A limited company (LTD) is a type of business entity which is legally separate from its owners (shareholders) and those appointed to manage it (directors). It has limited liability that shields its owners from any personal liability for the company’s debts and obligations. It is incorporated at Companies House and is a commonly used business structure in the UK.
Since there is no law that prevents you from setting up a UK limited company if you are not a UK resident, you can set it up from anywhere in the world. If you are already living in Belgium or plan to relocate here, but want to continue running your UK LTD, there are various issues you need to consider. A company that is established in the UK is normally resident for tax purposes in the UK and taxable there on its worldwide income. It will also need to continue to comply with several formalities and requirements in the UK, wherever it is managed from.
If that LTD company is managed and controlled from Belgium, this may trigger a ‘Permanent Establishment’ (PE) for corporate tax purposes here. The UK company could in that case be subject to taxation in Belgium on its (unincorporated) business profits. Hence, UK business owners should properly understand the tax implications when initiating business activities from outside the UK. There are potential consequences not only for corporate income tax, but also for VAT, especially after Brexit.
From a personal tax perspective, things get even more complicated when a salary or dividend is paid out to the business owner living abroad. Generally, the Belgian tax authorities do not tax any of the LTD’s earnings if they are retained and not distributed. If the company does make a distribution, the Belgian resident owner may be able to claim (partial) tax relief based on the Double Taxation Agreement (DTA) between Belgium and the UK, but this will largely depend on the type of distribution made.
Any dividend that is paid out by a UK company to a Belgian beneficiary may be subject to a withholding tax (WHT) at source in the UK but will also trigger an income taxation in Belgium. Your net dividend, after UK WHT, will be subject to a flat tax of 30%. Only a dividend amount up to € 833 per year remains tax exempt (2024).
As a director of a UK company, you would normally also draw a monthly salary. According to the UK-BE DTA, a director living in Belgium but physically working in the UK is only taxable in the UK. While you may need to go regularly back to the UK for meetings or other business matters, any working time spent in Belgium will be considered taxable here instead (at 25% up to 50%, plus local taxes). This will impact not only your tax situation, but also your social security position.
Running a UK LTD out of Belgium requires careful planning and a thorough analysis of various elements, both at a corporate and personal level. TAXPATRIA® can assist you with your cross-border business setup, as well as accounting, VAT & tax filing services.