Choosing A Jurisdiction

United Kingdom

The United Kingdom is a very popular jurisdiction due to its Common Law base and relative cheapness compared to other European trading nations. Whilst no longer a tax haven in the true sense of the words, the UK enjoys lower corporation tax rates than many of its competitors. One centralised register facilitates the registration process.

SALIENT FEATURES

The corporate legislation sources for companies incorporated in the UK are the Companies Act 1985 and the Companies Act of 1989. English law is based on the Common Law system.

• Private Company Limited By Shares
• United Kingdom International Headquarters Company, or “IHC”

A major use for companies incorporated in the UK will be as an intermediate holding company for EU interests by a non EU parent as the IHC can receive Foreign Income Dividends (FID) from its EU subsidiary free of withholding tax under the EU Parent-Subsidiary Directive and then pay those dividends up to an offshore holding company free of UK Advance Corporation Tax (ACT). This structure is also of use in many other non-EU situations where a trading company is owned by non-residents of the country of operation and there is a double tax treaty between the country of operation and the UK. It may also be used without subsidiaries when trading through a foreign branch or agency.

Provided that the underlying trading company has suffered tax on its profits in the country of operation, it is then possible to remit these profits either with a minimum amount of withholding tax if the country of operation is outside the UK and has a suitable double tax treaty with the UK, or without any further deductions whatsoever if the country of operation is within the EU, under the 1990 Parent-Subsidiary Directive. The effect is that the UK company receives most or all of the post tax profits of the operating subsidiary and can pay dividends on this income without any further tax consequences. Normal tax treatment elsewhere usually leads to corporation and withholding taxes being payable on the receipt and distribution of these dividend to further holding company. Prior to 1994, these receipts were subject to advanced corporation tax (ACT) in the UK. Now, through the use of the UK International Headquarters Company, provided that any distribution by way of dividend can be matched with foreign income dividend, the distribution will be tax free. Thus the post tax profits of a trading company can be remitted through an UK International Headquarters Company to any offshore company without any further withholding or corporation taxes.

There are a number of important points to remember when forming such a company, including the following:

• The UK Company will still be liable to pay UK Corporation tax on the distributable foreign profits, which it receives but this liability will be extinguished, by foreign tax credits if the foreign rate of corporation tax is 33% or more.
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  The UK Company must be at least 80% owned by non-residents.
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  The distributions made by the UK must be able to be matched with foreign income dividend.
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  Directors of the IHC should either be resident in the UK or in a jurisdiction, which does not have an OECD style double tax treaty with the UK.
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  There must be the ability to remit the post tax profits from the operating company to the UK via a double tax treaty or the EU Parent -Subsidiary Directive.

United Kingdom Nominee Company

UK Company as Nominee for an Offshore Principal

This structure is most widely used in the following situations:

• European trading structures where receipt of invoices from an offshore company is not acceptable.
• Ideal for situations where an onshore profile (with offshore tax treatment) is required.
• If linked with a discretionary trust it may be suitable as a structure for long term income and inheritance tax planning.
• Can be used in VAT triangulation transactions.

To provide this service, a new UK company is registered which is managed and controlled by the offshore company and its officers. The UK Company and the Offshore Company enter into contract, which specifically authorises the UK Company to undertake certain business, in the UK’s name, on behalf of the offshore company. All contracts are entered into and all invoices raised in the UK Company’s name and dispatched from the UK Company’s registered office. The offshore company and its officers have control of the UK Company and its bank account. The success of the structure lies in the fact that because there is no UK source income and because the Company is being controlled and managed from outside the UK, the UK Inland Revenue are only able to assess the UK company for tax on the fees it receives for effecting the business of an offshore company. The rest of the income received on behalf of the Offshore Company is not subject to UK taxation.

