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UK to Global Entrepreneurs: Move Over Here But Please Keep Your Business at Home

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DAVID CAMERON
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A couple of years ago, I decided to move to Spain. It was here that I started Jazztel, now one of the country's largest telcos, Ya.com and most recently Fon, the world's largest WiFi community.

My motivation for moving to Spain was that this is a great country which I simply love. And, as the successes of my startups here show, it is also a country with some highly qualified talent - especially the engineers here are great. Unfortunately, Spain has a big drawback, which is its lack of a large talent pool of internationally experienced business development managers and designers. In general, Spain is not very well connected on a global scale, especially not in the English-speaking part of the world. This is a challenge for us at Fon, which is why we have been looking at different ways to deal with this problem. One possibility would be expanding our activities in an international tech hub like London, which has a much larger pool of experienced talent and is home to many global brands and companies.

I was recently invited to 10 Downing Street as part of an effort on behalf of the Cameron administration to attract global entrepreneurs to the United Kingdom. Impressed by the approach and the obvious advantages that London offers as a global hub, I started a more serious due diligence on what a move of my family and an expansion of Fon, including moving Fon's HQ to London, would entail. In this process I was very surprised to find out that, while the current tax incentives of the United Kingdom are geared towards attracting entrepreneurs from around the world to the UK, all these incentives disappear if you not only move to the UK but bring your company along with you. In other words, the system seems to be designed to encourage entrepreneurs to move to the UK but to leave their businesses at home. This I found absurd.

Presently the UK has a unique tax system by which, if you are a foreigner who moves to the UK while keeping your business abroad (and assuming you plan to leave the UK at some time in the future), you can greatly reduce your tax bill. This regime, known as the "non-domiciled resident" status, allows you to pay no taxes at all on the most common source of earnings for entrepreneurs: capital gains - provided that the gain occur outside of the UK and this money is not brought to the UK. This is because the UK will not tax you on the money you make abroad, say selling your shares in a startup in Sweden, and Sweden will not tax you because you don't live there anymore. The same applies in the case of regular foreign income.

As a non-dom resident, you are only subject to taxes on income and capital gains originating in the UK or brought to the UK from abroad (so-called "remittances"). Long term non-dom residents will have to pay an additional charge of £30,000 per year if they choose to be treated under this tax regime. This is a relatively small amount considering the millions that would have to be paid normally in the case of a large exit. And it eliminates the painful double taxation that occurs in some cases, even where double tax conventions exist. As a result, many successful entrepreneurs from around the world have moved to the UK to become non-dom residents. They enjoy the tax advantages and the lifestyle of the UK while they build businesses in other countries, including neighboring countries such as Ireland, which has attracted many companies from around the world, including the likes of Google and Cisco, through its combination of talented and well educated people with a low tax regime.

But in my view there is a fundamental flaw in this system, which is that from the British government's point of view, I don't see the full advantage of encouraging entrepreneurs to move themselves to the UK while keeping their businesses abroad. Granted, the approximately 120,000 non-dom residents contributed more than £7 billion in taxes alone and spent an additional £16.6 billion in the UK in 2006 according to this research paper, and the figures have probably reached even higher levels by now. But still, the economy could benefit much more if the government were to encourage entrepreneurs to move not only themselves, but also their businesses to the UK. I think that the UK has to change the current regime. That it should either eliminate the non-dom residence system altogether and tax anyone who lives in the UK as a British citizen (as done in the USA with resident aliens), or otherwise offer a similar incentive for entrepreneurs who move themselves and their businesses to the UK. One such incentive, that applies to regular residents as well as non-doms, is the so-called 'Entrepreneurs' Relief'. This allows entrepreneurs (and other shareholders) who own at least 5% of a company's shares to pay a reduced tax rate of 10 percent on the first £10 million of capital gains they make (the regular rate is 28 percent). But this is just a small step in the right direction, more needs to be done to significantly increase the attractiveness for foreign entrepreneurs.

Now, as we know, taxes are only one aspect of many for businesses to consider. Fon already has a presence in the UK with our alliance with BT, known as BTFon, and this country is a very attractive market for us regardless of the tax situation. The United Kingdom has some of the best universities in the world and a well educated native and foreign population with a global outlook, something that is harder for us to find at home here in Spain. But if - as a British friend who collaborates with the UK government told me - "the Cameron government rightly believes that there's a new arms race and that is the race for global entrepreneurs", then the arsenal to recruit global entrepreneurs must include a consistent tax policy.