The UK Government has launched a consultation on a proposed new re-domiciliation regime, intended to make it easier for companies to relocate to the UK. We look at the existing situation and how the new rules may look here.
Reasons For Change
Currently, re-domiciling a company from a foreign jurisdiction to the UK can trigger negative tax consequences, as well as complex administrative and regulatory issues for the company in question. Therefore, the reforms are intended to streamline the process of re-domiciliation and neutralise these adverse consequences.
Such changes should increase the attractiveness of the UK as a destination to locate a business and invest. This in turn is likely to increase demand for the UK’s professional services, such as audit, accounting, and legal services, boost demand in the UK’s capital markets, and expand innovation by encouraging companies to co-locate research and development activities in the UK.
Around 50 jurisdictions already have re-domiciliation regimes in place, including Canada, Hong Kong, Ireland, Luxembourg, New Zealand, Singapore and Switzerland, as do various US states including Delaware and Florida. Similar measures implemented in the UK would enable the country to compete more easily with these countries for foreign investment.
Some of these regimes are limited to investment funds only, but the UK is likely to introduce a much broader set of rules, as explained below.
Currently, a foreign company cannot transfer its place of incorporation to the UK and retain the same legal identity. Instead, a foreign company must create a new UK entity and either transfer assets from the foreign company to the new entity or have a UK holding company acquire shares in the foreign entity. These processes have the potential to create lengthy and costly regulatory and administrative hurdles, such as the re-negotiation of contracts or the arrangement of complex corporate structures. Share exchanges may also trigger adverse tax consequences for shareholders, resulting in an additional barrier to re-domiciliation decisions.
Smoother re-domiciliation rules could enable a company to maximise continuity of its operations while enabling it to shift its place of incorporation; its corporate history, management structure, assets, intellectual and other property rights, contracts, and regulatory approvals will generally remain intact.
Scope Of The New Regime
While the Government has not made any specific proposals, it intends to establish a re-domiciliation regime that is open to as broad a range of companies and sectors as possible, while safeguarding the UK’s standing as a safe and reputable place to do business. Re-domiciled companies would be required to adhere to the same rules and standards as UK-incorporated companies and would be subject to authorization by relevant regulators such as the Financial Conduct Authority.
The Government has rejected the need for economic substance tests, given that these do not apply to domestic firms. Nevertheless, a set of eligibility criteria will be included to protect the UK tax base, to ensure high standards of corporate governance are met, and to make certain that liabilities are properly dealt with in the departing country.
The Government will now develop legislation for the new regime, which must be approved by parliament before becoming law.