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View the related Tax Guidance about Company residence

Residence of companies

Residence of companiesThe concept of residence is important because corporation tax is chargeable on the worldwide profits of any company that is resident in the UK. The liability may be reduced by exemption or relief under a double taxation agreement or by unilateral relief. Non-UK resident companies are only liable to UK corporation tax on certain sources of income, such as profits attributable to a trade of dealing in or developing UK land, for example. This guidance note outlines when a company (or an entity treated as a company for UK tax purposes) will be treated as resident in the UK. The UK position is set out first and then the tie-breaker provisions which may apply if another jurisdiction also sees that company as resident for tax purposes in that other jurisdiction. See the Entity classification guidance note for a discussion of what HMRC view as a company.There may also be tax consequences when the residence of a company changes. See the Inbound migration and Outbound migration guidance notes. A company will be treated as resident in the UK if it is either incorporated in the UK (the ‘statutory test’ ― CTA 2009, s 14) or centrally managed and controlled in the UK (the ‘case law test’).Note that a company that is not resident in the UK for tax purposes may still be subject to UK tax (whether directly of indirectly). See the Non-UK companies subject to UK tax guidance note for further commentary on this and the relevant

Setting up overseas ― branch or subsidiary

Setting up overseas ― branch or subsidiaryAlthough a UK company can do a reasonable amount of business in another country without a taxable presence in that country, eventually the company may need to consider whether to establish a more formal presence in such a country, generally by way of a branch or subsidiary.The decision will often usually depend on commercial factors, particularly where there are regulatory requirements which demand, for example, a particular level of capital which is more easily satisfied through a branch structure where the parent company capital is taken into account.Where there is no particular commercial pressure for one legal form over another, tax issues may influence the decision by taking into account the local country’s tax position for branches and subsidiaries. For example, the parent company should consider:•is there any difference in tax rates between a branch and a subsidiary?•can profits be remitted back from the country to the UK in the same way? For example, the US has a branch profits withholding tax which is reduced to 5% in the UK / US tax treaty, but dividends paid from a US subsidiary to a UK parent company owning more than 80% of the share capital in the subsidiary for more than a year before the dividend is paid would not suffer any US withholding tax on the profits distributed by the subsidiary (see DT19867A)•can start-up losses in the entity be easily relieved against group profits?It is important to consider the classification

Charge to corporation tax

Charge to corporation taxWhether an entity is within the charge to corporation tax or not depends on the type of entity and its territory of residence.Which types of entity are within the charge to corporation tax?UK corporation tax is charged on ‘profits’ generated worldwide by any corporate body or unincorporated association. This includes the following types of entity:•limited companies (including companies limited by guarantee)•unlimited liability companies•members’ clubs•political associations•trade associations•authorised unit trustsThe following types of entity are not within the charge to corporation tax:•partnerships•limited liability partnerships•local authority associations•local authorities•a co-ownership schemeCTA 2009, s 1121There are different ways in which a company can be incorporated, but the method does not matter for corporation tax purposes. Usually, a company will be registered at Companies House.As announced at Autumn Budget 2021, the Government is consulting on allowing companies to change their place of incorporation from one jurisdiction to the UK while maintaining the same legal identity. The consultation document can be found at ‘Corporate re-domiciliation’. EU regulations permit the formation of a Societas Europaea (SE), a European company. The SE will be subject to the tax rules of the country in which it is resident. See below for further details on company residence. It should be noted that regulations have been made under the European (Withdrawal) Act 2018 such that from the end of the Brexit implementation period (IP), SEs that are registered in the UK immediately before that day are to

Foreign dividends

Foreign dividendsSTOP PRESS: The remittance basis is to be abolished from 6 April 2025, although this only applies to foreign income and gains arising on or after that date. The remittance basis rules still apply to unremitted income and gains arising before that date but remitted later. The legislation is included in Finance Bill 2025. For more details, see the Abolition of the remittance basis from 2025/26 guidance note.Overseas dividends are those received from companies not resident in the UK. ‘Dividends’ includes certain other distributions, see the Cash dividends and Non-cash dividends guidance notes. For the rate of UK tax on taxable dividends, see the Taxation of dividend income guidance note.For tax purposes, the UK territories of the Isle of Man, Jersey and Guernsey are classed as overseas.Is it a dividend?Before determining whether the individual is taxable on the foreign dividend, it is necessary to check that the distribution is, in fact, treated as a dividend for UK tax purposes and is not a capital payment. In considering whether it is a capital payment, the correct UK tax treatment is found by determining the legal mechanism by which the distribution is made in order to find the character of the payment under the corporate law of the jurisdiction in which the paying company is incorporated. For example, in Beard, the Upper Tribunal found that a distribution from a Jersey company derived from its share premium account was a dividend and not a capital payment, despite it having been paid

International tax concepts ― overview

International tax concepts ― overviewInternational tax is relevant to a number of different situations, from a UK company making its first trades overseas through to large multinationals needing to consider the Pillar Two multinational and domestic top up tax rules.In addition to a company knowing where it is tax resident, UK companies will need to consider international tax issues when expanding abroad, potentially including the controlled foreign company rules, and foreign companies will need to consider the UK international tax rules when setting up in the UK. These issues are outlined below at ‘UK resident company establishing outside the UK’ and ‘Foreign resident company establishing in the UK’. It may also be sensible to consider whether a company should change its tax residence (whether by inbound migration or by outbound migration) or where a holding company should be located. This is discussed below at ‘Structuring international groups’.Companies undertaking digital services activities will also need to consider the Digital Services Tax (DST), see the Digital Services Tax (DST) guidance note.In addition, international groups may wish to consider their overall structure to ensure efficiencies in their overall tax rate, cross-border financing arrangements, intellectual property holdings and cross-border acquisitions.Transfer pricing will also need to be considered, especially by entities that are not small of medium sized enterprises (SMEs), see the Transfer pricing rules ― overview guidance note. Advisors and other intermediaries involved in structuring offshore structures will also need to consider the mandatory disclosure rules (MDR), see the Mandatory disclosure rules