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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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We have a Dubai based company which selling electronic

Customer Question

Hello,
We have a Dubai based company which selling electronic goods to the UK customers.
The products we're selling are mobile phones, tablets and laptops which is duty free in the UK but our UK customers have to pay 20% VAT on item's value.
As per the contract we have with currier companies we're paying for this 20% VAT on behalf of the customers in advance so our customer don't have to pay any additional/unexpected fee upon delivery of goods.
But, we're planning to open our own distribution center in the UK and dispatch the items from our distribution center to our UK customer to make the deliveries faster and make the whole process hassle-free.
So, from now on, the Dubai company will send the items all together to our UK distribution center and we will dispatch the item from our UK warehouse to the UK customers.
Please keep in mind in both ways, the customers are paying the money to our Dubai based company, we don't take money from customers by our UK distribution center.
My question is, how can we handle tax/VAT on this situation to avoid any legal problem in future?
Do we need to register the Dubai company for VAT?
Do we need to represent our UK company as Dubai company VAT representative?
Are we going to be questioned by HMRC for the UK distribution center?
Are we going to be questioned by HMRC for the Dubai based company?
Since our UK distribution center is going to be the importer of the good in the UK (and will pay 20% VAT to the HMRC), do we have to deal with any TAX rule? does it make any legal issue?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith one of the experts on Just Answer and pleased to be able to help you with this problem. I suggest the following course of action. Set up an UK organisation, a private limited company, to handle your operations there and register it for VAT. The imported items can then have the VAT imposed by Customs on import as input tax to offset the output tax from the invoices raised to support your UK distribution of goods to customers. The balance will be rendered to HMRC with the quarterly VAT return as normal. I do hope that I have shown you a relatively simple way forward in this matter.
Customer: replied 1 year ago.

Hello Keith,

Thank you for your reply, I'm still confused, could you please provide me with more details?

do you suggest me to register an UK organization for our distribution center in UK or register an UK company for our Dubai company?

We want to keep receiving the payments from our UK customers in our Dubai bank account (not the UK distribution center).

in regards ***** ***** which company has to be registered for VAT? and how do we handle output tax since the company which is selling goods to UK customer is our Dubai based company not our UK distribution center.

Expert:  bigduckontax replied 1 year ago.
What I was suggesting was the setting up of an UK company to handle your UK trading. It would account for all UK VAT matters and transfer funds to the Dubai parent on invoice. There is no reason why the UK company's invoices cannot be credited direct to the Dubai bank account. It would merely be necessary for the invoices be annotated to the effect that payment is to be made to the bank account of the Dubai organisation. That is merely an internal transaction within your group of companies and would make the internal transfer suggested above redundant.
Customer: replied 1 year ago.

So all the transactions (money we receive from our customers) will be considered as activity/turnover of the UK company and eligible for any UK corporate tax, is that right? if yes, it's not the right solution for us since the purpose of keeping transactions in Dubai is, the business is running from Dubai and Dubai is tax haven.

Expert:  bigduckontax replied 1 year ago.

Yes, the acivities would attract Corporation Tax (CT), but I assume that the Dubai parent would raise invoices against the UK company to reduce UK profits to zero thus making the CT position academic. That is how the likes of Vodafone, Amazon and Starbucks all operate to move profits into tax havens like Gibraltar, Turks and Caicos Islands and, of course, the Gulf States.

Customer: replied 1 year ago.

thank you for detailed explanations, does the UK company have to be a branch of our foreign company? or we can register an individual private limited company for this purpose, if we can, how can we show the connection between these two companies to HMRC?

Thank you.

Expert:  bigduckontax replied 1 year ago.

Not necessarily, but all the shares of the UK company could be held by the Dubai organisation effectively so making it. Alternatively it could be a stand alone company with one of more individuals holding the shares. As for HMRC you merely tell them of the position; it's that simple.

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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3597
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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