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Property Development Taxation Issues for a Non-Resident. Storyboard for. …clear thinking. By completing this module you will be able to: Advise a client on the scope of UK direct taxes on property development by a non-resident

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  1. Property Development Taxation Issues for a Non-Resident Storyboard for

  2. …clear thinking

  3. By completing this module you will be able to: Advise a client on the scope of UK direct taxes on property development by a non-resident Advise a client on the scope of UK indirect taxes (such as VAT) on property development by a non-resident At the end, you can visit useful Internet sites on a “Web Ride” Lecturer: Julian J.B. Hickey, Partner, Rosetta Tax LLP Learning time: approx. 20 min How to use this learning module? - Click on "Help" in the Table of Contents (TOC) Property development taxation issues for a non-resident Graphic: [presenter or standard graphic]

  4. A person who is not a passive investor but active in a property development trade Development can be commercial (e.g. office, retail, industrial), residential or a combination of both Identifies and buys site for development Obtains planning permission Build out of Site Sells to third occupiers Who is a property developer? A building site

  5. Corporation Tax/ Income Tax: Development profits Stamp Duty Land Tax: Site acquisition Cost of acquisition for a purchaser VAT: Site acquisition and disposal of units Supply of construction services, legal and architect fees ATED Usually not relevant to a property developer Overview of taxes relevant to UK property development HMRC logo

  6. Tax Rates on Property Development

  7. UK tax resident company: UK incorporation + central management & control => CT Non-UK tax resident company: UK trade carried on via a UK permanent establishment => CT Corporation Tax and property development: resident and non-resident companies Graphic: A large 21 %

  8. No UK permanent establishment: No Corporation Tax Carrying on a UK trade: Income Tax on profits No UK trade: No Income Tax on profits Tax Treaty: No Income Tax charge if a tax treaty requires the existence of a permanent establishment Income Tax and property development:non-resident companies Small portakabin on building site

  9. s1141(1) CTA 2010 states that a ‘permanent establishment’ exists in the UK if and only if: the foreign company has a fixed place of business in the UK through which the business of the company is wholly or partly carried on, or an agent acting on behalf of the foreign company has and habitually exercises in the UK authority to do business on behalf of the company The concept of ‘fixed place of business’ includes: a place of management a branch an office, or a building site or construction or installation project Non-UK company and a permanent establishment Graphic: A building site

  10. Building site and UK definition of permanent establishment Limitations: OECD Model Tax Convention UK Tax treaties Maximise tax reliefs on development profits Building site and concept of permanent establishment Graphic: [OECD logo]

  11. Domestic tax treaty based on OECD model Claimant must be tax resident in Country of Residence Potential domestic anti-avoidance rules Maximise tax reliefs that qualify in computing taxable profits Must be property incurred Arm’s length costs Tax treaty relief Graphic: [UK and Switzerland flag]

  12. SDLT is a tax on UK land transactions Chargeable: Wherever documented and executed Wherever the parties reside Applies to any acquisition of a chargeable interest Acquisition includes: ‘Creation’ ‘Surrender or release’ ‘Variation’ The person who pays SDLT is principally the person who benefits from the acquisition SDLT is charged on money or money’s worth SDLT is paid on VAT SDLT Gordon Brown (ideally from 2003)

  13. Scope of VAT UK land and automatic UK place of supply Supplies: Goods Services Developer’s objectives: Not to incur VAT on land acquisition If VAT is incurred on land, put developer in position to recover VAT If significant VAT incurred on construction services, put developer in position to recover VAT VAT registration Value Added Tax I Graphic: [land for sale]

  14. Exempt supplies: Group 1, Sch 9 VATA Election to waive exemption (“opting to tax”) leads to VAT recoverability (Sch 10 VATA) Standard-rated supplies of land: commercial property (less than 3 years old) uncompleted commercial property Value Added Tax II Graphic: [a new office block]

  15. Supplies of land (Group 5, Sch 8, VATA): construction of dwelling buildings intended for relevant residential or charitable use conversion of a commercial building into a dwelling Construction services in connection with dwellings (Group 5, Sch 8, VATA) VAT: zero-rated supplies Graphic: [caravan park]

  16. The key things to remember from this module are to: Identify whether the non-resident property developers’ activities amount to carrying on a trade in the UK through a permanent establishment (e.g. is the building site a PE?) Identify whether SDLT is payable, and the rate of SDLT Identify whether VAT costs will be incurred in the course of the development, and the extent to which the VAT costs can be recovered Summary Graphic: [standard summary graphic]

  17. Web Ride

  18. …clear thinking

  19. Please select the correct answer(s) and then click on “Submit” Can a building site result in a non-resident corporate property developer paying Corporation Tax? No, because UK Corporation Tax does not apply to a building site Yes, but only if a tax treaty requires the existence of a building site Yes, under UK domestic law a building site is a permanent establishment for Corporation Tax purposes Yes, under UK domestic law a building site is a permanent establishment for Corporation Tax purposes, but a trade must be carried on via the permanent establishment Question 1

  20. Please select the correct answer(s) and then click on “Submit” Which of the following statements relating to SDLT are true? There are no SDLT issues for a property developer because only the ultimate purchaser of units in the development pays SDLT SDLT is only relevant to a UK resident property developer SDLT does not apply to bare land, only developed land SDLT is relevant to the acquisition of any interest in land irrespective of the tax residence of the purchaser Question 2

  21. Please select the correct answer(s) and then click on “Submit” Which of the following statements in relation to VAT are true? VAT is only paid on the transfer of land if the purchaser is UK tax resident All supplies of land are exempt from VAT, except the zero-rated supply of a dwelling An exempt supply of land cannot be transformed into a standard rated supply of land unless the option to tax applies VAT at the standard rate always applies to the transfer of land Question 3

  22. Now you have finished this module and acquired basic knowledge on key tax issues relating to property development by a non-resident If you answered all the questions in the Quiz correctly, you can print out your personal certificate by clicking on the link Thank you for your attention! Finish Graphic: [standard finish graphic]

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