* The new treaty, effective from 1 April 1994, does contain a tie-breaker and so the new rule can apply from that date.

   Can the provision found in some DTAs that a company is regarded as resident in the other country if its business is managed and controlled there trigger the application of the new rule?

   No, these words are not a tie-breaker.

   A number of UK DTAs (e.g. those with the Channel Islands) define a “resident of the other country “to be a person who is resident in that country for the purpose of its tax and not resident in the UK for the purposes of UK tax, and add that a company shall be regarded as resident in the other country if its business is managed and controlled there. The additional words are not a tie-breaker. They do not override or displace the main definition. A person is entitled to treaty benefits under these agreements only if the person is resident in one country and not resident in the other. Dual residents are therefore not entitled to treaty benefits.

   There was no statutory definition of residence for companies in the UK when these words were first used. But the courts had developed a case law test of central management and control. The additional words confirmed that the test of residence developed by the courts would be followed in the DTA. That has been overtaken by the development of statutory and case law definitions of residence in the UK and other territories. The main definition must be applied by reference to the definitions o residence for tax purposes in the respective territories today. If a company is dual resident under that test, it is not entitled to treaty benefits. The additional words cannot alter that.

   Does the tie-breaker for dual resident companies always depend on the place of effective management, as in the OECD model tax convention?

   Not always. The tie-breaker for dual resident companies in the OECD model tax convention awards residence to the country in which the place of effective management of the company is situated. Although this is followed in many UK DTAs, there are variations in some. The particular DTA must be consulted to establish the test to be applied.

   Does effective management mean the same as central management and control?

   The term “place of effective management” has not been considered by UK courts. The commentary to the OECD model tax convention explains that it is the place where the company is actually managed. In practice, effective management is normally found in the same place as central management and control, but that is not always the case. In considering the place where the company is effectively managed, it is necessary to have regard to all the relevant facts including the organisation of the company and the nature of its business and to decide where it is in substance actually managed. In particular where the central management and control of a company was transferred from or to the UK, for instance by changing the place where decisions of the Board were made, it would not necessarily follow that the place of effective management would also be transferred, for instance if the place from which the company was managed remained the same.

   Which tax authority decides whether the company would be regarded as not resident for the purposes of the DTA?

   The decision whether the company should be regarded as resident in the other country for its tax purposes, and for the purposes of the DTA, would normally be made by the UK Inland Revenue by applying the tax law of the other country and the tie-breaker in the DTA respectively to the facts of the case. In most cases, including all DTAs which use the place of effective management as the sole test, the tie-breaker depends on an objective test which can be applied by the UK Inland Revenue unilaterally in applying the new rule. But with some DTAs, that is not possible. For instance, the tie-breaker in the DTA with Canada depends on agreement between the two tax authorities.

   What is the position when the tie-breaker depends on agreement between the two tax authorities, as in the DTA with Canada?

   The new rule will apply in such cases only if the two tax authorities have agreed that the company should be regarded as resident in the other country for the purposes of the DTA.

   Can the new rule apply where the company has not claimed double taxation relief?

   Yes, provided the tie-breaker depends on an objective test which the UK Inland Revenue can apply unilaterally. There is no requirement that relief has been, or could be, claimed under the DTA before the new rule can apply. But, where the tie-breaker depends on agreement between the two tax authorities, as with Canada, the new rule ca apply only where a claim has been made for relief under the DTA which depends on the determination of the tie-breaker, and residence has then been awarded to the other country.

   Are there special rules for companies which were caught by the new rule when it came into effect?

   Yes. The new rule came into effect on 30 November 1993. Any company which was dual resident in the UK and some other country at that date and would have been regarded as resident in the other country under the DTA between the UK and that country is treated as having ceased to be resident in the UK on that date. There are transitional provisions in Section 250 FA 1994 for those cases. The obligation under Section 130 FA 1988 to obtain approval from the Inland Revenue before ceasing to be resident is removed. The exit charge under Section 185 TCGA 1992 applies, but only to gains which are not exempt under the DTA, as the company would have been regarded as resident in the other country for DTA purposes prior to ceasing residence. In most cases the exit charge would be limited by the DTA to gains on land in the UK. The exit charge is deferred for up to six years, or until the asset is disposed of, if earlier. The degrouping charge under Section 179 TCGA 1992 is also disapplied.

