UK Company As Agent For An Offshore Company
The UK Agency company
Having a UK Agency company act as agent for an Offshore or International Business Company (“IBC”) is a strategy that has been used for some time by savvy International businessmen. The deployment of this strategy makes more sense now than ever before given that authorities are trying to make it ever harder for tax haven companies to do business with “onshore” companies.
How it works is:
- A UK company is formed purely to operate as agent for the IBC.
- A written agreement is then entered into between the parties setting out the specific terms of the agency whereby the UK company is authorised to, and agrees to transact, certain business on behalf of the IBC.
- Thereafter all business of the IBC, as spelt out in the agreement, is conducted in the name of the UK company, but on behalf of the IBC as undisclosed Principal which the law, (derived from English common law) of Principal and Agent allows. (The existence of the offshore company behind the UK company needn’t be apparent to customers; as far as they are aware they are dealing with a UK company).
- The customer enters into an agreement with, or simply places an order with the UK company, which then invoices the customer accordingly.
- Payment for the product or service is made into the bank account of the UK company.
- Income derived from such sales is then remitted to the offshore company by the UK company after deduction of the agreed commission/s.
At tax year’s end the UK company would declare and pay tax in the UK on its commissions less allowable deductions ie expenses incurred in deriving the commissions (the UK company is of course effectively managed and controlled by the offshore company – which would most likely also want to have ultimate control over funds held in the UK company’s bank account).
For this arrangement to work effectively:
- the UK company cannot be seen to be managed and controlled from within the UK (ideally it would have a tax haven resident Director/s).
- The IBC would not want to be seen to be the shareholder of the UK company as doubtless that could arouse the suspicion of the UK Tax authorities (who would have the power to increase the nominal amount of commissions and thus the quantum of the UK tax bill).
This arrangement can work most effectively for the purposes of doing business in major financial centres (especially Europe) save that a UK company in this instance would probably not want to do business in the UK or with any UK businesses as, if it does, it will be subject to UK taxation.
Other benefits of such an arrangement include:
- Ideal for scenarios where an onshore profile is needed (but where offshore tax treatment is the ultimate aim).
- Can be used effectively in EU VAT triangulation situations.
- If the shares of the IBC are held by an Offshore Discretionary Trust or Private Interest Foundation the net profits of the IBC’s offshore business endeavours could be realised potentially tax free.
This is a generic example of how an offshore corporate entity can or might be used. Local laws may impact on your situation. Hence we would recommend that you seek local legal and/or tax advice before establishing such an entity