It's a common fallacy that simply establishing an offshore company is a simple method to avoid paying UK taxes. This is not always the case and you need to ensure you pay careful attention to the UK tax legislation given much will depend on the type of income being earned and your own residence position.

In particular, the old chestnut of using a non resident company to trade in the UK is one of the most complex areas. However it may well be the case that in this situation an offshore company could be the best option. To keep it simple, lets assume you yourself are a non resident and you're interested in doing business with the UK. 

If you do want to conduct business with the UK, you should undoubtably not use a UK company to carry out your trade. If you did, you'd be subject to UK corporation tax on the company's profits. Given the many offshore jurisdictions this is not generally a good idea.

Instead in this case, you'd be better off using an offshore company. This would only  be subject to UK taxes if the central management and control of the company was carried out in the UK. If you are the director/shareholder and are non UK resident, it would be very rare that the company would be controlled from the UK.  (Note that that is one of the first drawbacks for a UK resident wanting to use offshore companies. If you own/control the company and are UK resident it's difficult to argue that the company is not controlled from the UK and therefore UK resident).

So on this basis, you are non UK resident you should have few problems establishing the company as non UK resident. This would mean that the company would not be charged to UK corporation tax on it's overseas income.

If the non-resident company's activities  in the UK do not amount to trading there is no charge to UK corporation  tax on the profits arising, even if the cash is derived from the UK. However, there is a distinction between trading in the UK and trading  with the UK. Trading by non-residents with the UK, as opposed  to in the UK, does not bring the non-resident within the UK domestic charging provisions.

When looking at an offshore company, the UK doesn't just look to see if there is a UK trade. It will firstly look to see if there is a UK branch or agency. If a non-resident company trades in the UK through a branch or agency the tax legislation says that its  chargeable profits shall include `any trading income arising directly  or indirectly through or from the branch or agency'. Therefore you'd need to firstly assess whether a UK branch or agency arose. According to the Corporation  Tax Acts `branch or agency'  means any factorship, agency, receivership, branch or management.

The concept or an agency is important and it is also a  difficult and specialised  element of UK law and should be looked at in detail. However briefly an agent represents a person (known as the 'principal') in accordance with the terms of the agreement to act.  That agreement may be oral or in writing and it is called the agent's  authority. In representing the principal the agent may bring about  a legal relationship between that principal and a third party. 

Therefore if any UK salespeople do not have the power to bind the offshore company  (ie the power to conclude a contract) this would signify there was no agency.

When looking at this the UK taxman would firstly look to identify if you have a permanent establishment (branch or agency) that trades in the UK, eg an office, and secondly, if not whether there is simply a trade in the UK. Actually what constitutes trading in the UK can be difficult to determine, however a key consideration will be where contracts are signed.  Providing contracts are signed overseas, and there is no branch of the new venture in the UK, it should not be charged to UK corporation tax.

If you are resident n a country with which the UK has a double taxation  treaty then the UK will consider the provisions of the treaty as  well as domestic law before they decide whether there is a liability to UK tax.  A treaty may exempt where the domestic law would charge and a treaty  may provide for a liability which the UK does not enforce. 

The standard OECD model treaty essentially asks

 - does the non resident, being a resident of country A, carry on its business through  a permanent establishment in country B the treaty partner.

The standard treaty will cover this in Article 5 of the treaty.

 The approach  of Article 5 is essentially that which many European countries  adopt in their domestic law. Such countries are of course interested  in foreigners who have income arising in their countries or whose  trading is concerned in a very intimate way with their countries.  It is usual to find in their domestic law that they define a whole  range of  income arising in their country. Such income  is taxable when belonging to non-residents. As far as trading is  concerned, the main question such countries will ask is - does  this foreigner carry on business in our country through a permanent  establishment.

Article 5 of the OECD Model is based on  that idea and goes into some detail asking whether there is a branch,  an office, factory or workshop or the like fixed place of business  through which the business of the non-resident is wholly or partly  carried on. `Carrying on business' is a far wider concept than  our domestic idea of `trading in'. All sorts of activity might  be included in the former expression which are not within the latter.  And because it is so wide there need to be exceptions to let out  activities which, although they constitute the carrying on of business,  are not the sort of activities a country would wish to tax. Such activities  are listed in Article 5(4) and include things like storage, display  and delivery of goods and activities which are of a preparatory  or ancillary nature - all of them things which in our domestic  law would not amount to trading in the United Kingdom.

Therefore of crucial imprortance in this area is any double tax treaty and this should be reviewed, however provided the non UK resident company does not have UK permanent establishment there should be no charge to UK corporation or income tax. Simply providing services from overseas, with no significant UK role in the provision of the service should therefore not be caught by these provisions.

So there you have it, when providing goods or services to the UK, you need to ensure that you use an offshore entity and that

- it does not amount to a UK branch or agency
- it does not amount to a UK trade
- there is no UK permanent establishment in accordance with the terms of any double taxation treaty.

Provided all these are satisfied you can conduct activities in the UK without being caught within the UK tax net.