KNOWLEDGE BASE

EUROPEAN HOLDING COMPANIES

The UK Holding Company

Overview Related Resources United Kingdom Key Elements

HOW TO PROCEED

OVERVIEW

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.

The UK offers no reduction in the tax payable by the company on its income or on its capital gains. Nevertheless, no tax is levied on outgoing dividends.

For these reasons, the UK International Holding Company has several advantages in cases where there is sufficient credit for foreign taxes to absorb the UK corporation tax charged on incoming dividends.

Legal Form

A UK company can be constituted either as a private limited company (Ltd) or a public limited company (Plc).

Formation

The minimum share capital for incorporation of a UK company is £50.000 for a public limited company of which at least 25% must be paid up, but no minimum is applied to a private limited company.

Taxation

A UK company is fully subject to tax at a normal rate of 26% which will be reduced to 25% from 1st April 2012, 24% from 1st April 2013 and 23% from 1st April 2014. The main rate of Corporation Tax applies when profits (including ring fence profits) exceed £1,500,000, or where there is no claim to another rate or where another rate does not apply.

Profits from £1 to £300,000 are taxed at a rate of 20% marginal relief is available for profits from £300,000 to £1.5M.

No capital duty is levied when capital is contributed at the formation of a resident company and on any increase in its capital.

Income

Corporate income tax is charged on worldwide profits of companies resident in the UK and is calculated based on financial statements prepared according to generally accepted accounting principles.

Expenses incurred by the company must be only for the purposes of the trade.

Dividends Exemption

The general rule is that all dividends paid by a subsidiary to a UK parent company are subject to corporate income tax. Nevertheless, the UK grants double tax relief by way of a credit for foreign corporation tax underlying the dividends provided that the UK company holds, directly or indirectly, at least 10% of the share capital of the distributing company. If the foreign company is subject to a corporate tax rate of 26% or more, the credit will usually be a complete relief from UK corporation tax.

Dividends received by a UK company from another UK company are exempt from corporation tax.

Capital Gains Exemption

No distinction is made between capital gains and other income. All income is taxed at the corporate tax rate. However, the double tax treaties between the UK and the foreign company country often oust the taxing rights of the subsidiary’s country in favour of the UK taxing rights.

A capital gains tax exemption was introduced in 2002. For a company to benefit from the exemption, the following requirements must be observed:

  • The investing or holding company must hold at least 10% of the share capital of the subsidiary for a period of 12 continuous months within the 2 years prior to the disposal.
  • The investing or holding company must be a trading or holding company by itself during the 12 months period.
  • The subsidiary company must be a trading company or a holding company of a trading group for the 12 months period.
Interest and Royalties

See income above.

UK Trading Group

To be regarded as a holding company of a trading group for tax purposes, the UK company must effectively own directly or indirectly at least 75% of the share capital of its subsidiaries and provided that the parent company is entitled to at least 52% of their assets for distribution or winding-up.

Some Advantages of the UK Holding Company

Besides the common advantages of a holding company, the UK Company may also enjoy from the following:

Exemption from Withholding Tax on Payment of Dividends

The UK does not impose any withholding tax on dividends distributed by resident companies to UK non-resident shareholders, irrespective of their residence.

Capital Gains Exemption

Capital gains is not levied on non-residents, therefore no tax is levied on the sale of shares of a UK subsidiary by a non-resident parent company.

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RELATED RESOURCES

Double Tax Treaties

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UK KEY ELEMENTS

Formation
Legal Form: Private limited company (Ltd);
Public limited company (Plc)
Minimum Subscribed Capital: £50.000 (Plc)
£1 (Ltd)
Minimum Paid-Up Capital: £12.500 (Plc)
£0 (Ltd)
Number of Shareholders: 2 (Plc)
1 (Ltd)
Type of Shares: Registered or bearer (Plc);
Registered (Ltd)
Substance Requirements: Nil
Taxation
Capital Duty: 1%
Net Worth Tax: 0%
Corporate Income Tax: 20% on profits up to £300,000
26% on profits thereafter
Double Tax Treaties: 110
Dividends Exemption: Tax credit
Holding Requirements: 10%
Capital Gains Exemption: Yes
Holding Requirements: 10%
Tax Credit: Yes23
Relief of Losses: Carried back 1 year;
Carry forward indefinitely
CFC Rules: Yes
Debt-to-Equity Ratio: 2:124
Withholding Taxes
Dividends: 0%
Interest: EU Parent Co- 0%2
Treaty Countries- 0%-20%
Others- 20%
Royalties: EU Parent Co- 0%2
Treaty Countries- 0%-22%
Others- 22%
Liquidation: Nil

2 If conditions are met.

24 On case-by-case basis.

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FREE INITIAL CONSULTATION

A bespoke 'offshore' solution can be complex and requires careful planning and execution. We therefore encourage our clients to contact us directly, without obligation.

While all of our consultants in our offices provide a Free Initial Consultation, the office and consultant listed below has particular expertise in this area and will gladly assist with advice on how to approach your unique challenge.

Alternatively, to select one of our multilingual offices, click here for a list of our office contact details.

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LONDON OFFICE
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+44 0 77 6522 3353
Email: mclifford@ocra.co.uk
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