   Can companies cease residence by virtue of the new rule in the future?

   Yes. But the company is required under Section 130 FA 1988 to obtain approval from the Inland Revenue and to make satisfactory arrangements for the payment of any outstanding tax before it ceases residence. There would be an exit charge under Sections 185 TCGA 1992 (and there can be no exemption under the DTA as this arises prior to the company becoming non-resident for the purposes of the DTA). In most cases, we would also need to be satisfied after the event that the company had become resident or tax purposes in the other country and would be regarded as resident there for the purposes of the DTA, including certification from the other tax authority where appropriate.

   Would penalties be incurred if a company ceased residence through the operation of the new rule in the future without first obtaining approval from the Inland Revenue?

   Penalties would be incurred under Section 131 FA 1988. The amount of the penalty would depend on all the facts of the case and could be wholly mitigated where appropriate, e.g. where there was no intention of changing the residence of the company.

   In what circumstances will the new rule apply?

   Most companies are clearly resident in one county only for tax purposes, e.g. the country in which the company is incorporated and wholly managed, and the new rule cannot apply. Most companies which are dual resident in the UK and another country with which we have a DTA which includes a tie-breaker are clearly resident in one of those countries for the purposes of the DTA, e.g. the country in which it is wholly managed, and the new rule will be applied accordingly.

   But there are some marginal cases where, although the company is clearly resident in the UK, e.g. the company is incorporated and mainly managed here, it is unclear whether the company might also be regarded as resident for tax purposes in some other country with which we have a DTA which includes a tie-breaker and if so whether residence would be awarded to that country under the tie-breaker, e.g. where some vestige of management lies in the other country.

   In these marginal cases in which it is unclear whether the new rule would apply, we will have regard to the purpose of the legislation in deciding whether it should be invoked. This was set out in a Press Release on Budget Day which explained that the Chancellor’s intention was to bring the treatment of the companies affected into line with their treatment under the DTA to prevent the loss of tax to the Exchequer which could result from multinationals using differences in treatment to reduce their tax liabilities in the UK.

   For instance, we have been asked whether a holding company incorporated in the UK to hold the UK members of an overseas group, which was managed in the UK and intended to be treated for all tax purposes as UK resident only, might nevertheless be caught by the new rule since some element of management could be regarded as lying with the overseas parent. In these circumstances, the presumption would be that the new rule did not apply provided there was no loss of tax to the Exchequer from differences between the treatment of the holding company for UK and DTA purposes. Entitlement to purely domestic reliefs, for instance to group relief with and between members of the UK subgroup, does not involve any such loss. But the new rule would then apply if the company claimed relief under the DTA which depended on the tie-breaker and residence was awarded for that purpose to the other country.

   An example of loss to the Exchequer from differences in treatment for UK and DTA purposes is where a dual resident company is trading overseas and would be able to claim exemption on trading profits by virtue of the tie-breaker. In that case, as explained in the Budget Day Press Release, the new rule would also apply to a company incurring trading losses to prevent those losses being surrendered as group relief.

   Can a company appeal against a decision by the Inland Revenue on the application of the new rule?

   Comed has taken professional advice upon the implications of s249 and has been satisfied that provide, on the facts, a newly incorporated UK company is managed and controlled from Cyprus and has its place of effective management in Cyprus then such a UK company will:

1. be treated as UK non-resident for all tax purposes.
2. be regarded as resident for tax purposes in Cyprus.

   Comed have furthermore been satisfied that it will be possible to register the UK company as an “offshore branch” in Cyprus so that its world-wide income will be taxed in the same manner as if the company was a Cyprus registered offshore company. This means that the UK company will be liable to 10% tax on its net world-wide income.

   In order to obtain the benefit of this tax regime it is essential that the UK company’s business is genuinely managed and controlled from Cyprus, and that its place of effective management is in Cyprus.

   The concept of management and control is not statutorily defined under either Cyprus or UK Tax Law. Therefore UK case law is the best guide and the practitioner is referred to such cases as

	De Beers and Consolidated Mines v Home [HL 1906, 5 TC 198]
	American Thread Company v Joyce [HL 1913, 6TC 163]
	Noble Ltd v Mitchell [CA 1927, 11 TC 372]
	Bullock v The Unit Construction Company Limited [HL 1959, 38TC 712]

   ‘Control’ for the purposes of deciding whether a UK company is managed and controlled from Cyprus does not mean control of the company through voting rights but control of the company’s business.

