UK Agency Structure
UK Agency an effective and practical solution for international trade.
One of the developments which have been triggered by Globalization is the significant increase of the use of offshore companies, to structure international trading activities.
The problem when using offshore companies in international trading activities is that these type of companies, although good to lower cost and ease payment & logistical issues, could trigger commercial and fiscal issues.
On the fiscal side offshore companies could create certain negative consequences such as difficulties with VAT receipts, payments and registration. Furthermore, under certain circumstances a higher withholding taxation could be applicable! On the commercial side, occasionally the use of offshore companies leads to a higher scrutiny and reluctance, by commercial partners.
Economical and practical solutions, to address these issues could be found by using a United Kingdom (UK) Company, acting together with an offshore company. Conceptually, a U.K. company enters into an agreement with the offshore company, in which the U.K 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 U.K. Company. The U.K. Company will receive all the revenues from such business as nominee or trustee for the offshore company.
Based on the contractual arrangements, the UK Company will keep part of the revenues to cover for expenses (usually 10%) and transfer the balance to the offshore company.
From a U.K. point of view, the U.K. revenue would accept, subject to certain conditions, that 90% of all monies are passed over to the offshore company, provided that they are not the profits of U.K. source business.
In order to protect the trading profits from U.K. taxation it is essential that no trading activities are conducted within the U.K. The amount of remuneration which the U.K. Company receives may also be subject to U.K. transfer-pricing legislation as contained in the Income and Corporation Taxes Act 1988. Such legislation is likely to apply where the U.K. agent and the offshore company are under common control.
A solution for the transfer –pricing issues, could be found by using a UK Company, which is beneficially owned by a third party. The direct advantages of this solution are that it avoids extra scrutiny and reluctance by international trading partners.
Additionally, on the fiscal side it will reduce cost, because the U.K. company is in a position to register for VAT, so the when selling goods to customers located in any E.U. country other than the U.K., it need merely quote its VAT number and need not actually charge VAT.
Lastly it reduces the withholding taxation which could be applicable under certain circumstances and the effective rate of taxation on the gross receipts of the U.K. company as an agent (i.e.: the total trade invoiced through this relationship) will be only 3%.