management fees or consultancy fees would be tax deductible in HMRC's eyes?

The plan is to earn a fee from a client which would be paid into the UK business, then bill that exact same fee from the UAE business, so I'm hoping that would be simple enough to prove it was a fair price?

My accountant isn't able to give me a straight answer.

Thank you in advance!

Get a new accountant.

There are rules designed to stop that.  At one end, if the new expenses of the UK company are not wholly and exclusively for the purposes of the UK company's trade then they won't be deductible for tax.  This is basic stuff.  One way of thinking about it is I owned the UAE business, would you be happy for your UK business to pay the invoice, bearing in mind what my UAE business did for your UK business?

At the other end you have the profit-fragmentation rules designed to stop complicated scams schemes designed to get around the rules. These are very widely drawn and most accountants probably haven't heard of them. Here's a Noddy's guide to it: https://mooreks.co.uk/wp-content/uploads/2019/09/Profit-Fragmentation.pdf  Once you've read that you can google the legislation and HMRC guidance.

Thank you for that, that was really helpful; I was actually completely unaware of profit fragmentation but have been reading about it all day! 

How about another hypothetical situation... I don't set up a UAE business and instead remain an employee of the UK business and pay myself a higher salary than normal? 

In theory, I would not pay any income tax as a UAE resident and everything I take as a salary would come off my corporation tax bill?

BTLLL123

[Deleted User] said:

BTLLL123 said:

[Deleted User] said:

BTLLL123 said:

Hi all,

My wife and I are contemplating a move to Dubai as we have family and many friends there.

I have a limited company (finance brokerage) which employs me and only me. From what I understand, it should be fairly straightforward (however, very costly) to set up a UAE business, become a UAE resident and work from there whilst my clients still pay into my UK Ltd company.

However, this would be a very costly move, both personally and for my business, so I would need to drastically reduce my corporation tax bill or this won't be viable. 

Does anyone have any experience of intercompany invoicing and whether or not my UAE business invoicing my UK business for management fees or consultancy fees would be tax deductible in HMRC's eyes?

The plan is to earn a fee from a client which would be paid into the UK business, then bill that exact same fee from the UAE business, so I'm hoping that would be simple enough to prove it was a fair price?

My accountant isn't able to give me a straight answer.

Thank you in advance!

Get a new accountant.

There are rules designed to stop that.  At one end, if the new expenses of the UK company are not wholly and exclusively for the purposes of the UK company's trade then they won't be deductible for tax.  This is basic stuff.  One way of thinking about it is I owned the UAE business, would you be happy for your UK business to pay the invoice, bearing in mind what my UAE business did for your UK business?

At the other end you have the profit-fragmentation rules designed to stop complicated scams schemes designed to get around the rules. These are very widely drawn and most accountants probably haven't heard of them. Here's a Noddy's guide to it: https://mooreks.co.uk/wp-content/uploads/2019/09/Profit-Fragmentation.pdf  Once you've read that you can google the legislation and HMRC guidance.

Thank you for that, that was really helpful; I was actually completely unaware of profit fragmentation but have been reading about it all day! 

How about another hypothetical situation... I don't set up a UAE business and instead remain an employee of the UK business and pay myself a higher salary than normal? 

In theory, I would not pay any income tax as a UAE resident and everything I take as a salary would come off my corporation tax bill?

Would you ever come to the UK and have anything to do with the UK company?

Only to visit family during summer holidays etc. I have no office here, no other employees to meet etc. so I have no reason to work here. 

I understand I can potentially work for up to 30 days here whilst still remaining a UAE tax resident but if it transpires I can't, then so be it. I'll abide by whatever rules are necessary. 

I'm just trying to get to grips with what is possible and what is not. 

Thanks. 

