Jason Reader
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Ownership of onshore companies
Offshore companies are ideal vehicles for consolidating the ownership of multiple assets. A good example is the use of offshore companies as group holding companies. Dividends, interest, royalties and management fees can be received by the offshore group holding company in a tax-free environment, enabling the company to perform a variety of important financial services for in group (e.g Treasury Management, finance, and bulk purchasing functions).
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Offshore companies are often used as holding companies because of their ability to hold assets, and realise income and gains from such assets in a tax neutral environment.
Because most offshore companies are unable to mitigate source withholding taxation on dividend, interest and royalty payments, it is normally advisable to use intermediate holding companies in the UK, Cyprus, The Netherlands or Luxembourg. Such intermediate holding companies can mitigate or eliminate the incidence of source withholding taxes on dividends or interest paid from subsidiary operating companies.
The UK is now one of the world's leading international holding company locations for "bridging" between offshore holding companies and onshore operating companies. For example a UK intermediate holding company is not taxed on its dividend income, and can then repatriate such income to offshore group holding companies free of UK withholding taxes.
Example
Comment
A dividend direct from the French company to a Jersey company would give rise to a 25% French withholding tax charge.
The UK company eliminates the French withholding tax charge, subject to appropriate planning.
The UK does not impose withholding tax on dividends paid by UK companies to offshore companies.
In Jersey, the UK dividends are not taxed and can be distributed to shareholders or beneficial owners free of further Jersey taxation.
Note that if the UK company sells the French company realising a capital gain, the gain will not be taxed in the UK if the French company is a trading company and the UK company is a member of a trading group.
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If you want advice on the best jurisdiction for your company formation or initial guidance on your case, you can speak to one of our experts. One of our Corporate & Trust Planning Consultants will be in touch with you shortly to give you all the information you need.
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