For many years the UK Limited Company has been the corporate structure of choice for many international entrepreneurs doing business within the EU or worldwide. And this does not come as a surprise. The UK Limited company, when properly structured and operated, offers distinctive advantages such as:

• Low level of bureaucracy, easy to set up, easy to close. No capital requirements.
• Unique solutions for tax optmisation (for example in combination with offshore companies or non domiciled taxation). At the same time the UK is not considered a tax haven.
• Relatively low corporation tax rates (22-28%).
• Businesses up to £4.5 Million turnover/sales are exempt from audit which reduces ongoing running costs for the entrepreneur.
• Flexible, business friendly expense deduction rules.
  

If you don't live in the UK but plan to set up a UK Limited Company there are a number of precautions you have to keep in mind. If you don't establish a proper UK trade the tax authorities in your country of residence may decide that your UK company is actually taxable there (where you live) and UK taxation does not apply.

On this page we explore the possibilities of a UK Limited company and how it must be structured and operated to benefit from the opportunities described above.

The 3 Key Benefits of a UK Limited Company

Among the many good reasons for setting up a UK Limited Company there are three main benefits we have identified. Again: You will only be able to benefit from these unique opportunities if you make sure that your UK Limited company is properly structured and falls under UK tax jurisdiction.

The three main benefits are:

Low Capital Requirements and Set Up Costs

While in most European countries you have extensive minimum capital requirements to set up a limited company there is no capital required in the UK. Further to that you don’t need to involve notaries and lawyers to set up a business. This reduces the set up costs significantly.

Unique Tax Optimisation Opportunities

In the last few years the traditional offshore jurisdictions and tax heavens experienced an unprecedented crack down. Black and grey lists where published by the OECD and the G20 vowed to fight tax evasion to the bone. Hardly anybody realised that in reality the two biggest tax heavens in the world are the US and indeed the UK. Especially for international clients there are a great number of possibilities to set up tax efficient structures especially in the UK. And they are absolutely legal. We just mention three examples here:

• No withholding tax: There is no withholding tax on dividends by UK companies even if they are distributed to offshore holding companies.
• Nom domiciled taxation: Foreigners living in the UK don’t pay tax on overseas income (conditions apply).
• Offshore Solutions: Using offshore companies on the Channel Islands or the Overseas British Territories together with a UK Limited Company is day to day business in the UK and will not raise an eye brow as long as you do it properly.
  

Very Flexible on Tax Deductible Expenses

The biggest advantage of a UK Limited company in our mind is the way that expenses can be handled.

Compared to other major European countries such as France or Germany the UK has very flexible rules that govern what expenses are tax deductible. The UK authorities are much less rigid than their counterparts in other countries. As the UK system is principal based there are no fixed rules, tables or lists of tax deductible items. As a matter of principal all business expenses are tax deductible (as long as they really are business related expenses). You obviously need to apply common sense. If you need to invite your clients to a Formula One Grand Prix and that expense is reasonable in relation to your total sales this would be totally fine in most circumstances. However, if you spend half of your annual sales on expensive restaurants this may raise some questions. The British people believe a whole lot in common sense as this shows.

Obviously this applies even more to the more mundane day to day expenses such as mileage and travel expenses in general.

The seasoned entrepreneur will understand that this is a huge benefit. In most instances this is even more important than a low corporation tax rate. You may not have big profits in the first few years of your business anyway (hence you don’t worry about the tax rate) but you have significant expenses. You want to be able to run those expenses through the business without worrying too much and thus creating a nice loss carried forward to be offset against future profits.

Sounds Great - What's the Catch?

To make use of the benefits that come with a UK Limited Company you need to demonstrate that your business is actually UK based. Now the UK authorities will be happy to take your tax money so there is no problem from that end.

However if you are an international entrepreneur living outside the UK your local tax authorities will do everything they can do to make sure you pay tax there. They can justify this based on international tax agreements. They rule that a business is taxed where it is managed, no matter where the corporate entity is domiciled.