Important points to remember are:

• The agreement between the UK Company and the offshore company will be in writing and will be examined by the UK Inland Revenue.
• The UK Company should be controlled and managed by non-UK directors.
• All contracts entered into by the UK Company should be entered into outside of the UK.
• There must be no trading in or with the UK or any other UK incorporated bodies.

United Kingdom Non-Resident Company

The UK non-resident company as contemplated by the UK Finance Act 1994, offers the possibility of a respectable and reliable legal personality together with low taxation depending on the choice of treaty country. It re-introduces the possibility of using UK companies similar to those used throughout the offshore world prior to 1988. In practice, any UK company, which has its “place of effective management” in a country which has a suitable double taxation treaty and which is not centrally managed and controlled in the UK, will be non-resident for UK tax purposes. Such a UK company will only be liable to pay UK tax if it receives UK source income, although even this may be protected from UK tax by virtue of the relevant treaty.

Until March 1988 it was possible for a UK company to be controlled and managed outside of the UK and not suffer any UK tax on its profits. However, since the Finance Act of 1988, all UK incorporated companies have been subject to UK Corporation tax. This lead to some problems where companies, which were incorporated in the UK, were controlled and managed from a jurisdiction where a double tax treaty with the UK existed. The UK Finance Act 1994 reintroduced a limited concept of Non-Residence in the following situations:

• Where the company is controlled and managed from a jurisdiction, which has a suitable double taxation treaty with the UK, the company will be treated as Non -Resident in the UK for tax purposes.
• A suitable double tax treaty is one with a tiebreak clause.
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  There are some important points to remember:-
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  The Company must be controlled and managed in a jurisdiction with a suitable double taxation treaty, thus Jersey, Guernsey and the Isle of Man are not suitable jurisdictions.
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  The Inland Revenue has distributed a bulletin on those companies, which are considered to have a suitable double tax treaty, and this list includes Cyprus, Switzerland and Portugal. (Madeira).
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  It is necessary to get Inland Revenue approval in each situation.

CORPORATE REQUIREMENTS

Name: No prior approval is required. Any name that is not already in use is permitted, unless it contains words, which are subject to consent, such as “Royal” “Queen” and “International”. The name must end “Limited”. Any name which, in the opinion of the Secretary of State for Trade and Industry, is the same as, or to similar to, that of an existing company, or a name which would be considered offensive, or the use of which would be considered a criminal offence by the Secretary of State, is also prohibited. Names, which, in the opinion of the Secretary of State, are likely to give the impression that the company is associated with the government or any local authority, require special consent.

Subscribers: The minimum number of subscribers is one, although two is more common.

Capital/Shares: There is no usual minimum capital it may be as little as two pounds. Bearer shares are available, although uncommon. Shares of no par value are not available. In the case of a private company, the usual capital is £100 or £1000 divided into ordinary shares of £1 each.

Registered Office/Agent: A registered office is required, which must be within the UK. There is no requirement for a registered agent.

Directors/Officers: The minimum number of directors is one. Corporate directors are allowed. There are no nationality or residence requirements. All companies are required to have a secretary who may be a corporate body or natural person. The number of directors and secretaries may be increased but not decreased by amending the company’s articles of association.

Register of Members: Registers of the members, directors, director’s interests, secretaries and charges must be kept at the registered office.

Books, Records and Seal: The Company must maintain the above registers but may dispense with the corporate seal.

CONFIDENTIALITY

Information available on the public file is: the Memorandum of Association, Articles of Association, Directors, Shareholders, Registered Office, Charges, Accounts and details of the company secretary.

EXEMPTION FROM TAX

A corporation tax (usually 33% or 25% for small companies) is payable. An annual return-filing fee of 18 pounds is also required.

TRANSFER OF FUNDS

There are no exchange controls in operation.


Disclaimer:

Every effort has been made to ensure the material contained in this document is correct at time of publishing. However, this information should be interpreted as information only and does not constitute any legal or tax advice from Sequestra Corporation or any of its subsidiaries.