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Migration of UK Tax Residence for UK Incorporated Companies

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Under UK corporate law it is not possible to re-domicile a UK company to a foreign (non-UK) jurisdiction, however, it is possible to migrate its tax residence to a foreign jurisdiction.

Migration refers to the transfer by a company from one jurisdiction to another. This may be done for a number of reasons including, for amongst other reasons, for commercial/administrative reasons, group restructuring, or because the directors themselves have changed tax residence.

There are two principal routes to achieving the effective migration of a UK resident company:

  • Direct emigration - Become non-UK resident by having treaty residence overseas
  • Corporate inversion - by interposing a new non UK resident holding company between the shareholders and the UK resident company.

Direct Emigration

This route truly achieves residence migration.

The tax treaty agreement to which the company’s proposed migration is to occur would need to be considered in detail. For companies, the regular double tax treaty decides the position of treaty residence by considering from which country the effective control is exercised. Changing the jurisdiction in which the UK company’s effective control is situated to an overseas (treaty) jurisdiction would reclassify it as treaty resident overseas and non UK resident for UK tax purposes.

Notification

There is an obligation that the company must notify its intention to cease to be resident in the UK to HM Revenue & Customs. The notification in a prescribed format requests HMRC to approve the arrangements by the company and also provides undertaking for the payment of any outstanding tax liabilities.

Exit Charge and Exemptions

A UK resident company that migrates would be exiting the UK tax system which would bring about the requirement to submit a corporation tax return to the date of migration and arrange to settle any taxes due and payable. Further there would be a deemed disposal and re-acquisition of all the assets held by the company at the market value at the date of migration i.e. the exit charge.  However, there is exemption from the exit charge on those assets which are situated in the UK and which are used for the purposes of the trade or branch or agency.

It is possible to defer the charge on foreign assets (assets that are situated outside the UK) of a foreign trade where a subsidiary company migrates but the principal company remains resident in the UK provided that certain conditions are met.

Corporate Inversion

This route circumvents the exit charge arising where a company migrates it effective management and control to an overseas jurisdiction (as described above).

Here a non-UK resident holding company is interposed between the shareholders and the UK resident company. Provided that the overseas holding company is effectively managed and controlled in the overseas jurisdiction, then the effect of theses actions is to migrate the UK resident subsidiary company.

Provided that the restructuring is for bona fide commercial reasons then the shareholders exchanging their shares in the UK resident company for shares in the overseas holding company can be achieved in a tax efficient manner (share for share exchange).

The tax position of the overseas holding company is that it can receive UK income streams generally without the deduction of UK tax. The controlled foreign companies (CFC) rules do not apply to shares held in CFC’s. The shareholders can obtain the tax benefits of an overseas company whilst the effective management and control of UK subsidiary company remains in the UK.

Tax

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