The easiest way to get around this is to open a proper office or other facility in the UK, employ a local manager and few staff. In that case you establish a proper UK trade and you won't have a problem, even if you, the owner/principal of the business lives outside the UK.

If you have no intentions to open a real office in the UK as yet, this is where the trouble starts.

International Taxation & Double Tax Treaties in a Nutshell

Many entrepreneurs believe that opening a company in the UK and operating it from their country of residence makes them fall under the UK tax laws. This is not the case. The UK has double tax treaties with most countries in the world, and for sure with all EU countries and all other economically significant countries in the world.

Businesses are Taxed Where they Are Managed (Principal Place of Business Rule)

While all these agreements differ in details the essence with regards to taxation of corporate profits is fairly similar: A business is taxed in the country from where it is managed, no matter where the corporate entity is domiciled.

This means if you are Greek, you live in Athens and you set up a company in the UK it will be treated as a Greek business by the Greek tax authorities and will fall under Greek jurisdiction. You will pay tax in Greece based on Greek tax rates, you will have to file accounts in Greece. This is true for all the business that is generated from Greece, even if the revenues are generated outside Greece. This happens because you have automatically established a principal place of business (or a branch) in Greece, or a Greek trade. And this just by the fact that you as the owner/director of the UK company are based in Greece and manage the business from there.

Note: We have used Greece in this example to illustrate our point. There is no intention to single out Greece, similar laws are in place across most countries in Europe and the Western world with the exception of Switzerland. If you live in Switzerland you are allowed to manage businesses everywhere without constituting a Swiss place of business automatically.

It's Not Just Management: Read About Production Facilities etc Here

The governing jurisdiction of a business does not only depend on its place of management. If for example you have a production facility, a shop, a building site – all these will automatically trigger a place of business in your home country (and thus a potential tax liability).

Equally if your business has only customers in your home country and/or most/all your marketing is directed towards potential customers in your home country you also establish a place of business in your home country that will need to be taxed according to your local rules.

There is actually a whole list of activities defined in the double tax treaties that define exactly what constitutes a principal place of business that makes the business fall under local jurisdiction (i.e. taxation where these activities are performed). The ones mentioned here are just the main ones we deal with every day.

How Should They (the Tax People) Ever Find Out That I Am Running a UK Company?

Let us hypothetically assume for one moment that you are ready to take some short cuts (i.e. evade tax), provided that the risk to get caught is not very high. Obviously this is a purely academic discussion as you will always strive to be honest and to respect the law.

You decide to set up a UK Limited company and simply run it from where you live, let’s say Spain. You have clients and suppliers in Spain and across Europe. You do IT consulting work from your home office, no employees, just a few freelance consultants. As described on this page you do run in fact a Spanish business that falls under Spanish jurisdiction. But how would the Spanish tax authorities ever find out?

As far as we know from experience these are the main risks for entrepreneurs to get caught:

• Tax audit of suppliers or customers: One of your customers or suppliers in Spain has a tax audit and they find an invoice from or to your UK Limited company. As this is the only UK related invoice the investigator will start to ask questions what this is all about. Your supplier/customer will say: “Yes, this is my friend Jose from Barcelona. He just uses a UK Limited company as it is easier for him”.
• Disgruntled employee, competitor or ex-spouse: Do not underestimate the energy that is released by hate, anger and frustration. People tend to do everything to harm you when it gets dirty. They may just know a few details, investigate a bit and then tell you off.
• Research by the tax authorities: Believe it or not the taxman knows Google. If you are under investigation anyway they may just key your name into a search engine. If you are somehow involved in a UK Limited company your name will be all over the place as the public register is indexed as are many other databases using that data.

We at St Matthew eAccounting have a number of clients from countries such as Germany, Austria and Spain who were at exactly that position and got caught. They became our client at that point and asked us to help clean up the mess.

These risks described my not apply to your particular situation, fair enough. However when you a run a proper business you will sooner or later expose yourself and for that reason you need to make sure you build in some safe guards.

Conclusion: You Must Avoid Triggering a Principal Place of Business in Your Home Country

Keeping all those factors in mind, it is important that you operate your UK Limited company according to the guidelines described below. If you don't you may easily be accused of tax evasion and will face significant criminal charges in your home country or at least may face a huge investigation into your affairs. Doing it the right way will allow you to explain and proof every detail requested should it ever come to a tax investigation. If you do it properly there is nothing to be afraid of.

And this is exactly where St Matthew eAccounting can help. We help you to demonstrate to the outside world that you have set up a proper UK based business. And this without the burdens of having to rent your own office or employ your own staff. We have hundreds of clients across Europe and the world that work with us in this way and never got into any difficulty. Indeed our solutions have been designed to be in compliance with local tax laws wherever necessary.

What is Essential to Prove the Existence of a UK Trade?

Let's look at what you have to do to establish a proper UK trade. We can do this buy just applying the rules used by tax investigators: Should you ever be subjected to a tax investigation in your country of residence, these will be the factors the tax authorities will take into account when assessing if your UK Limited company is liable for tax your country of residence:

• The company must have an actual UK office in which people can work (this must be accessible, no PO box!)
• Incoming calls must be answered in the UK in your company's name. An answering machine or call re-direction do not suffice.
• The company must have a UK based resident director. As a non-resident you cannot be the sole director without risking being liable for tax in your country of residence. Important business decisions by the board of directors must be made in the UK.
• Some of your infrastructure (server, vehicles) should be located in the UK
• Advertising, marketing and sales should not mainly target your country of residence.
• Business operations should not be tailored to the market in your country of residence.
• The majority of your clients should be international and UK based and must not be within your country of residence.
  

If you already operate a UK Limited company and realise that you don't meet most of the requirements specified above, there is a realistic risk that you are liable for tax in your home country. At some point you will potentially be the subject to a lot of scrutiny by your tax authorities and you may indeed be charged with tax evasion. We recommend that you act now and discuss the situation with a local tax advisor.

Showstoppers: When it is Impossible to Set Up a UK Trade

Unfortunately there are some situations where it is impossible to establish a UK trade. In these circumstances you will always establish a principal place of business in your country of residence, hence you will always be liable for tax in your home country. Here are three main scenarios where this would be the case:

• You operate a shop or store front or any similar outfit where you conduct business and see customers.
• Your provide services that are closely tied to your neighbourhood, such as cleaning services, plumbing services, delivery services.
• You employ staff and need to be registered as an employer, i.e. you have proper operations.

If any of these applies to your situation you may still be able to set up a UK limited company, however it will need to register a local branch in your country of residence. This will have the consequences stated above and you will not fall under the UK tax legislation but will instead be treated as a local business. Alternatively, if you are able to divide your business in a local and an international segment, you could run the local portion of the business trough the branch in your country of residence and do the international work through the UK. We have clients who operate on that basis with great success.

General Rule: You Need to Be Able to Run Your Business from the UK

As a general rule of thumb you need to ask yourself if you would be able to run your business from the UK. If you can answer this question with yes it will possible to establish a UK Trade without having a principal place of business in your country of residence. If you are doing an Internet business this is perfectly fine. Many consulting businesses can operate in the same way. Writers are a good example. As well as stock exchange traders. Import/Export businesses work where you are simply the middleman making the deal, i.e. you never see the goods anyway. All these businesses work well with the solution that St Matthew eAccounting offers.

The Role of the Business Owner / Principal

When you become a client of St Matthew eAccounting our firm will provide a UK resident director for your company, unless you can provide your own UK based director. This would be one of the advisors in our office. He would represent the company to the outside world. This is one of the most important requirements to show that you have established a place of business in the UK.

As the business owner you can still be the official owner/shareholder of the company. There is no problem with that. You are also allowed to perform certain activities in your country of residence such as sales, negotiations and business development. According to the tax treaties between the UK and most other countries these activities alone are not sufficient to establish a place of business (you want to avoid this, remember?)

