The UK Agency Company is commonly used as a below-the-radar way to (tax effectively) do business from Offshore with EU clients.
UK companies can be used to act on behalf of offshore companies in a variety of transactions. Typically in such arrangements the UK Company operates as a “nominee” or “agent” or “bare trustee” for the offshore company. Whatever legal term is used to describe this sort of arrangement, the outcome will be that:
a) the offshore company’s existence is not normally disclosed to the third parties who deal with or contract with the UK nominee company.
b) it is the UK company that raises invoices, and enters into contracts, and receives trading income on behalf of the undisclosed offshore company.
c) the UK company receives a commission from the offshore company for its nominee services. The amount of the commission will be quite small – typically 1% or 2% – bearing in mind that the business activities are managed and controlled by the undisclosed offshore company which carries on the trade or business in the name of the UK Company. Because all the UK company is doing is granting the offshore company the right to use its name, and because the UK company takes no other part in the business activities and receives a full indemnity from the offshore company, it cannot justify receiving more than 1% or 2% of gross fees or gross profits on arm’s length or commercial principles. Obviously each case needs to be considered on an individual basis.
d) the UK nominee company only declares for UK tax purposes and statutory accounting purposes its commission. This is the correct approach assuming an appropriately drafted nominee agreement is in place between the UK Company and its offshore principal. It is also assumed that the offshore principal’s trading activities do not take place in the UK; that the offshore company’s management and control is located outside the UK; and that the beneficial ownership of the offshore company is non-UK resident.
e) the UK company can register for VAT in the UK. In this regard it is normally essential that trading activities take place in at least two non-UK but EU countries, or that the UK nominee company is involved in “triangular” trading.
- If the UK Company is involved in a triangular trade it is entitled to apply for a UK VAT number which eliminates VAT for all parties in this transaction.
- The UK Company receives a commission of say 2% on the gross margin.
- The UK Company would receive 100% of the sales revenue into its bank account. On instructions from the offshore principal the revenue is then paid from the UK Company’s bank account to the offshore company’s bank account less the 2% commission.
One question I’m commonly asked is Can a UK Agency Company Do Business in the UK?
Technically yes a UK Agency Company can do business in the UK.
However, ideally, the UK agency company should not trade with other UK companies as this would be regarded as generating UK sourced income, which would be subject to UK assessment in full.
If activities are anticipated with UK companies, these should/could be concluded directly with the offshore principal company rather than via the UK agency company; this would not create any concerns or issues from a UK perspective as this would not trigger undue inspections or unallowable deductions like in many other countries.
The other option if you are looking to business in the EU Common Market via Offshore – and a significant proportion of your clientele is from the UK – is to set up an Irish Agency Company (which is a little more complicated than, but can be used in the same way as, a UK Agency Company)