Setting up a Close company abroad

Discussion in 'Tax' started by HutzLionel, 17 Feb 2019.

  1. HutzLionel

    HutzLionel Registered User

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    Hi

    1.
    My understanding of the tax issues of working abroad:
    "Income from an employment, the duties of which are carried on abroad,"
    is exempt from income tax.

    Therefore If I set up a company abroad, that might be construed as a close company,
    and live in said country, the salary I earn is not subject to Irish tax.
    Q1. Is this correct?
    This law seems to apply to someone that goes to work for a foreign company, rather than someone that goes to work for themselves abroad. Does it also apply if you set up a close company. I believe it does, because the law also says that income earned from a trade or profession is also exempt.


    2.
    You move abroad, you set up a close company. You begin, from scratch, developing a software product. Said product becomes successful. A company contacts you and wishes to buy the rights to the product. They pay your foreign close company $X million.
    Instead of your close company paying you a $X million dividend, they pay you a salary of $X million.
    Q2. Is this still exempt from tax as per Q1?
    Dividends and capital gains are taxable if the company is a close company.
    I asked the second part before, but the answer has repercussions for the first part as well.
    The law seems to treat a close company as if you were a sole trader, therefore income and dividends are all the same, meaning I cannot set up a company abroad without having to constantly deal with Irish revenue even thought I am no longer living in Ireland. Also the law on revenue's website seems to relate to a bricks and mortar property(house).


    Your answer may be, you need to consult a solicitor. The reason I ask, is to check if I am missing something obvious. If not, then I would proceed to consult a specialist.
     
  2. Jim2007

    Jim2007 Frequent Poster

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    2,066
    If you move lock stock and barrel to a foreign country and establish a permanent home there, you will have noting to do with the Irish Revenue in respect of income tax.... I have had not dealing with the the Irish Revenue in 30 years. You will however be subject to local taxes in the other country.
     
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  3. HutzLionel

    HutzLionel Registered User

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    Thanks, Jim.
    That's what I suspected with regards income tax.
     
  4. HutzLionel

    HutzLionel Registered User

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    7
    Split-year treatment excludes directorships.
    "5. Section 822 - Split Year Treatment (SYT) SYT applies only to income from an employment. It does not apply to income from an office e.g. a directorship."

    "The term “director” includes any person in accordance with whose directions or (4) instructions the directors are accustomed to act and any manager who alone or with associates owns or controls 20 per cent or more of the ordinary share capital of the company."

    Does this mean that anyone that sets up a company abroad will be liable for Irish income tax for three years(excluding Double tax treaty deduction) as they may be non resident, but are still ordinarily resident?
     
  5. RedOnion

    RedOnion Frequent Poster

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    2,574
    Lionel,
    It would help if you outline your circumstances and question, rather than reference to things that might not apply to you.

    If I understand;
    You are Irish Domiciled?
    You are non resident already?
    Your question is in relation to establishing a company abroad, and if there are any Irish tax implications for you?
     
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  6. HutzLionel

    HutzLionel Registered User

    Posts:
    7
    I've had job offers over the years from the Caymans and the Channel Islands. Both of which have no CGT, and 0, 20% income tax rates respectively. If I was going to move though, I would set up on my own. Both jurisdictions have attractive start-up policies and resources not to mention location.
    A mid-year move from Ireland.
    So resident, ordinarily resident, and domiciled for the first year.
    Non-resident, ordinarily resident, and domiciled after that.
    Tax implications for the first two years.
    Ignore Double Tax.
    It's a software company that I will control. A close company.
    No matter what title I give myself, by the definition I posted, I am classified as a director.


    My current understanding:
    For three years, I will be treated as If I never left Ireland. Ignore DTT.
    Split-year tax treatment is out, as I am classified as a director(many websites seem to leave out this caveat.)
    All my income, non of which is earned in Ireland, will be subject to Irish income tax.
    CGT on company capital sales is less clear. I believe, as the asset was created outside of Ireland by the company, and it's software rights, I will not have to pay CGT. But if, as I'm a director, the point is academic as when it runs through the company to me, as either a salary/bonus payment or dividend, I am liable for the full thing.
     
  7. Ciru75

    Ciru75 Frequent Poster

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    51
    Will your company be incorporated in Ireland?

    If yes, you'll always be liable to Irish income tax on your income as a director of an Irish company.
    If no, you won't.

    A directorship of an Irish company is an office, which is what the excerpt from the split year relief manual you've quoted is talking about.

    You'll be liable to Irish CGT on foreign assets as long as you're ordinarily resident (until you're non-resident for three consecutive years).
     
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  8. HutzLionel

    HutzLionel Registered User

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    7
    Last edited: 20 Feb 2019
    Company will not be incorporated in Ireland. Both regions have fairly straightforward company incorporation rules albeit with hefty fees.
    I don't understand how I would not be liable for income tax. It's a foreign close company which has specific rules. Revenue basically treats you as a sole trader. The wording of the law is aimed at someone who controls 20%+. So I can call myself CEO or the janitor, I am still classified as a director. There is no way you could get your brother/sister/friend to act as a director to avoid this.

    The issue regarding CGT relates to the company, a separate legal entity, selling an asset. An asset that was not owned before incorporation by me.

    "You will have to pay Irish CGT when YOUR foreign company sells YOUR foreign property "
    The CGT for foreign close companies is aimed at someone flipping a physical bricks and mortar property. Or they have a big gain coming so they move offshore to avoid Irish CGT.
    In my case, it's the company making the capital gain(not taxed in either offshore jurisdiction.) It's passed on to me, the sole shareholder, either through dividends or through salary. If it were salary(bonus), it would not be taxable if I were not a director. I believe this is why the director caveat was included in the first place.
     
    Last edited: 20 Feb 2019