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Non resident director / shareholder tax implications for offshore companies??

The residence of the offshore company has no effect on whether benefits and expenses within the rules in the benefits code are chargeable. Rather it is the residence of the actual employees/directors. S27 ITEPA 2003 states that:

UK-based earnings for year when employee not resident in UK

This section applies to general earnings for a tax year in which the employee is not resident in the United Kingdom if they are:-

  • general earnings in respect of duties performed in the United Kingdom, or
  • general earnings from overseas Crown employment subject to United Kingdom tax.

Therefore general earnings of a non resident are only taxed where the duties are performed in the UK.

This is expanded in S32 ITEPA 2003 to state that general earnings includes benefits (non cash benefits) such as a benefit in kind charge arising from the provision of living accommodation:

Therefore if the shareholder is non resident, whether a benefit in kind charge could arise by virtue of his or his family’s occupation would depend on whether there were any UK duties carried out. Assuming not, then there should be no benefit in kind charge.

It should also be born in mind that even though the directors are non resident if there is a UK resident “shadow director” who is actually controlling or managing the company they could be subject to an income tax charge if they occupied the property.

For instance a UK resident family member occupying the property who actually participates in the running of the company should be carefully considered in light of the above.

Whether or not they are a “shadow director” is something that would depend on the specific facts.

One case has held that an individual’s “frequent non-professional advice, usually acted on, is sufficient” to make that individual a shadow director.  Therefore for instance a UK resident individual choosing the furnishings of a residence owned by an offshore company could result in a benefit in kind charge if they are a UK resident occupant of the property.

In order to avoid the shadow director rules the offshore directors must be both capable and competent of carrying out the company’s transactions and they must do so under their own steam and not at the behest of the person who might be termed the “party at interest” (and who lives in the UK for these purposes).

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