   Therefore one must look to where control is vested, and this will normally be in the hands of the directors. Consequently in order to establish management and control of the company in Cyprus, de facto control of the company’s business must reside there, manifested by

	a majority of the board resident in Cyprus (this majority should be quorate for board meeting purposes);
	board meetings actually held in Cyprus;
	general policy of the company formulated in Cyprus;
	day to day management is carried out from Cyprus;
	company bank accounts controlled by the Cyprus directors.

   Voting control can reside outside Cyprus provided it does not usurp the functions of the board of management who control the business.

   The management of the business can of course employ consultants, situated outside Cyprus but the place of effective management of the company must be in Cyprus and final decisions upon policy and overall strategy must come from the board of directors in Cyprus. From an operational point of view, any consultants and professional advisors should deal with the board in Cyprus directly, and the Cyprus directors which Comed recommend can be expected to act with the probity and appropriate degree of independence necessary for successful modern offshore operations. Nevertheless, the exact arrangements of operation must be agreed between the directors and the company’s consultants and advisors. Comed will not interfere in these arrangements beyond pointing out that the company must be resident in Cyprus as a matter of internal law (the management and control test) and resident in Cyprus for the purposes of the treaty with the UK (i.e. the place of effective management must be in Cyprus) in order for the company to become UK non resident.

  Comed role is as always limited to that of the company registration agent.

   A country which meets these various criteria is Cyprus. The UK/Cyprus double taxation convention states in article 4(1):

   For the purposes of this Convention, the term resident of a contracting State means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of similar nature.

   Therefore a UK registered company which is managed exclusively from Cyprus will be a dual resident company for the purposes of the treaty. In other words it is resident in the UK by virtue of its domicile in the UK (i.e. its place of incorporation: s66 FA 1988) and it is also resident under Cyprus Income Tax Laws by virtue of being managed and controlled in Cyprus. The company has therefore reached the position of being dual resident, as contemplated by s249 (i).

   Article 4(3) of the UK/Cyprus double taxation convention states: Where by reason of the provisions of paragraph (1) of this Article a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the Contracting State in which its place of effective management is situated.

   This is a tie-breaker clause which meets the requirements of s249 2(b).

   The UK company which has its place of effective management in Cyprus, is therefore UK non-resident for tax purposes, and resident for tax purposes in Cyprus.

   As previously indicated, under the arrangement envisaged, the UK company will pay tax at the rate 10% on its net world-wide income. Dividends can be paid free of Cyprus withholding tax. Royalties paid by UK company resident in Cyprus relating to rights used outside Cyprus are likewise free of Cyprus withholding tax. In the case of loans the company will be required to charge commercial rates of interest which will be subject to the 10% tax rate.

   Under Cyprus law, a UK company (or any other overseas company) which registers in Cyprus under the provisions of the Cyprus Companies Law, Cap. 113, and whose shares belong directly or indirectly exclusively to non-residents of Cyprus, and whose objects lie outside Cyprus, is treated as an offshore branch. As such, the world-wide income and gains of such a company will be taxed in the same manner as if the company was a Cyprus registered offshore company. The UK company will thus be liable to Cyprus corporate income tax of 10% on its net world-wide income and gains (section 28A Cyprus Income Tax Law).

   Two important planning points therefore arise:

1. Not only must the central management and control of the company be located in Cyprus (so as to render it a resident of Cyprus for the purposes of article 4(1) of the double taxation convention) but also the UK company must have its place of effective management situated in Cyprus.
2. The UK company must register as an offshore branch.

   The UK Inland Revenue have made the observation in a Statement of Practice that the concept of the place of effective management of a company is not necessarily the same as the common law concept of central management and control. Certainly there is a general consensus view amongst professional advisors that the term “place of effective management” which is found in many OECD type double taxation conventions and in the domestic legislation of civil code countries is a test which refers to the day to day management and operations of a company rather than the high-level strategic control which is the basis of the common law concept of central management and control.

