UK Company with overseas directors

Overview 📘

If you are a director of a UK-registered company but live abroad, it's essential to understand how your company's tax position may be affected. The key concepts are corporate residency, central management and control, and permanent establishments. These determine where your company pays tax - and whether it could be exposed to dual taxation.

✅ Corporate Residency and Taxation

A company's tax residence dictates where it pays corporation tax on its worldwide income.

UK companies are generally UK tax resident by default, but residency can also depend on where management and control take place.

Incorporation: A company incorporated in the UK is automatically tax resident in the UK.
Central Management and Control (CMC): This refers to where strategic decisions are made - typically by the board.

💡 If most directors live and work abroad, and major decisions are taken overseas, the company may risk becoming dual resident (tax resident in both the UK and the directors' country of residence).

This can lead to complex reporting requirements and potential double taxation.

🔍 What Is Central Management and Control (CMC)?

The concept of CMC focuses on where high-level, strategic decisions are made - not where day-to-day operations occur.

Board Meetings: Regular board meetings held in the UK help establish UK management and control.
Decision-Makers: If key decisions are made abroad by non-UK directors, control may shift overseas.
Documentation: Accurate minutes and supporting records are crucial evidence for where decisions are made.

🌍 When the CMC Is Overseas

If the CMC is considered to be outside the UK, the company may face dual residence issues:

Dual Residency: The company could be taxed in both the UK and the foreign jurisdiction.
Double Tax Treaties: These treaties often contain “tie-breaker” rules based on Place of Effective Management (PoEM) to determine which country has taxing rights.

Double Tax Treaty Relief

If a treaty assigns residency to the foreign country under PoEM, the company may be treated as non-resident for UK tax, except for its UK-sourced income (such as property or business profits earned in the UK).

Relief from double taxation is usually provided through:

Credit method: The UK gives credit for tax paid abroad.
Exemption method: Certain profits may be exempt depending on treaty terms.

📊 Examples

Example 1 – UK Company Managed from France

A UK-incorporated company is run by directors based in France. Strategic decisions are made there.

Under French law, it may be tax resident in France.
The UK-France double tax treaty’s PoEM rule could assign tax residency solely to France.
The company would remain subject to UK corporation tax only on UK-sourced income.

Example 2 – No Double Tax Treaty

If there is no treaty between the UK and the directors' country of residence, the company could be fully taxable in both jurisdictions, leading to double taxation unless domestic relief applies.

🏢 What Is a Permanent Establishment (PE)?

A Permanent Establishment (PE) arises when a company has a physical presence or a dependent agent abroad.

Examples include:

An office, branch, or other fixed location overseas.
A director or agent abroad who habitually concludes contracts on behalf of the company.

If a PE exists in the director’s country of residence, that country may tax profits attributable to the PE.

💡 How Are Overseas PEs Taxed?

Profits from an overseas PE are taxable in both jurisdictions, but relief is available:

Exemption method: A UK company can elect to exempt PE profits from UK tax (if conditions are met).
Credit method: Alternatively, UK tax can be reduced by crediting foreign tax already paid.

Double tax treaties normally define what constitutes a PE and how profits are attributed, helping to minimise overlap.

💼 Key Considerations for Directors Living Abroad

To minimise risk and maintain compliance:

Document Decision-Making: Keep detailed board minutes and evidence of where strategic control is exercised.
Understand Local Tax Rules: Identify any dual-residency risks in your country of residence.
Review Tax Treaties: Confirm which country has taxing rights under relevant treaties.
Seek Professional Advice: International tax rules are complex and professional guidance is essential. Please seek advice if in any doubt.