Are benefits in kind from overseas taxable?

You’re a shareholder in a company located outside the UK. As a perk you get to use the company owned flat, not only for business trips but also for the occasional holiday. Will you have to pay tax on this perk?

International business

Getting involved in an overseas business is more common and easier these days but it can throw up tricky tax problems. For example: would you have to pay tax on perks received from a foreign company of which you was a shareholder?

Shareholders and benefits

Perks are usually associated with employees and directors, but shareholders can also be taxed on non-cash benefits in kind. A shareholder of a close company is treated as receiving an income distribution where they receive a benefit which if received by an employee or director would be taxable under the rules for job-related perks.

Note: A close company is one which is controlled by five or fewer individuals, i.e. where together they own or control more than 50% of the company’s ordinary share capital, and a distribution is more or less any type of payment from a company to a shareholder, e.g. a dividend.

The taxable amount

Where a shareholder receives a perk, the amount on which tax is payable is worked out using the benefit in kind rules which apply to employees and directors. For example, if the perk is a car, the chargeable amount depends on the new list price of the car and its CO2 emissions. However, the tax is payable at the rates which apply to dividends, i.e. 0%, 7.5%, 32.5% and 38.1% depending on how much other income the shareholder has.

Tip: The shareholder’s benefits rules don’t apply if you own or control less than 5% of the company’s ordinary share capital.

Foreign companies

Let’s say the company you are involved in is owned equally by four shareholders of which you are one. At first sight it seems that when you receive a non-cash benefit you will have to pay tax on it. However, the good news for you is that a foreign company which has no establishment in the UK cannot be a close company. In this case the company was incorporated overseas and has no presence in the UK other than our subscriber whose only role is as an investor.

Tip: Non-cash benefits provided to UK shareholders from foreign companies aren’t taxable in the UK. However, they might be taxable in the country where the company operates or is resident. Check this with the company’s accountant.

More than a shareholder

You won’t have to pay UK tax on perks from overseas because your only involvement with the company is as an investor. However, if you was able to influence or control how the directors run the company, you might be considered a shadow director. If that were the case, you would be taxed on the perks, not as a distribution but as if you were an employee or a properly appointed director.

To summarize, unless you are a director, shadow director or employee of the foreign company (which has no presence in the UK, e.g. an office), non-cash benefits you receive from it aren’t liable to UK tax. However, you should check with the company’s accountant if you need to pay tax in the other country.

For more information, we provide a Business Consultation to ensure our clients benefits from tax planning and accounting matters.

Companies999 are Chartered Certified Accountants and Birmingham’s Best Company Formation Agent.

For any assistance contact Companies999, we will be happy to help you!

Tax for Overseas Business Owners

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