   Given that Cyprus domestic law also employs the concept of central management and control, it is essential that this level of control is not exercised from the UK, otherwise under the domestic law of both countries the residence of the UK company would be located in the UK, and then even if the place of effective management was situated in Cyprus, the dual resident position in article 4(1) would arguably not be reached and so the company would remain UK resident under the convention.

   To avoid these difficulties it is therefore desirable to ensure that the following points are carefully considered:

1. The directors of the UK company should all be located in Cyprus, or there should certainly be a majority of Cyprus resident directors constituting a quorum for board meetings.
2. The directors should give genuine and independent consideration to all matters put before them by the shareholders of the company (or their professional agents). Furthermore the directors should consider the business put before them in board meetings held in Cyprus. Those meetings should be properly convened and minuted.
3. The case of Untelrab v. McGregor (reported in previous issues of JIB) emphasises the importance of evidence demonstrating that the directors are responsible and independent professionals who would not automatically action any requests or instructions which may be given to them.
4. There should be no UK resident directors, and any input to the business of the company made by UK shareholders or consultants should be carefully documented, and formalised by the directors. What is crucial is that the directors are the medium by which the advice of consultants or the views and wishes of the shareholders become an activity of the company.
5. It is important to register any UK company whose business will be conducted from Cyprus with suitable memorandum and articles. Consideration should be given to prohibiting the appointment of directors who are not resident in Cyprus (or a least prohibiting the appointment of UK resident directors) and the articles should restrict the situs of board meetings and shareholder meetings to Cyprus.

   Provided an UK non-resident company does not receive UK source income then no UK tax will be payable by the company. Examples of UK source income include interest form loans made to UK resident borrowers; royalties from the grant of intellectual property for use in the UK; and income from a trade or business carried on by the non resident company within the UK. Significantly, dividends paid by the UK non resident company will not be subject to UK tax.

   UK corporation tax rates are comparatively low. The standard rate of UK corporation tax is 31%, and this rate falls to 30% with effect from 1 April 1999. As from 6 April 1999 payments of advance corporation tax on dividends will also be abolished.

   The small companies rate of corporation tax (for UK companies whose net profits are £300,000 or less in any year of assessment) is only 21%, and this falls to 20% on 1 April 1999. Therefore s249 FA 1994 is only of interest if it is possible to identify countries which have (i) executed a double taxation convention with the UK containing a tie-breaker clause for resolving dual residence which meets the approval of the Inland Revenue, and (ii) which have lower rates of corporation tax than that of the UK.

   The use of a UK non resident company resident for tax purposes in Cyprus will be relevant for international trading operations particularly in facilitating trade between Eastern Europe and the Commonwealth of Independent States, and Western Europe. Apart from the geographical importance of Cyprus in this context, the commercial infrastructure within Cyprus is of a very high standard, and there is a depth of practical experience in servicing international trade, particularly with Eastern Europe, that makes the retention o professional management services in Cyprus commercially advantageous for such businesses. These facilities, together with the quality and international acceptability of the UK company provide a sound infrastructure for any business engaged in international trade.

   For businesses wishing to use Cyprus as the base for their operations, and therefore qualifying for the concept outlined above and described in Section 249 FA 1944 Comed can provide the following practical services:

	UK company formation, together with registered office, company secretarial facilities, and nominee shareholders.
	Registration of the company as an offshore branch in Cyprus.
	Arrangement of suitable management in Cyprus.

   The branch registration will require the translation and authentication of the constitutional documents of the UK company and Comed can deal with this. Authentication will either be by apostille under the Hague Convention 1961 or by consularisation in Cyprus.

   The accounts of the UK company will require to be audited and filed in the UK, although under UK law there will be an audit exemption available if turnover is less than 350,000. Audited accounts must however be filed with the Registrar in Cyprus. An estimate of the accounting and audit costs will be provided at the outset. Realistic and commercially competitive fees will be quoted.

   More and more international tax planners are finding that the use of companies registered in offshore financial centres is becoming impractical for receiving profit distributions from “onshore” territories, which actively penalise payments made to define tax haven entities.

   English companies can be used as a low tax vehicle in international tax planning, in two forms, specifically:

1. the UK non-resident company.
2. the UK nominee company.

   In both forms the company gives the owner the prestige of a European company (not associated with an offshore zone) and at the same time the advantage of low taxation and the benefit of international double tax treaties. In this sense the UK company is unique having in mind that the English economy and companies form one of the strongest financial and business centres of Europe.

