Companies that are not incorporated in the UK can become liable for UK tax (i) by virtue of t

Companies that are not incorporated in the UK can become liable for UK tax (i) by virtue of their central management and control being exercised in the UK which results in them being UK tax resident, (ii) if they carry on a trade in the UK through a permanent establishment, or (iii) if they have UK source income (e.g. rental income).

If an Offshore Company is resident within the UK for UK tax purposes, it will be taxable on its worldwide income and gains, wherever arising, and whether the income or gains are received in the UK or held overseas.

Where an Offshore Company carries on a trade in the UK through a permanent establishment, those associated profits will be chargeable to UK corporation tax as will chargeable gains realised on property used or held for the purposes of the trade carried on by the permanent establishment.

The structure, management and operation of offshore property structures with onshore UK assets are therefore critical in minimising UK taxation incurred.

Even in cases where a majority of directors are non-UK resident, consideration needs to be given to the directors' experience and expertise in investment in real property and their ability able to attend all Board meetings in person. Any alternate director should have at least the same level of experience and expertise as the person he is replacing. It is strongly desirable for any UK directors not to be persons who are employees or directors of any UK Management Company.

The Offshore Company's articles of association must give the directors (and not the shareholders) the authority to exercise broad powers of management and control over all aspects of the company's affairs, with particular reference to its real property investment activities. Other than normal shareholder powers, any UK resident shareholders should not have the power to override the decisions of the directors, thereby managing and controlling the Offshore Company themselves.

Board meetings should be held outside the UK, be at least quarterly and should ensure that the directors debate and decide all policies and strategies. The Board should determine clearly the role of any UK Management Company and should if necessary be able to challenge a recommendation from a UK Management Company.

It is important that non UK resident directors are able to demonstrate to HMRC that their support of recommendations emanating from the UK Management Company is based on a sound understanding of the potential risks and rewards of the relevant recommendations and on a reasoned assessment by them of why approving those recommendations was in the Offshore Company's interests.

Operating procedures of the Board and UK Management Company

The use of written resolutions of the Board is not advisable. This is because resolutions made without the relevant directors being present at a meeting could cast doubt on where the relevant decisions of the relevant Board were really being taken.

Prior to each Board meeting, a detailed report should be provided by the UK Management Company to the Board consisting of a summary of the UK Management Company's activities and recommendations (if any). The Board should carefully consider whether there has been strict compliance with investment policies, strategies and guidelines, and any amendments to these (subject, where appropriate, to shareholder consent).

A UK Management Company should not be authorised to make decisions on real property investment transactions (e.g. sales or purchases of real property) on an Offshore Company's behalf or act on an Offshore Company's behalf.

Although a structure may involve a permanent establishment (for example a UK building site), it is preferable that further permanent establishments do not exist, as it could place the argument that certain Offshore Companies are not "trading in the UK" under greater strain.

Accordingly, the activities of a UK Management Company may include: