United Kingdom and London is one of the major international business centres with the most developed banking, investment and professional infrastructures in the world and a complete legal and regulatory system.
Further more, UK Companies are considered highly reputable as a result of the high respectability of the country of incorporation and the fact that Britain has the largest number of double tax treaties in the world.
None the less, if the company is tax resident of the UK, it is then taxed at a rather high tax rate, ranging from 21%-35%. As an alternative, the UK Company can be tax residents of Cyprus where it can be benefited a lot more.
The UK is being under a constitutional monarchy with Queen Elisabeth II being the chief of the state as well as of other Commonwealth empires. It has a very stable political and legal environment.
The UK is one of the leading economies in trading and in the financial sector, the latest comprising of the biggest contribution in the country’s GDP.
The UK has an excellent infrastructure on communication systems, internet, land lines and mobile lines. The country has approximately 518 airports, railways total to 16,454 Km and ports amount to 10.
Types of Companies
Non resident company
Non resident company is a company incorporated in the United Kingdom, while its management and control body and its business operations are outside Great Britain. Location of the management and control body of the company is the place where managerial decisions are made, where contracts are signed and where the company’s management are physically located, including the people who manage the company’s bank accounts.
The fact that the British Company does not have the status of a UK tax resident doesn’t allow the company to use double taxation treaties between Great Britain and other countries.
However it is tax efficient to use non-resident companies as tax residents of low tax countries such as Cyprus.
Therefore, a British non-resident company, which is managed from Cyprus, in compliance with Article 4 of the Treaty between Cyprus and Great Britain, is considered to be a Cyprus tax resident.
The advantages are obvious:
Britain remains the country of incorporation, which makes the company highly respectable;
1. The income tax, paid in Cyprus, is the lowest in Europe (10%)
2. The company enjoys all benefits of the double taxation treaties between Cyprus and other countries. However, under the protocol, to the Russian Cyprus DTT, the UK Holding Company which is tax resident of Cyprus can no longer take advantage of the benefits of the DTT.
A holding company is frequently used for investment activity. A British holding company, in case it falls under the requirements of tax residency in the United Kingdom, may take advantage of the British double taxation treaties and pay taxes according to the British legislation.
The tax on dividends, received by the British holding company from its foreign subsidiary can be zero under certain conditions.
It is important to keep in mind that British legislation allows to considerably reduce dividend taxes, even to a point where the tax on dividends is “zero”, by using tax credits. The system of tax credits allows the taxes paid by the subsidiary-part of the holding in its country to be calculated against taxes paid in Great Britain. However, please note that not all taxes can be calculated against British taxes, but only some, for example: taxes deducted at source which are paid when dividends are transferred to the holding company, and income taxes. If the subsidiary is located in a country with high taxes (Russia included), Britain may even allow complete exemption from taxation on British soil. The holding company which wants to obtain a tax credit, must own at least 10% of the shares of its subsidiaries.
Besides the tax credit is never grated automatically. The tax payer must approve his/her right for such tax credit to the British Tax Services by applying to Her Majesty’s Tax Service and submitting the relevant documentation, confirming that taxes have been paid by its subsidiary. The tax service reviews these documents and then either allows calculation of these taxes against taxes accumulated in Britain or refuses it.
One of the greatest advantages of basing the holding company in Great Britain is the absence of withholding tax on dividends, paid by the British Company to its shareholders. Almost all continental holding jurisdictions do not approve of transferring “clean” profits to offshore companies. This is why withholding taxes on dividends, transferred to low tax / tax free zones are, as rules, very high. For example, in Denmark, the withholding tax is 28%, in Luxembourg 20% and in Switzerland 35%. Great Britain is an exception. Dividends may be transferred tax-free, even if the shareholder is an offshore company. Besides Britain, the only other country that allows this in the EU is Cyprus.
Limited Liability Partnership (LLP)
It is a legal entity (it has a certificate of incorporation and like any other limited liability company it has to submit annual financial reports, the liability of partners is limited). For taxation purposes LLP is “transparent”, i.e. the financial liability is borne by the partners of the company. In order to be exempt from taxation in the United Kingdom, the directors must not reside in the country, contracts must not be signed in the United Kingdom and profits must not be made in the United Kingdom.
Important things to remember are:
- LLP and each of the partners receive a tax number
- LLP submits financial reports to the registrar
- LLP may apply to be relieved from the obligation to submit tax reports if it does not receive profits from UK sources
- The partner submit “zero” annual tax reports for non-residents
Private Limited Company (LTD)
A UK company needs by the end of its financial year (which can be determined on any date within the calendar year) to file its accounts. This procedure includes:
- The signed by the Director Balance Sheet of the company
- The profit and Loss account or Income and Expenditure account
- The notes to the accounts
- The group accounts if it is necessary
In some cases, when a company is considered to be small/medium size company (1≥50 employees) and its annual turnover is less than £5,600,000 and has a Balance Sheet total of less than £2.8m, it may then be audit exempt. If this is the case, the director/s must self certify the accounts and they do not need to file them independently.