United Kingdom holding company formation

The UK as an international holding company location

Ideally the company should be resident in a jurisdiction which:

Advantages available to UK holding companies

Tax treaty network

The UK has the largest network of double tax treaties in the world. In most situations where a UK company owns more than 10% of the issued share capital of an overseas subsidiary, the rate of withholding tax is reduced to 5%. As the UK is part of the EU, it can also benefit from the EU Parent/Subsidiary Directive, thereby reducing withholding tax to zero on dividends from many EU countries.

Subject to certain conditions the profits realised on the sale of shares in an overseas subsidiary can also be tax exempt.

Typically, the Netherlands and Luxembourg have been the most popular countries in which to establish a holding company, but with the low cost of formation and administration, its simple statutory requirements, and relatively simple set of regulatory requirements the UK holding company should be seriously considered.

The UK Holding Company is an ordinary company which falls within the scope of general tax law and therefore benefits from the double taxation treaties and the European tax directives.

Tax exemption for foreign income dividends

— Small companies

Small companies are defined as companies with less than 50 employees that meet one or both of the financial criteria below:

• turnover less than €10 million balance sheet;
• total of less than €10 million.

Small companies receive a full exemption from the taxation of foreign income dividends if these are received from a territory which has a double taxation agreement with the UK that contains a non-discrimination article. See the attached list of treaties.

— Medium and large companies

A full exemption from taxation of foreign dividends applies if the dividend falls into one of several classes of exempt dividend. The most relevant classes are:

• dividends paid by a company that is controlled by the UK recipient company;
• dividends paid in respect of ordinary share capital that is non-redeemable;
• most portfolio dividends;
• dividends derived from transactions not designed to reduce tax.

Where these exemption classes do not apply, foreign dividends received by a UK company will be subject to UK corporation tax.

However, relief will be given for foreign taxation, including underlying taxation, where the UK Company controls at least 10% of the voting power of the overseas company.

Capital gains tax

Sale of shares in the holding company

The UK does not charge capital gains tax on the sale of assets situated in the UK by non- residents. UK residents pay capital gains tax at a rate of 18% or 28% depending on whether they are basic or higher rate taxpayers.

No withholding taxes

The UK does not impose withholding taxes on the distribution of dividends to shareholders or parent companies. This is regardless of where in the world the shareholder is resident.

Capital duty

In the UK there is no capital duty on paid up or issued share capital. Stamp duty at 0.5% is, however, payable on subsequent transfers.

No minimum paid up share capital

There is no minimum paid up share capital for normal limited companies in the UK. In the event that a client wishes to use a public company, the minimum issued share capital is £50,000, of which 25% must be paid up. Public companies are normally only used for substantial activities.

UK Controlled Foreign Company (CFC) legislation

European Courts regard overzealous CFC legislation to be an infringement of the fundamental right of the freedom of establishment throughout the EU. UK CFC laws have therefore been updated. The laws now:

Conclusion

If you are interested, or engaged in holding company formation, our team stands ready to provide you with expert advice and services. Incorporation of your business may shield you from personal liability.

We prepare and file all the necessary documents to form your company!