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The need for such a book arises because the UK's tax and legal regime for UK companies has become increasingly attractive to international business. International tax
planning for such clients is therefore now important to protect UK companies from international double taxation, and to en- able the UK company to identify and claim important exemp- tions and reliefs.
This bulletin summarises some of the main advantages of the UK company for international or non-UK resident investors.
Let's start by looking at just how easy and convenient it is to form a UK company.
The UK is arguably the world's leading international corporate domicile.
A UK company can be incorporated within a few hours, and there are no minimum capital requirements, and no need for the participation of a notary public in the incorporation process.
Company formation costs are also proportionate – for instance, the UK no longer imposes capital duty on authorised or issued share capital.
And it's for these reasons that so many entrepreneurs within EU and EEA countries incorporate UK companies for limited liability trading in their own home countries.
The European Court of Justice in the CENTROS case ruled that EU citizens who are resident and trading in EU countries
outside the UK can legitimately use UK companies - rather than local ones - in order to deliberately by pass bureaucracy and expense.
As a result of the CENTROS ruling, Jordans incorporate large numbers of UK companies for use in Germany, Italy and France – as well as other locations – to carry out local trades or business carried on in those countries by their resident entrepreneurs.
CENTROS ruling: …allows UK companies to be used by EU citizens resident and trading in EU countries outside the UK.
The UK has generous audit exemption rules, and that generally makes producing and filing statutory accounts very low cost.
For example, if a UK company's turnover (excluding VAT) is no more than £6.5 million and its gross assets are no more than
£3.26 million, the UK company is likely to be exempt from having to audit its accounts.
And these thresholds are going to rise to even higher levels in the near future.
Another benefit of forming a company in the UK is that UK corporation tax rates are low – and falling. The standard UK corporation tax rate is now 20%.
And remember this is a tax on NET profit, so the 20% tax rate UK companies pay is the nominal rate.
The effective UK corporation tax rate, after deduction of expenses and the application of reliefs and charges, will of course be much lower than 20%.
Moreover, a UK company is not subject to UK corporation tax on its foreign dividends in the majority of cases.
This now makes UK companies very advantageous as international holding companies - particularly for those non-EU investors who want a gateway into Europe.
In the unlikely event that a foreign dividend does NOT qualify for the UK corporation tax exemption, the UK provides generous credit relief rules. Given the comparatively low rates of UK corporation tax today, foreign tax credits will generally provide complete relief from UK corporation tax on such dividends.
"This now makes UK companies very advantageous as international holding companies..."
UK companies that are holding companies can also qualify for exemption from UK corporation tax on the capital gains that they realise from the sale of substantial shareholdings - for example, 51% shareholdings in overseas subsidiary companies.
The main condition for this is that the group of which the UK company is a member has trading status.
The UK does not impose withholding tax on dividends paid to non-UK resident shareholders - whether they are individuals or offshore companies.
This is an unusual and very valuable advantage of UK companies - and long may it continue! - as it enables foreign investors to extract profit from UK companies tax efficiently.
UK international holding companies are much more attractive for overseas groups now that the UK has relaxed its CFC rules.
The UK's CFC rules, where they do apply, treat the profits of low- taxed subsidiary companies controlled by the UK company, as the UK company's own profits.
The basic aim of the CFC rules is to stop UK companies sheltering profits in offshore companies - but it has applied rather indiscriminately in the past.
However, since the beginning of January 2013, the CFC rules have been relaxed with the aim of making the UK tax system more competitive and more selective.
The new legislation is now solely targeted at the artificial diversion of profits from the UK.
This reform has resulted from the pressures of European law, and the Cadbury Schweppes ruling of the European Court of Justice - which prohibits CFC charges against UK holding companies if its foreign subsidiary is established within the EU and carries on genuine economic activity.
This rule applies even if the foreign subsidiary has been deliberately set up in a low-tax EU country, for example Cyprus, in order to reduce tax burdens.
Some UK companies are exempt from UK corporation tax altogether. Subject to certain very straightforward conditions, a UK LLP - which is a body corporate with limited liability - is not liable to UK corporation tax.
This makes UK LLPs very popular as international trading vehicles and joint venture vehicles on behalf of non-UK resident investors receiving non-UK income.
Another advantage of the LLP is that it requires the financial results and assets and liabilities of the LLP to be published in the form of statutory accounts - even if the income of the LLP, and its assets, are not liable to UK taxation.
This accounting transparency enables non-UK corporate groups and entrepreneurs to use LLPs to obtain trade finance and other financial assistance from lending institutions, and to negotiate advantageous terms with suppliers, without coming within the UK tax net.
So as you can see, the UK's favourable tax and legal regime makes it highly attractive for overseas businesses to use the UK company.
As with all these matters, taking full advantage of these opportunities to maximise income - securely and efficiently - will rely on expert knowledge and guidance.
Here at Jordans Trust Company we have that expertise and experience. If you would like to explore the opportunities further, we'd be delighted to help you.
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