Non-resident directors of UK companies and the tax implications

Income Tax on Director’s Fees

• Taxable in the UK: Non-resident directors are generally subject to UK income tax on any income they receive from a UK company, such as director’s fees or salary. This income is typically considered UK source income and is therefore subject to UK taxation.
• Where Services Are Performed: If the director is providing services in the UK, the income may be subject to UK income tax regardless of where the director resides. However, if the director is performing their duties entirely outside the UK, then the income might not be taxable in the UK, but it will depend on their specific situation and the relevant double taxation agreement (DTA) between the UK and their country of residence.

In cases where the director performs their duties in both the UK and abroad, the portion of the director’s income relating to services performed in the UK may be taxable in the UK.

National Insurance Contributions (NICs)

• UK National Insurance: Non-resident directors of UK companies are not automatically exempt from paying National Insurance contributions (NICs) if they are working for a UK-based company. However, their liability to pay NICs may depend on the nature of the work and whether they are considered to be employed or self-employed for NIC purposes.
• Self-Employed Directors: If the director is not an employee of the company but rather a self-employed individual, they may be subject to a different set of rules regarding NICs.
• International Agreements: If the director is based in a country that has a social security agreement with the UK, there may be exemptions or adjustments regarding NICs, depending on where the director is already paying social security contributions.

Double Taxation Agreements (DTAs)

The UK has Double Taxation Agreements (DTAs) with many countries to prevent the same income from being taxed twice. A DTA can reduce or eliminate the UK tax liability for non-resident directors on income earned from UK companies, provided certain conditions are met.

• Where the Director is Taxed: A DTA typically establishes which country has the primary right to tax income. For non-resident directors, the country of residence may be entitled to tax their income, with relief for UK tax paid under the DTA. In many cases, the UK will give a credit for foreign tax paid, or the income will be exempt from UK tax if the director is a tax resident in another country.

UK Corporation Tax

• Non-resident directors themselves are not typically liable for UK corporation tax. However, if the director has a significant influence over the management and decision-making of the UK company, it may impact the company’s overall tax status.
• For example, if a non-resident director controls or influences company decisions from abroad, it could have implications for the company’s residence for tax purposes.

Tax Residence and the UK

• Non-UK Residents: The director’s tax residency status (whether they are a UK tax resident) plays a crucial role in determining how much tax they are liable for. Non-UK residents who are non-UK domiciled generally pay UK tax only on UK-sourced income and may be able to benefit from a remittance basis of taxation (in the case of foreign income) under certain conditions.
• UK Tax Resident Directors: If the director spends a significant amount of time in the UK or has a UK home, they may be considered UK tax residents and could be liable to pay tax on their worldwide income, including any director’s fees from the UK company.

Employment Income vs. Dividend Income

• Director’s Fees or Salary: If the director is being paid a salary or director’s fees, this is considered income, and it will be taxed as employment income, subject to income tax and NICs (if applicable).
• Dividends: If the non-resident director holds shares in the UK company and receives dividends, these may be subject to UK dividend tax, depending on whether the director is a tax resident in the UK or a country with a relevant DTA.
  • If the director is a non-resident of the UK, dividend payments from UK companies are typically subject to withholding tax at a rate of 0% to 20%, depending on the terms of the DTA between the UK and the director’s country of residence.

Withholding Tax

• The UK imposes withholding tax on certain types of income, including payments to non-resident directors. For example, director’s fees or salary payments are subject to income tax through the PAYE system, while dividends paid to non-resident directors may be subject to withholding tax.
• Tax Treaties and Withholding Tax: If the director is resident in a country that has a tax treaty with the UK, they may be entitled to reduced withholding tax rates on income such as dividends, royalties, and director’s fees.

Filing Requirements

• Non-resident directors may need to file a Self Assessment tax return if they receive UK income. HMRC will assess whether the director owes any additional taxes and determine if relief from double taxation can be claimed under the relevant tax treaty.
• It is important for non-resident directors to keep records of their income and any taxes paid, as well as to file any necessary documentation with HMRC.

Non-resident directors of UK companies are subject to UK tax laws, including income tax on their director’s fees, National Insurance contributions (depending on their employment status), and potential withholding taxes on dividends. However, the exact tax implications depend on several factors, including the director’s residency, the country they reside in, and any relevant double taxation agreements.

To navigate these complexities and ensure compliance with both UK tax laws and international tax treaties, it is advisable for non-resident directors to consult with a tax professional or legal advisor who specializes in UK tax law.