This is important as you don't want to play hide and seek. You should be able to perform your duties openly. At the end it is a real business that needs you and relies on you.

How it All Works Out Taxwise

The UK Limited Company pays UK corporation tax on all its distributable profits. This is between 22% and 28%, depending on how much profit you make. The UK will not impose any other taxes on these profits. You can decide to leave the profits in the company or distribute them as dividends to the shareholders. Taxwise it makes no difference. The shareholder can be another company and can be based anywhere in the world. There is no withholding tax in the UK.

If you are the share holder of the company you will normally have to pay personal or income taxes in your country of residence on dividends (on receipt). This is fairly elegant as you can decide the point of taxation yourself. Re-Invest the money and there is no tax, or pay out the dividends to you when it is suitable. It is impossible to give an indication of how much tax you have to pay in your country of residence. In most countries this rate will be less than the income tax rate, some countries may even have no tax at all.

The UK does not inform your local tax authorities about how much dividends you have received from your UK company. You will have to declare that yourself when submitting your tax return in your country of residence (or whatever your local tax law defines as the process to declare those dividends).

How to Get Money Out of Your UK Limited Company

We have already discussed how dividends are distributed to the shareholders. This is the most common and straight forward way to take out money out of your company. But there are other ways, too. First however let us explore one avenue you cannot go down without causing potential trouble: It is not possible for you as a shareholder to just "invoice" the company for your services. This would be viewed as distribution of profits and would be taxed accordingly.

What is possible and common are the following three options:

• Salary: You can pay yourself a salary. As you don't live in the UK this would be paid out gross without further deductions in the UK. You will need to pay tax and social security in your country of residence, however that would be your responsibility and is of no concern in the UK.
• Expenses: As mentioned before it is fairly easy to run expenses through your UK company. For example you can charge the company for mileage, i.e. miles you drive in your own car on behalf of the business. Or you can make certain purchases through the company, as long as they are business related (however you should forget about company cars. This is very complicated. Much easier to charge mileage for your personal car's use).
• Third Party Invoice: If you have another company you can invoice your UK Limited company from that company. The UK is fairly flexible, so even if your company is based in Switzerland or other countries your invoice will be accepted by the tax authorities, as long as it seems to be appropriate. Note that transactions between related companies need to be mentioned in the year end accounts of the UK company so if you are the owner of both companies involved in such a transaction this would still be OK but needs to be declared.

There are of course other, more sophisticated options but they are better discussed in a personal meeting in London.

The UK Limited Company Package from St Matthew

Our accountancy firm is specifically authorised and licensed by the UK authorities to offer nominee and trust services. We have been offering this service since a number of years and have many clients who operate successfully with a UK Limited Company.

Our package is the most comprehensive package on the market today and contains all services that you will need to set up and run your company in the UK. It includes the following services:

