If I worked in Saudi, paid into a dollar bank account by American company, could I evade paying income tax?

Question

I am trying to pay less UK tax, as I dont think I should be paying it in this circumstance.

Answer 1

Ok, first things. Tax avoidance is not a term you want to use in public. Tax minimisation is what you should use when talking about this topic.

Any offshore structures you use are only as good as your ability to then keep your own counsel.

The UK doesn't have a reciprocal tax agreement with SA as far as I know, so you are technically liable for tax on any earnings you make there (any tax you pay there should be claimed back from SA authorities if possible to avoid double taxation). However, if you are out of the UK for a tax year, then you can avoid paying tax on any earnings outside of the UK (but not necessarily on UK income, say savings and renting your house out). SA is known for tax-friendly employment (you don't pay any under most schemes), but if you are repatriating funds during temporary employment, the issue is not black and white.

You'll need to register as not-resident for tax purposes at the Inland Revenue's site. It's a pretty straightforward form and the helpline is good for answering questions.

If you are still domiciled in the UK for tax purposes (maybe you are only working for a few months), then you are technically meant to declare your earnings. Whether or not you do is up to you; if you repatriate large sums then you are more likely to face questions than if your funds are spent or remain offshore.

As for offshore structures - depending on the value of your income, you might consider setting up a corporation to receive your funds. That way you have an extra level of protection between the revenue and yourself. You would need your employer on board though as they would have to pay into the company's account. This is pretty standard for contractors. Your account need-not be where you work - places like the Cayman Islands are well-known, although jurisdictions such as Belize and Nevis offer reputable company formations plus bank accounts.

The bottom line is, unless you are earning significant amounts and repatriating them to the UK, your chances of being audited are slim and even then, the chances of you being penalised are also slim. Speak to the IR, get their official position on your type of situation and get the name of the person you speak too. You don't need to give your name. This kind of set-up would cost you about $1500-3000 a year in fees and should be considered carefully - perhaps if you are interested in setting up a trust for family or investing in overseas property.

Matto
http://www.barefootinvestments.com

Answer 2

Tax evasion = naughty/criminal
Tax avoidance = legal

'Every man is entitled if he can to order his affairs so that the tax attaching thereto is less than it otherwise would be'. This now somewhat infamous dictum of Lord Tomlin's in the 1935 House of Lords' decision in the Duke of Westminster's case has, ever since, been the mantra of the UK tax avoidance industry.

The theory is that you can do whatever you want as far as reducing your tax bill is concerned as long as what you do is not dishonest or specifically prohibited by law and thereby strays over the line into tax evasion, rather
than avoidance.

Avoidance and evasion

Let's try to be clear first about this distinction between tax evasion and tax avoidance. Conceptually, it is nothing more than the difference between honesty and dishonesty in dealings between the taxpayer and the Inland Revenue. Ruled out are not only omission and inaccuracy, but also misleading statements and concealment of relevant facts. You cannot use the excuse: 'Well, if the inspector doesn't know about it, it's up to him to find out. Why should I tell him first?' If there isn't full and accurate disclosure, it is tax evasion, not avoidance.

Some examples might help to clarify the distinction. It is illegal tax evasion not to declare interest income from your offshore bank account; but acceptable tax avoidance if you put the same money into an ISA or TESSA, even though the amount of interest you receive is the same. That is an obvious case where the there is a specific statutory exemption from taxation that is relatively clear in its operation. Many would not even see it as tax avoidance at all. But it is under the Duke of Westminster definition: 'ordering one's affairs so that the tax attaching thereto is less than it otherwise would be'.

Answer 3

If you are treated as not resident in the UK then you only need declare sources of UK income to your tax office. To be not resident in the UK, you need to fulfill certain conditions. It's not just that you have to be outside the UK for at least a whole tax year, your contract of employment also has to last for at least a full tax year too, be it UK or foreign employer. Plus your visits back to the UK can't be more than 183 days in any one year but you also have to keep your visits below 91 days on average too. It's not evading tax, it just isn't liable in the UK if you fit into the above. It makes no difference where you keep your bank account.

Answer 4

Wile I completely agree about then huge money makers paying no income taxes is a serious issue,I think you are misunderstanding something about the low income earners. This is not a static situation. I was once one of those low income earners and you may well be one now. In our country people can improve their situation and many do, through their own efforts. The same people who were low income earners twenty years ago are often medium or even high earners now. What we need to look at is how much opportunity they have to become higher earners. It isn't a matter of the government mandating higher wages, it is a matter of us offering greater opportunities and people grasping those opportunities. One of the serious flaws in our current socioeconomic systems is the huge number of jobs having gone overseas. Part of that is our own fault for not getting the educations to do the highly technical jobs that need doing. And part is our chasing jobs overseas with high taxes and often absurd regulations. We have made ourselves noncompetitive. The government needs to close tax loopholes, make it more expensive to ship jobs overseas by cancelling NAFTA and CAFTA and increasing import duties. Then we need to provide ourselves with better education in the science and engineering fields to make ourselves better employees. It may be nice to argue that unions are good or evil but the truth is the jobs unions support are very often past their prime. Our problems are of our own doing and the solutions are our responsibility. Get up and make a difference.

Answer 5

Not sure about the UK, but Americans who are working in Saudi Arabia do not pay taxes to the US gov't and Saudi doesn't tax them either. I was in the military and lots of guys used to like to go to Saudi because of that reason.

Answer 6

No. You will need to report your income, and as such your taxes. You will need to look into paying State taxes; most gov't employees also have to pay state & local taxes to wherever they say is their home.

Answer 7

You pay income tax in the country where you work. If you want to avoid taxes in this country, don't forget to walk around with a big sign saying 'No ambulances for me thanks'

Answer 8

I believe you would need to get an offshore bank account.