UK Overseas Interest

UK companies can be used to receive overseas interest tax efficiently

UK companies are often used as international holding companies within international groups. Such companies may need to provide finance to overseas subsidiary companies, which leads to a consideration of the taxation of interest flows. 


USE OF UK COMPANIES TO RECEIVE OVERSEAS INTEREST TAX EFFICIENTLY

Comment

Assuming that the loan arrangements between the offshore company and the UK company, and between the UK company and the non-UK subsidiary company conform to the arm's length principle, the interest paid by the UK company to the offshore company can be deducted (for UK tax purposes) from the interest received by the UK company.  In other words, the UK company is taxed in the UK only on the margin or "spread" left after the tax deduction.

If the UK company is UK resident, it can also claim relief from foreign withholding tax on its interest receipts under either a UK double tax treaty, or under the Interest and Royalties Directive (if the non-UK subsidiary is located in an EU member state).

Likewise, if the offshore parent of the UK company is located within the EU (e.g. in Cyprus ) relief from UK withholding tax on the UK company's interest payments to its non-UK-resident parent can be obtained under the EU Interest and Royalties Directive.

If the offshore parent is not registered or resident in an EU member state, relief from UK withholding tax on interest paid from the UK company to its non-UK-resident parent may still be obtained under an appropriate UK double tax treaty.

If the offshore parent company is neither registered nor resident within the EU nor in a country with a double tax treaty with the UK which provides relief from UK withholding tax, then specific tax planning techniques can sometimes mitigate or eliminate UK withholding tax liabilities on interest paid by the UK company to the offshore company.

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Jordans Trust Company Limited

First Floor
Templeback
10 Temple Back
Bristol
BS1 6FL

+44 (0117) 918 1407

Hours of Operation:
Mon. to Fri. 9am to 5pm 

 

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