	UK Company Formation We will set up your UK Limited company with Companies House. This usually takes just 48 hours. If you have a UK Ltd company already you may move it to us. We do not charge for the incorporation hence the fee would be the same.
	Local Director A UK resident consultant from our firm will become nominee director of your company as outlined above. This service is optional. You may have your own UK resident director you want to use.
	Registered Office Every UK company needs a registered office where official mail from the taxman can be delivered. We will domicile your company at our office address in Central London.
	Phone & Fax Number You get your own phone and fax number. Faxes will be forwarded to you by email, the phone will be answered in your company's name by our staff. We will send you and email with the message that the caller left.
	Door Sign with Your Company Name There will be a metal sign with your company name in our reception.
	Use of Our Offices You may use our offices and meeting rooms while you are in London (after prior arrangements, limited fair use policy applies)
	Correspondence Address & Mail Forwarding by Email You can use our office address as correspondence address for your business mail and on your business stationary such as business cards. We will forward any mail that we receive by email. If we receive packages or original contracts etc we will forward them by post or by courier.
	Corporate Bank Account Your company will get a corporate bank account with credit cards from a major UK bank. Note that you need to come to London for this. You account will be opened the same day. In exceptional cases we can open accounts by post but you need to visit a branch of our bank in your country to introduce yourself. A minimum deposit of £1,000 is required.
	VAT Registration We will register your company for VAT if required. We can also act as your VAT agent (for an additional fee). See the important disclaimer below.
	Ongoing Bookkeeping When you sign up for our service we will provide you with your dedicated accounts website and inbox email address. Just email all your relevant paperwork to this address (receipts, invoices etc) and our accounts team will do the bookkeeping. You can see all documents online using your accounts website.
	Tax Returns & Year End Accounts We will prepare the statutory accounts for your company plus the corporate tax return.
	Annual Return Once a year every company needs to update their details with Companies House (363 Return). We will submit the 363 return on time for you.
	Deadline Maintenance In the course of the tax year there are a number of important deadlines and dates to keep in mind for your company. They have to be strictly followed as the UK authorities will raise penalties immediately. We will keep an eye on these dates and will make sure everything is filed on time.
	Communication with the UK Authorities We deal with the tax authorities and Companies House on your behalf. We will solve any issues directly with them as far as we can. If required we will contact you first to agree the best way forward before we speak to them.
	Unlimited Support Our multi-lingual team of accountants and business advisors are happy to assist you with all upcoming questions and issues in relation to your company. You may call us or email us and we help you in a fast and efficient manner. You may also come to visit us in our offices in London to discuss certain things face to face if you prefer. Just arrange an appointment and we will be glad to meeting you.

Only from St Matthew: The No Penalty Guarantee

We are so confident about our service that we promise to never miss a filing deadline for your company. Should a filing deadline be missed and it turns out to be our fault we will pay all penalties. No other accountancy firm or company formation agent can offer this guarantee. Yes, we actually do care and we make a great effort to get it right first time. This is one of the many reasons why clients change over to St Matthew after they got their fingers burned with a cheap formation agent and head to pay huge penalties in order to rescue their company from mandatory dissolution. Don’t make the same mistake and come to the accountancy firm you can trust.

Fees & Payment Terms

The annual fees for this service start at £3,100 plus VAT. Please note that the final fees depend on your specific requirements. Therefore you have to request a quote first so we can assess your need.

50% of the first year fees are payable in advance, the rest can be paid in 10 instalments. This is under the provision that we can take the fees by direct debit from your new company’s bank account. If you decide to pay the full amount in advance we will give you 10% discount.

2nd year fees can either be paid in instalments by Direct Debit or in full in advance.

To Keep in Mind for VAT Registration

We do recognise that most of our clients need a VAT registration (tax ID). You have to bear in mind that the VAT registration process in the UK can take up to 6 months. We are unable to speed up this process. The authorities in the UK are short of staff and follow a rigid process to avoid VAT fraud. Please keep this in mind before signing up to our services to avoid frustration. If you need a VAT number urgently you may consider buying a readymade company from us that is already VAT registered. Please check this page for details.

Process

Please check this page for details on our process of setting up your company.

Is this Service Right for You?

We recommend this package for entrepreneurs who are looking to set up and operate an actively trading business in the UK. If you are looking for another type of company (holding company, dormant company, company to hold an asset) please contact us as we may be able to provide a better solution.

This package is ideal for entrepreneurs who are looking to generate at least £200,000 annual sales with their UK Limited company. If your expected annual sales are less you may find this service too expensive or simply an overkill. We regret that we will be unlikely able to help you in that instance.

If you are planning to set up your own operations in the UK (take out a lease, employ staff) most of the issues raised here should be of no concern to you. Your own operations will always constitute a place of business in the UK. We would still be happy to quote you though as you will find that most of the services described here are still required by your UK business.

Next Step

If you are interested in setting up a UK Limited company please contact us to request a quote.