International Trade – Case studies

Using the United Kingdom for International Trade

The UK agency company or nominee structure

The UK Agency company is a popular vehicle within the field of international trade. The rationale behind the use of such an entity is that the Company, fully liable for UK corporate tax, undertakes business for and on behalf of a non-resident Principal.

The concept of the structure is that the Principal, who has the knowledge, know-how and business acumen, engages an independent UK company to act as its agent for some or all of its international business. The UK Company in turn will enter into trading agreements with customers of the Principal to buy or supply goods from or to third parties for and on behalf of the Principal.

Generally, a formal agreement is entered into between the Principal and the UK Company, which would entitle the UK Company to a fee relating to the services that it is requested to perform. All trading operations are executed by the UK Company for and on behalf of the Principal.

The fee charged by the UK Company would be an amount that reflects the responsibility and work undertaken by the UK Company on behalf of the Principal. This fee will be retained by the UK Company to cover its operational and administrative costs. The profit element of the fee will then be subject to UK corporation tax at 19%. An acceptable fee, chargeable by the UK Company would be between 5-10% of gross turnover or profit, whichever is the greater. The balance of the trade would be for the account of the Principal.

And, moreover, one of the major advantages now, due to Brexit, goods that are exported by UK businesses to non-EU countries and EU businesses are zero-rated, meaning that UK VAT is not charged at the point of sale.

Operational case study

The UK Company enters into agreements, on behalf of the Principal, to buy shoes from a Portuguese shoe manufacturer and supply the same to an Italian fashion group. The Portuguese company will invoice the UK Company for the market value of the shoes, quoting their respective VAT number and reflecting the UK Company’s VAT number on their invoice, thus zero rating the supply.

The UK Company in turn will request that the goods be delivered to a Freeport where they will take title of the goods and transship the stores to Italy. At this time, the UK Company will issue an invoice to the Italian fashion group, again reflecting the UK Company’s VAT number and that of the Italian Company, in order to zero rate the supply for VAT purposes. The stores are thus delivered with all documentation reflecting the UK Company and not the original supplier.

Once the goods have been received and accepted in Italy, the Italian fashion group will pay the invoice received from the UK Company direct into the bank account of by the UK Company.

On receipt of the funds, the UK Company will in turn settle the invoice received from the Portuguese Company. The remaining funds, less the agreed fee for the UK Company, will be remitted to the Principal.

Important remarks

It is advisable that this structure is not utilised for trading in the UK, as UK sourced income would be subject to taxation.

It is recommended that the Directors and shareholders of the UK Company and Principal are not connected, and the majority of the board of directors are not UK resident.

Any agreements that the UK Company enters into on behalf of the Principal should be signed outside the UK by one of the non-UK resident directors.

A certificate of tax residence may be required in order to avoid withholding taxes.

It is a requirement for all UK Private Limited Companies to file annual accounts with the Inland Revenue and the Registry.

The UK LLP, one of the best European vehicles for International Trade

The United Kingdom Limited Liability Partnership (LLP) was introduced by the UK Government in 2000. It is a separate legal entity and a body corporate, has all the functionality of a Private Limited Company but is taxed as if it were a Partnership.

The United Kingdom Tax Authorities have confirmed that the taxation base will follow the procedure operated in the past for Partnerships. The income and capital gains of an LLP are thus treated as income attributable to the members and therefore the UK LLP can be utilised as a tax efficient vehicle for international trade on the proviso that that there is no UK sourced income and the members are non-resident of the United Kingdom there would be no liability to UK taxation.

Operational case study

A United Kingdom LLP has 95% of its members based in a low tax area such as the Belize or The Seychelles. A UK Private Limited Company owns the balance of 5%. The UK LLP intends to purchase goods from Asia for sale to a South American Country.

The goods are sourced from Asia and supplied to the buyer and paid for accordingly from outside the United Kingdom.

Because there is no UK sourced income, 95% of the profits attributable to the non- resident members would flow through and be taxed at the rates applicable in their country, the remaining 5% attributable to the UK resident member would be taxed in the UK at current rates after deduction of business expenses.

Potential issues

The UK LLP must be established with a view to making a profit. To avoid a liability to taxation there should be no UK sourced income and no UK resident members.

Anti-avoidance provisions

  • The UK LLP generally does not have access to double taxation agreements.
  • The UK LLP must have a minimum of two Partners (Members).
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