Grumpy_chap

I have no knowledge about the tax rules that apply here.
As an absolute lay-man on the subject, why is the OP keeping a UK Ltd Co. when the OP can fully work in UAE?  Why not simply set up a UAE Ltd Co.?

sheramber

Grumpy_chap said:

I have no knowledge about the tax rules that apply here.
As an absolute lay-man on the subject, why is the OP keeping a UK Ltd Co. when the OP can fully work in UAE?  Why not simply set up a UAE Ltd Co.?

explained in first post

however, very costly) to set up a UAE business, become a UAE resident and work from there whilst my clients still pay into my UK Ltd company.

However, this would be a very costly move, both personally and for my business, so I would need to drastically reduce my corporation tax bill or this won't be viable. 

Hoenir

Time to consult some proper tax expertise I'd say. In order to structure your affairs properly. 

BTLLL123

Grumpy_chap said:

I have no knowledge about the tax rules that apply here.
As an absolute lay-man on the subject, why is the OP keeping a UK Ltd Co. when the OP can fully work in UAE?  Why not simply set up a UAE Ltd Co.?

This would be the simple and most effective cost solution as I would be subject to no tax at all in that scenario. 

However, all of the lenders I work with are UK-based, they're regulated and they would need to pay into the UK-based bank account of a UK-based business. Where I am physically, however, is of no interest to them. 

BTLLL123

Hoenir said:

Time to consult some proper tax expertise I'd say. In order to structure your affairs properly. 

Thank you, I will definitely be doing this; but as the idea is in its infancy, I wanted to just see if there are any glaring red flags which makes this a non-starter. 

Phoenix72

BTLLL123 said:

Grumpy_chap said:

I have no knowledge about the tax rules that apply here.
As an absolute lay-man on the subject, why is the OP keeping a UK Ltd Co. when the OP can fully work in UAE?  Why not simply set up a UAE Ltd Co.?

This would be the simple and most effective cost solution as I would be subject to no tax at all in that scenario. 

However, all of the lenders I work with are UK-based, they're regulated and they would need to pay into the UK-based bank account of a UK-based business. Where I am physically, however, is of no interest to them. 

I'b be inclined to differ if you were spending zero time in the UK. Have you confirmed with them that the fact the company was run by a non-resident director 'is of no interest to them'?

Hoenir

BTLLL123 said:

Hoenir said:

Time to consult some proper tax expertise I'd say. In order to structure your affairs properly. 

Thank you, I will definitely be doing this; but as the idea is in its infancy, I wanted to just see if there are any glaring red flags which makes this a non-starter. 

There's little that has never been attempted before. Believing that something has been overlooked is futile. That's why  people fall into self dug holes with endless regularity.  

Runninglaps

Phoenix72 said:

BTLLL123 said:

Grumpy_chap said:

I have no knowledge about the tax rules that apply here.
As an absolute lay-man on the subject, why is the OP keeping a UK Ltd Co. when the OP can fully work in UAE?  Why not simply set up a UAE Ltd Co.?

This would be the simple and most effective cost solution as I would be subject to no tax at all in that scenario. 

However, all of the lenders I work with are UK-based, they're regulated and they would need to pay into the UK-based bank account of a UK-based business. Where I am physically, however, is of no interest to them. 

I'b be inclined to differ if you were spending zero time in the UK. Have you confirmed with them that the fact the company was run by a non-resident director 'is of no interest to them'?

I would also be inclined to differ.

Though your question is about tax there are other things you may not have considered.

insurers are often very reluctant to offer cover if you’re not in the UK, even if it is the limited company they’re covering.

are there compulsory insurance or regulations in UAE you will need to follow even if it is as an employee.  Have you set up a de facto UAE company by being based there (whatever the UAE version of a permanent establishment might be)

given it is finance is there a data issue?

is there an FCA issue? 

It’s not just tax, you need to thing about all your processes and how the business works and consider if it’s a problem from a customer/counterparty pov, a ltd company legal/regulatory pov, and then do the same for yourself as a uae employee of an overseas. Company and what regulations/risks you have there.


it might be it is all fine, but you need to consider way more than just the tax issues.