   Companies can be incorporated within 7-10 working days. If speed is of the essence, for an additional fee a company can be incorporated within 24 hours of receiving full instructions. This service is not available if any “sensitive” word is being used in the company’s proposed name.

   A company may be incorporated with any name, provided that any “sensitive” words have been sufficiently justified and that it ends with the words “Limited” or “Ltd”. A company cannot be incorporated with exactly the same name as an existing company or a name which the Registrar considers to be “too similar” to that of an existing company. Comed are able to carry out a computerised check of the Companies Index to give an indication of whether the name might be available. It is prudent to submit at least three alternative names if delay is to be avoided.

   A registered office must be maintained in the UK.

   Every private company must file returns annually and audited accounts within 10 months after the date to which they are prepared. An audit exemption is now available for companies with an annual turnover of less than £350,000.

   The requirement to hold Annual General Meetings at which the accounts are laid before the members and the auditors are re-elected can be dispensed with under the “elective regime”.

   The company is required to maintain statutory registers at the registered office.

   After incorporation Comed can provide a statutory secretarial service including the provision of a registered office in the UK.

   Unless otherwise specified, all companies will be incorporated with an authorised share capital of £1,000 sterling divided into 1,000 shares of £1 each.

   A UK company must have at least one director and a company secretary. A sole director cannot also be the secretary. The Director can be an individual or a company. UK company law is complex so it is strongly recommended that a professional secretary with relevant experience is appointed. Details of the directors appear on the public file but anonymity can be retained by the use of third party professionals. Comed can arrange director services.

   Comed will provide two subscribers holding the shares for the purposes of incorporation. Under our Company Domiciliation Service these can be transferred to Comed nominees to safeguard the confidentiality of the beneficial owners. A UK company must have a minimum of one shareholder who may be corporate or individual. Details of the shareholders appear on public record but anonymity may be retained by the use of nominee shareholders or holding companies.

   It may be attractive to have a UK company hold assets as nominee. This provides anonymity and allows the asset to be owned by a structure located in a reputable jurisdiction. The UK company would take title to the asset but simultaneously execute a nominee declaration which makes it clear that the asset is beneficially owned by the investor or by an offshore company controlled by the investor. Under these conditions any profits accruing to the UK company would be outside the scope of UK taxation because the UK law taxes according to beneficial and not legal ownership.

   The relationship between the UK nominee company and its offshore principal will be subject to a agency agreement. Business will be contracted for by the UK company on behalf of the non resident party. Gross income of the business activity of the UK non resident party (normally an offshore company such as a British Virgin Islands International Business Company) will be received in the bank account of the UK company and subsequently remitted to the non resident party, less any agreed service fees. To provide this service a new UK company is registered which can be managed and controlled by the UK non resident parties. The non resident parties will have the control of the UK company and its bank account, which will receive the gross income in the first instance. Because of UK transfer pricing legislation, it is important to agree arms’ length or commercial commission arrangements. Of course the UK company must pay UK corporation tax on its commission. A commission fee of 5% is frequently chosen as the profit share of the UK company although if certain precautions are taken this can be reduced to much lower levels of commission.

   Companies or other persons who are not resident in the UK are only subject to UK tax on UK source income. Included within the phrase “UK source income” are dividends from UK companies, interest from loans made to UK resident borrowers, royalties from the grant of intellectual property for use in the UK and income from a trade or business carried on by the non resident company within the UK.

   Unless the income in question falls within one of these categories, there can be no liability to UK tax, regardless of whether or not the non resident company trades through a UK resident nominee. Section 126 FA 1995 provides a mechanism for imposing on a UK resident agent in certain circumstances the liability to pay the tax for which a non resident has become liable by virtue of deriving income (whether passive or trading) from a UK source.

   However if the non resident company has not become liable to UK tax by virtue of the fact that it has not derived income from a UK source, the fact that it trades through a UK resident company does not alter this non-liability to UK tax. These arrangements in no way alter the liability to any taxation in the jurisdictions in which business is conducted, or that of the principal owning the UK company.

   It is essential that the offshore company which is the UK company’s principal is managed and controlled outside the UK. There should be no trading in the UK and all contracts signed by the UK company on behalf of the non-resident principal must be signed outside the UK. This will make it convenient for the directors of the UK company to reside outside the UK, but this is not essential. The bank account can be situated within or outside the UK.

