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UK Holding Companies – What the UK Offers as a Tax Efficient Jurisdiction Now and Post-Brexit

Background

One of the UK Government’s key ambitions has been to create the most competitive tax system in the G20. It has developed strategies to support, rather than hinder, growth and to boost investment.

This was confirmed at the end of June 2020, when the Prime Minister, Boris Johnson set out the UK government’s plans for nationwide economic recovery, stating that it will ‘build, build, build,’ to deal with the damage caused by the Covid-19 pandemic.

The transition period for the UK leaving the EU ends on 31 December 2020.

What does the UK Offer as a Tax Efficient Jurisdiction?

The UK Government has created a corporate environment where:

  • There are low corporate taxes
  • Most dividend income is tax exempt
  • There is an exemption from taxation on gains arising from substantial shareholdings
  • The UK has double tax treaties with more than 130 countries (one of the world’s largest networks of double tax treaties)
  • There is a very good double tax treaty network, to minimise withholding taxes on dividends, interest and royalties received by a UK company
  • There is no withholding tax on the distribution of dividends
  • There is no tax on profits arising from the sale of shares in a holding company by non-resident shareholders
  • No capital duty is applicable on the issue of share capital
  • There is no minimum share capital
  • An election is available to exempt overseas branches from UK taxation
  • Informal tax clearances are available
  • Controlled Foreign Company Legislation only applies to narrowly targeted profits

What Impact is Brexit Likely to Have?

The status regarding a number of the tax efficiencies enjoyed by UK Holding Companies will NOT be affected by Brexit.

These include the following:

Participation Exemption: virtually all dividends received by a UK company, be they from the UK or overseas, are exempt from tax. 

Capital Gains Tax Exemption on Disposal of Shareholdings: disposals of substantial shareholdings in trading companies or the holding companies of trading groups are exempt from UK corporation tax, provided that certain conditions are met.

No Withholding Tax on Dividends: the UK does not levy withholding tax on dividends paid from UK companies. 

No Imposition of Capital Gains Tax on Profits Arising from the Sale of Shares in a Holding Company: the UK does not impose capital gains tax on the sale of shares in a UK company by non-residents of the UK. 

No Imposition of Capital Duty on Share Capital: In the UK there is no capital duty on paid up or issued share capital.  Stamp duty at 0.5% is payable on subsequent share transfers. 

No Minimum Paid Up Share Capital: there is no minimum paid up share capital for normal limited companies in the UK.  For public companies the minimum issued share capital is £50,000. 

Low Tax on Non-dividend Income: the UK has relatively low corporate taxes.  The current rate is 19%.

Profits of Overseas Branches: A UK company can elect for the profits of its overseas branches to be exempt from UK tax.

Research and Development and Patent Box Regimes: the UK offers attractive R&D and Patent Box regimes.

Minimisation of Withholding Tax on Dividends, Interest and Royalties Paid to UK Companies

The UK has one of the largest networks of double tax treaties in the world.  In most situations where a UK company owns more than 10% of the issued share capital of a foreign company, the rate of withholding tax is reduced to between 0% and 15%.

UK companies currently have access to the EU Parent/Subsidiary Directive, as well as the Interest and Royalties Directive, thereby reducing the withholding tax to zero for many European countries.

Different EU countries do not have the same laws governing when the benefit of these directives can be applied.  In many cases, where the ultimate beneficial owner is not resident in the claiming jurisdiction, access to the directives is denied.

Post Brexit, UK companies might not have access to these directives.

The ‘fall-back’ position would therefore be to claim relief under one of the UK’s double tax agreements. 

Conclusion

The UK continues to be regarded as one of the preferred European holding company jurisdictions for the majority of international companies, due to the number of tax benefits that are legitimately available.

Which UK Corporate Services can Dixcart Provide?

Dixcart can provide a comprehensive range of services relating to the formation and management of UK companies. These include:

  • Formation of holding companies
  • Registered office facilities
  • Tax compliance services
  • Accountancy services
  • Director services
  • Dealing with all aspects of acquisitions and disposals

Contact

If you would like further information on this subject, please contact Laurence Binge or Paul Webb: advice.uk@dixcart.com at the Dixcart office in the UK.

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