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The UK Company Acting As Agent
The UK Agency company is a popular vehicle within the field of international trade.
The rationale behind the use of such an entity
is that the Company, fully liable for UK corporate tax, undertakes
business for and on behalf of a non-resident Principal.
The concept of the structure is that the Principal,
who has the knowledge, know-how and business acumen, engages an
independent UK company to act as its agent for some or all of
its international business. The UK Company in turn will enter
into trading agreements with customers of the Principal to buy
or supply goods from or to third parties for and on behalf of
the Principal.
Generally a formal agreement is entered into between
the Principal and the UK Company, which would entitle the UK Company
to a fee relating to the services that it is requested to perform.
All trading operations are executed by the UK Company for and
on behalf of the Principal.
The fee charged by the UK Company would be an
amount that reflects the responsibility and work undertaken by
the UK Company on behalf of the Principal. This fee will be retained
by the UK Company to cover its operational and administrative
costs. The profit element of the fee will then be subject to UK
corporation tax at 30%. An acceptable fee, chargeable by the UK
Company would be between 5-10% of gross turnover or profit, whichever
is the greater. The balance of the trade would be for the account
of the Principal.
If trading occurs within the European Union and
the turnover of the UK Company exceeds the threshold for VAT registration
purposes of £58,000 the UK Company would be obliged to register
for VAT within the UK. A UK company can voluntarily register for
VAT should the turnover be below the stated threshold as long
as it can demonstrate that it intends to turnover more than the
threshold amount.
VAT Registration is an important feature when
trading in the European Union as this is the only method of facilitating
cross-border triangulation without the need to charge VAT to other
corporate bodies within other member States. Put simply, if a
UK Company issues a VAT invoice to another Company based in another
European Union member State and as long as the recipient company’s
VAT/TVA number is quoted on the same invoice the supply can be
zero rated.
Operational
Case Study
The UK Company enters into agreements, on behalf
of the Principal, to buy shoes from a Portuguese shoe manufacturer
and supply the same to an Italian fashion group.
The Portuguese company will invoice the UK Company
for the market value of the shoes, quoting their respective VAT
number and reflecting the UK Company’s VAT number on their
invoice, thus zero rating the supply.
The UK Company in turn will request that the
goods be delivered to a Freeport where they will take title of
the goods and tranship the stores to Italy.
At this time the UK Company will issue an invoice
to the Italian fashion group, again reflecting the UK Company’s
VAT number and that of the Italian Company, in order to zero rate
the supply for VAT purposes. The stores are thus delivered with
all documentation reflecting the UK Company and not the original
supplier.
Once the goods have been received and accepted
in Italy, the Italian fashion group will pay the invoice received
from the UK Company direct into the bank account of by the UK
Company.
On receipt of the funds, the UK Company will
in turn settle the invoice received from the Portuguese Company.
The remaining funds, less the agreed fee for
the UK Company, will be remitted to the Principal.
Potential
Issues
- It is advisable that this structure is not utilised for
trading in the UK, as UK sourced income would be subject to
taxation.
- It is recommended that the Directors and shareholders of
the UK Company and Principal are not connected, and the majority
of the board of directors are not UK resident.
- Any agreements that the UK Company enters into on behalf
of the Principal should be signed outside the UK by one of
the non-UK resident directors.
- A certificate of tax residence may be required in order
to avoid withholding taxes.
- It is a requirement for all UK Private Limited Companies
to file annual accounts with the Inland Revenue and the Registry.
The UK Limited Liability Partnership
The United Kingdom Limited Liability Partnership (LLP) was introduced by the UK Government in 2000. It is a separate legal entity and a body corporate, has all the functionality of a Private Limited Company but is taxed as if it were a Partnership.
The United Kingdom Tax Authorities have confirmed that the taxation base will follow the procedure operated in the past for Partnerships. The income and capital gains of an LLP are thus treated as income attributable to the members and therefore the UK LLP can be utilised as a tax efficient vehicle for international trade. On the proviso that that there is no UK sourced income and the members are non resident of the United Kingdom there would be no liability to UK taxation.
Operational Case Study
A United Kingdom LLP has 95% of its members based in a low tax area such as the Isle of Man or British Virgin Islands. A UK Private Limited Company owns the balance of 5%. The UK LLP intends to purchase goods from Asia for sale to a South American Country.
The goods are sourced from Asia and supplied to the buyer and paid for accordingly from outside the United Kingdom.
Because there is no UK sourced income, 95% of the profits attributable to the non resident members would flow through and be taxed at the rates applicable in their country, the remaining 5% attributable to the UK resident member would be taxed in the UK at current rates after deduction of business expenses.
Potential Issues
- The UK LLP must be established with a view to making a profit
- To avoid a liability to taxation there should be no UK sourced income and no UK resident members
- Anti avoidance provisions
- The UK LLP generally does not have access to double taxation agreements
- The UK LLP must have a minimum of two members
For further information regarding the utilisation
of UK Companies for International Trade please contact a Director
or a Consultant at our London
office
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