   Upon request, Comed can arrange to register the UK company for VAT in the UK.

   If the UK company is supplying, as a nominee on behalf of its offshore principal, services to a third party outside the UK, the supply will be zero-rated if the services fall within the category of services listed in Schedule 5 VATA 1994. This includes the supply of advertising, consulting, engineering, legal and accounting services, transfers and assignments of intellectual property rights, the supply of staff and certain kinds of transport. If the UK company is supplying goods as nominee for its principal it will need to charge VAT on a supply to a third party in an EC member state unless that third party is itself registered for VAT somewhere in the EC and provides its VAT number to the UK company. Where the goods are supplied to a third party outside the EC the supply will not be subject to VAT in the UK since the goods will not be in the UK and will never have entered the UK.

   Finally, it is important to note that VAT may be chargeable on the UK company’s fees invoiced to its offshore principal for its services as nominee, although often these will be free of VAT.

   A UK incorporated company may be classified as non resident for tax purposes, and therefore non taxable in the UK on non UK source income, if it is managed and controlled from a country with which the UK has signed a double taxation treaty which contains a recognised "tie-breaker clause". By careful selection of the country from which the UK company is managed it may therefore be possible to create a non-taxable UK entity. For example, Portugal has a suitable tax treaty with the UK so a UK company managed from (Madeira being part of Portugal) would neither be taxable in Madeira nor the UK.

    In another recent innovation Section 246S of The Taxes Act 1988 (as inserted by Schedule 16 of The Finance Act 1994) creates the UK International Headquarters Company (“IHC”). This status may be accorded to ordinary UK companies which are at least 80% beneficially owned by non-residents. An IHC is an extremely useful vehicle for the collection of foreign dividend income as, in general terms, a full credit is given against UK tax for any tax paid on the remitted profits before arrival in the UK. Thus as long as the dividend income has already suffered tax at a rate higher than or equal to the applicable UK rate (33% / 24%) no UK tax will be payable on that income either on arrival or on distribution. For example, a Danish subsidiary of a UK IHC would pay tax on its profits at 34%. If the Danish subsidiary distributed profit by way of dividend to the IHC parent no further tax would be levied on arrival in the UK because a credit would be given for tax paid in Denmark. This makes the UK IHC an extremely attractive holding company vehicle. It should be noted that any sale of shares would be subject to capital gains tax but there are a number of methods which can be used to reduce or avoid this tax. It should also be noted that it is necessary to declare to the Inland Revenue details of the ultimate beneficial ownership of the IHC and this information may be made available to a foreign tax authority under the exchange of information clause within a relevant tax treaty or otherwise. If this is problematical then an alternative, but similar, result may be achieved by using the Foreign Income Dividend Scheme. Details are available upon request.

    A UK company is incorporated and enters into an agreement with the offshore company whereby the UK company agrees that it will trade on behalf of the offshore company as its agent. All contracts of purchase and sale, all the invoicing and all the general correspondence will be made in the name of the UK company. The agreement should state that all monies received are received as nominee or trustee for the principal save insofar as there will be an agreed fee which will be retained by the UK company. That fee may either be expressed as a flat fee for all the trading done on an annual basis or, more usually, expressed as a percentage of the gross revenues received, usually 5% or more.

   The practice of the UK revenue is to accept, subject to certain conditions, that all non UK source monies which are passed over to the offshore company are received as agent and are not therefore subject to tax in the UK. On the basis that 5% of profit is retained the effective rate of UK taxation on the gross receipts is 1.2% (5% of the normal 24% rate).

   In order to protect the trading profits from UK taxation it is essential that no trading activity must occur within the UK. What constitutes UK trading activity would be construed by reference to the normal indicia such as the place where the contracts of sale are executed and the place of acceptance of an offer made outside the UK.

   The offshore company must of course be non-resident in the UK for tax purposes itself. This means that its central management and control must outside of the UK.

