UK limited company paying consultancy fee to HK limited company - common shareholder – tax implications

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  1. #1

    UK limited company paying consultancy fee to HK limited company - common shareholder – tax implications

    I live in HK working for a company and plan to be here for a few years.

    I also own a limited company in the UK which I set up before I moved to HK. The UK limited company owns a UK hotel which has on the ground management and staff that run the hotel day to day. As the main shareholder (and company secretary and director) I provide a lot of oversight to the business, set strategy, hire and fire the General Manager etc, review the sales daily etc. My title if I had one might be managing director.

    For the past few years the business has been in start-up phases and has not made a taxable profit and I have therefore not burdened the business with any salary for me – what’s the point if I have then put more cash funding in partially to cover a payment to me?

    The business is now becoming profitable, however, so should be

    a) be in a position to pay me for my MD services and

    b) begin to attract UK corporation tax (small company, @ 20x%)

    I am considering setting up a HK company that would charge the UK company for my services, approximately equal to the free cash flow of the company. My thinking being this will reduce my UK corporation tax and this consultancy fee when received in HK could be dividend-ed out of the HK co to me on a tax free basis.

    Does anyone see a problem with this from a legal point of view in either the UK or HK? Thanks


  2. #2

    Join Date
    Jan 2008
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    Why? If the HK company is earning an income for providing a service, then that income would be taxable in HK. You can reduce the HK company tax by paying yourself a salary. If the salary is about $ 120,000/ then it will be tax free in your hand.


  3. #3

    Join Date
    Apr 2011
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    What's your visa situation? Do you have PR or a dependent visa, or just on a work visa?


  4. #4

    Join Date
    Mar 2012
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    Assuming no visa issues, then at first sight it seems to me that you pay yourself about £10k/HK$120,000 per year as salary which is not taxable in the UK (because you're not resident) and tax free in HK. If you're married and your wife has no taxable salary then double that to HK$240,000. Above that you can fiddle around with expenses and stuff (you could expense part of your property costs here if you use some of your home as your office to run the business, obviously all of your phone calls etc to the UK, flights back there, and so on). And then depending on how much profit there would otherwise be in the HK company you either take it as dividends (paying corporate profits tax) or salary (paying personal salary tax), whichever results in the lower tax bill.

    I see no major reason to have a HK company though - a sole proprietorship would do the job. If your gross revenue in HK is greater than HK$2M per year though you need to produce formal accounts here, so the savings of a sole prop vs a company are reduced.


  5. #5

    Thanks for all the replies. I had not thought through the fact the HK co is making a profit - which seems quite a big flaw in this thinking. The UK corp tax rate I am trying to structure around is 20% so the difference between that and any HK corp tax or personal salary tax (depending on which route you go) is not huge (or not compared to zero I was assuming)!

    Bibbju, to answer your question - I have a work visa running til Aug 2015. Been here since July last year so some way off PR. No wife/dependents etc.


  6. #6

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    Mar 2012
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    Strictly the Employment Visa means that you shouldn't be doing any other work (unless you have the formal permission of your sponsor & ImmD). It's very unlikely to be a problem if it all stays in the UK, but it's probably not worth the risk of setting up another employment here through your own company (which, again strictly, would also involve MPF etc).


  7. #7

    Thanks. 1 more thought:

    Given my work visa situation setting up a HK co and paying myself a salary seems to be risky and probably not worth it. This was only really going to work if I was getting a dividend but since the HK co pays profit tax that also is not a huge help.

    So, what about having the company that received the consulting fee from UK co a BVI company (zero profit tax) and have the BVI pay me a dividend in HK (zero dividend tax). So the cost becomes simply set up of BVI co and ongoing BVI establishment costs.

    Does that work? I guess I would need to be sure HMRC don't see the payment of a consulting fee to the MD/CEO via a BVI co as a problem. Since I don't live in UK I think it seems not unreasonable. Thoughts appreciated before I go and pay money for advice! Thanks


  8. #8

    Join Date
    Mar 2012
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    I don't immediately see any problem with that. Many HK businesses are set up via the BVI in a similar way.