JNF - UK Jurisdiction note

WHY USE A UK COMPANY?

International tax planners are finding the use of companies registered in traditional low-tax centres impractical in some circumstances and have therefore had to find more innovative solutions.  

United Kingdom (UK) entities have a respectable international image and can be used tax efficiently for cross border trading and as international holding companies.

Examples of how UK entities can be used are detailed below:

Non-Resident Companies

A UK non-resident company is one that is incorporated within the UK but is deemed to be resident in another country. This occurs when the effective management and control of a company is carried out in another country which has a Double Tax Agreement (DTA) with the UK. The DTA needs to specify that the country of residence of the company is that in which the effective management and control takes place.   

Valuable tax planning opportunities are presented where there are treaties with countries offering low corporate tax rates such as Cyprus, Israel, Mauritius, The Netherlands, Portugal and Switzerland.  Malta also provides similar opportunties due to the Maltese system of tax refunds.  

UK companies which are able to obtain a Certificate of Residence from a competent authority in one of these countries are not liable to UK tax other than that due on UK sourced income.  

The UK non-resident company, therefore, offers a respectable and reliable legal personality, together with low taxation, depending on the treaty country used.

UK Companies as Nominees 

A UK registered company can be used as nominee and intermediary to transact business on behalf of an undisclosed international company and thereby solve some of the problems created in dealing with international companies.

Trading operations are entered into by the UK company on behalf of the international company with an agency agreement in place between the two parties. The agency agreement should be in writing and executed outside the UK as should all trading contracts entered into by the UK company.  

It is essential that no trading occurs within the UK.  

Under the agreement, the international company will pay a commission to the UK company for its services.

Income on the trading activities of the international company will be received into the bank account of the UK company and then remitted to the international company. The UK company will be subject to corporation tax on its commission.

A UK limited liability partnership is a separate registered legal entity with an address in the United Kingdom. No personal liability falls on a member of a LLP for the contracts or debts of the LLP.  

As long as the UK LLP operates in a commercially orientated manner, e.g. carries on a business with a view to generating profit, the members will be treated for tax purposes, as if they are partners. A non-resident partner of a UK partnership is not liable to UK tax on non-UK source income.  

If a UK LLP therefore has non-UK partners, and is involved in non-UK trading (carried out entirely outside the UK), there will be no UK taxation on its members.

The UK has a participation exemption for foreign income dividends. The conditions for this vary according to whether the company is small or large. For full details see Dixcart Information Note 208.

As a result of this exemption most foreign dividends will be exempt from UK taxation when received by UK-resident companies. Where the exemption regime does not apply, foreign dividends received by a UK resident company will be subject to UK corporation tax, but relief will be given for foreign taxation including underlying taxation where the UK company controls at least 10% of the overseas company.

No capital gains tax is payable on the disposal of a trading company by a member of a trading group, subject to minimum holding requirements. This relates to disposal of all or part of a substantial shareholding in another trading company, or the disposal of the holding company of a trading group or sub-group.

The four UK company structures detailed above help to make the UK an important gateway into Europe.

FORMATION OF COMPANIES IN THE UK
General information is detailed below, outlining the formation and regulation of UK companies, as embodied in the Companies Act 1985 and Companies Act 2006 where currently in force.

1. Incorporation
Incorporation normally takes five working days, although same day incorporation is possible for an additional fee.

2. Shares
Shares can be registered or bearer.  It is Dixcart's policy not to incorporate companies with bearer shares. 

3. Shareholders
A minimum of one shareholder is required for a private limited company.  There is no maximum number of shareholders.

4. Nominee Shareholders
These are permitted and can be provided by Dixcart.

5. Registered Office
A registered office is required in the UK.

6. Meetings
There is no restriction as to the location of meetings.

7. Accounts
Annual accounts must be prepared and filed with Companies House. Subject to certain exemptions. However, audited accounts are not required if the company is small and has an annual turnover of less than £5,600,000 and gross assets of not more than £2,800,000.  An Annual Return must be filed each year.

8. Company Name
Any name may be chosen, provided that it is not the same as, or too similar to, any other company name currently in use.  Certain words, however, such as ‘Group’ and ‘International’ require special permission.

9. Taxation

The “main rate” of corporation tax is shown in the table below. This rate applies to all closely owned investment holding companies and to other companies with taxable profit of more than £1,500,000. 

	Main rate
Financial year to 31 March 2012	26%
Financial year to 31 March 2013	25%
Financial year to 31 March 2014	24%
Financial year to 31 March 2015	23%

There is also a small companies taxation rate of 20% on profits up to £300,000. Regressive marginal relief is available on profits between £300,000 and £1,500,000, which ensures that the “main rate” is paid on all profits once the figure of £1,500,000 has been reached.

The taxable profit limits are reduced where there are associated companies. Each taxable profit limit should then be divided by the number of associated companies plus one (i.e. including the company itself). For this purpose an associated company is a non-dormant company under common control. 

If you would like additional information regarding the formation of companies in the UK and the fees charged by Dixcart, please contact laurence.binge@dixcart.com.