Many businesses are interested in moving their business overseas. One prime reason for moving a company offshore is because of tax benefits. These tax benefits are all dependant on the country you decide to reside in. For information on tax avoidance rules you need to look at the transfer of asset provisions.
In order to start an offshore company you need to adhere to these provisions:
- The transfer of assets must be done by an individual
- Transfer income then becomes payable to someone outside the country
- The person transferring assets or funds must be a UK resident.
- The transferor needs to have to benefit from the income
If all of the above conditions are fulfilled, the income will become payable to the offshore company because an individual made a transfer and is able to enjoy that income.
What Counts as Transferring an Asset?
The UK has many views of what constitutes as someone transferring their assets:
- When someone transfers cash to a non resident trust
- When an individual transfers assets to a new resident company or somewhere abroad
- This also counts even when it is intangible. For example, someone delivering their services to an offshore company
- You will find that UK tax authorities will see most things as moving assets
- This makes it wise to be prepared when you are planning to move an asset abroad that you take all the rules into consideration. As the authorities will see most things as moving assets abroad as they are always concerned with people dodging UK tax.
There is a way to avoid the rules above if you are able show that there is a motive exemption.
- If you can prove that avoiding tax was not the purpose of transferring your assets.
- If the transactions were for commercial purposes and not used to avoid tax
It can be a very difficult task to try and persuade Revenue that your purposes were strictly commercial and not for tax gain.
What Individuals can Take Advantage of Motive Exemption?
Below highlights cases where you may be exempt from rules and regulations:
- In the case you have a business abroad. If you provide proof that the business is purely commercial then you can claim exemption and avoid the tax avoidance rules.
This would mean that you are in search for an argument that means using a local company would not support your commercial purposed such as serving the customers.
- In the instance where the business is started by someone who is not UK resident and not in any way concerned by UK tax.
The UK tax avoidance laws are only concerned with people trying to avoid paying UK. They do not get involved with people trying to avoid foreign tax laws.
In the case that an individual comes to the UK he would then have a claim for motive exemption. Some provisions allow you to tax family who may be able to benefit from the offshore company.
If the UK resident has interest within an offshore company it allows them to take advantage of tax laws and uses it as tax shelter and avoids any tax on their income. Do ensure that you do not withdraw dividends that exceed your tax bracket as this will mean more tax. The main way to benefit from an offshore company would be to extract money once you settle abroad.
Summary
There are many tax avoidance laws enforced to ensure that people do not avoid UK Tax. However, through the use of an offshore company you are able to use motives to ensure that you can avoid UK income tax. Even though Revenue is extremely concentrated on preventing avoidance, use of an offshore company can help you to earn more and get taxed less.
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