Non resident individuals running offshore companies with no trade carried out in the UK

Non resident individuals can use offshore companies pretty much free of UK taxes providing the company doesn’t carry out a trade in the UK.

  • Establishing the control of the company overseas should not be a key problem if the directors are actually based overseas.
  • The anti avoidance rules that attribute income and gains of offshore companies only apply to individuals who are UK resident or UK ordinarily resident.

Therefore a non resident individual could use an offshore company free of UK taxes. The main caveat to this is that there needs to be no trade carried out in the UK.

If the non-resident company’s activities in the UK do not amount to trading there is no charge to UK corporation tax on the profits arising, even if the income is derived from the UK. However, there is a distinction between trading in the UK and trading with the UK. Trading by a non-resident company with the UK, (as opposed to trading in the UK), does not bring the non-resident company within the UK tax charge on profits.

When looking at an offshore company, the UK doesn’t just look to see if there is a UK trade. It will look to see if there is a UK permanent establishment (they used to look at whether there was a branch or agency). If a non-resident company trades in the UK through a permanent establishment/branch or agency the tax legislation says that its  chargeable profits shall include `any trading income arising directly or indirectly through or from the permanent establishment/branch or agency’.

Therefore non residents can use an offshore company tax efficiently for foreign trades where there is no UK permanent establishment.