   Under this arrangement a UK resident company enters into a partnership with an offshore company. The UK company is designated as the minority partner carrying out the paperwork with the offshore company actually acting as the principle in the trading activities. The partnership agreement would stipulate that the UK company receives 5% -10% of partnership profits on which it is taxable at normal UK rates but the majority of those profits accrue to the offshore company and are not taxable. The existence of the partnership agreement does not have to be disclosed to any third party and all communications and correspondence are carried out by the UK company giving the arrangement a UK persona. The agreement is similar to the fiduciary trading arrangement with the added advantage that the UK Inland Revenue will give an advance ruling on the acceptability of the scheme.

   (The annual services listed below are payable in advance).

   Our Company Domiciliation Service ensures that your company meets its legal obligations in the territory of incorporation.

   A UK company must maintain proper accounts in a form prescribed by UK Company Law.

   Comed can arrange accounting and audit services which vary depending upon the turnover of the UK company. The level of turnover will determine the amount of information that needs to be disclosed in the accounts and the legal burden of responsibility upon the auditors concerning the accuracy of the financial statements.

   The Statutory Accounting Service minimum fee includes, apart from the preparation of dormant accounts at the end of the financial year, dealing with the UK Inland Revenue and preparation and submission of tax return, (forms CT41G, CT200, CT203 and CT204), some of which must b filed shortly after incorporation; and obtaining tax residency certificates if these are required.

   For future budgeting purposes, the following supplementary fees will be charged at the end of the financial year for the preparation of statutory accounts for non dormant companies within the following turnover bands:

   a) Trading with turnover up to £90,000 p.a.

   b) Trading with turnover between £90,000 and £350,000 p.a.

   c) Turnover over £350,000 p.a.

   If you require your accounting records to be maintained in the UK we can deal with this for you. We will provide standard forms to you for the summary of cash and cheque payments, invoices raised and payments received. The accounting records will be maintained on a computer accounting system and you will be supplied with quarterly management accounts.

   All UK companies have to:

	File annual returns to the Registrar of Companies
	Prepare, audit and file annual financial statements
	Send a notice to the Inland Revenue establishing its non residency

   In addition all Cypriot branches have to:

	File annual returns to the Registrar of Companies
	Prepare, audit and file annual financial statements
	Prepare and file provisional and final tax declaration

   For incorporation purposes Comed will supply two shareholders. Thereafter nominee shareholders or discretionary trustees may be used if anonymity s required. A UK company must have at least one director and a company secretary. Corporate directors and secretaries are permitted. Details of all officers must be filed with the Registrar and are then available for public inspection.

   There is no specific statutory provisions governing secrecy in relation to companies but English Common Law imposes a common law duty on professionals to keep the affairs of their clients confidential.

   It is also essential to ensure that the formalities of branch registration in Cyprus are properly attended to. These are relatively straightforward, although the following points should be noted:

   In dealing with the UK Inland Revenue, it will be necessary to notify them of any UK company whose central management and control and place of effective management will be located in Cyprus, and a completed form 64-8 should also be returned notifying the Revenue of the UK professional advisors who are authorised to receive correspondence from the Inland Revenue on behalf of the UK company.

   The UK Inland Revenue may request a tax residence certificate issued by the Cyprus tax authorities confirming that the company is resident for tax purposes in Cyprus, and these are procurable from the Ministry of Finance in Cyprus provided it can be shown that the UK company is properly registered in Cyprus with Cyprus resident directors.

   The UK non-resident company is clearly an attractive entity for professional intermediaries advising clients who wish to conduct cross border trade both within and outside the EU. Subscribers to JIB will be aware of the fact that offshore companies registered in zero tax jurisdictions can incur tax and administrative penalties (often visited on the onshore parties dealing with such entities) by virtue of their perceived offshore status.

   A UK company should not experience such difficulty and furthermore Cyprus is an internationally recognised trading nation with a wide network of double taxation agreements. By virtue of being resident in Cyprus the UK non-resident company could benefit from the provisions of Cyprus network of double taxation agreements, subject of course to any limitation of benefit in a treaty applied to Cyprus offshore companies and branches.

    As an international trading vehicle to offer an alternative to Irish non-resident companies, therefore, the UK s249 company should be carefully considered, and has many potential benefits in particular for clients who are UK non-resident or UK non-domiciled.

    The following scenario is worth considering for UK resident but non-domiciled shareholders who are considering how to extract funds from a UK company tax efficiently:

   In conclusion the UK non-resident company has much to commend it as both an international trading and constancy vehicle, and for specific UK tax planning scenarios.