UK Holding Company
UK Holding Company






                                                                             
                                                            

 

UK Holding Company

Ideal Characteristics for the Location of an International Holding Company

The location of a holding company is an important consideration in any international structure where there is a desire to minimise the tax charged on the income flow. Ideally the company should be resident in a jurisdiction which:

  • has a good double tax treaty network, thereby minimising withholding taxes on dividends received
  • exempts dividend income from taxation
  • does not charge capital gains tax on the disposal of subsidiaries
  • does not impose withholding taxes on distributions from the holding company to its parent or shareholders
  • does not impose capital gains tax on profits arising from the sale of shares in the holding company by non-resident shareholders
  • does not impose capital duties on share capital
  • does not have a minimum paid up share capital.

UK holding companies can benefit from all of the above.


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.


Tax Exemption for Foreign Income Dividends

Small Companies

Small companies are 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 will apply 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


Capital Gains Tax

There is no capital gains tax on disposals by a trading company or by a member of a trading group. This relates to the disposal of all or part of a substantial shareholding in another trading company, or the disposal of the holding company of a trading group or sub-group.

To have a substantial shareholding, a company must have owned at least 10% of the ordinary shares in the company and to have held these for a continuous period of 12 months during the two years before disposal.

To qualify for this exemption, the investing company must still be a trading company or a member of a trading group immediately after the disposal. If it is no longer a trading company or member of a trading group, dissolution of the holding company should proceed immediately, in order to qualify for the exemption.


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%.


No Withholding Taxes

The UK does not impose withholding taxes on the distribution of dividends to shareholders or parent companies. This is the situation 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.


Conclusion

The UK international holding company is a leading contender for trading groups due to:


EXAMPLE OF THE USE OF A UK HOLDING COMPANY

 


In the above example, where the trading company is situated in the EU, the UK company would benefit from the EU Parent Subsidiary Directive resulting in no withholding taxes on payment of dividends to the UK company.

When these dividends are received by the UK company they will be exempt if the holding company is small and in a jurisdiction in a territory with a double taxation agreement containing a non-discrimination article. If the holding company is medium or large the dividend will be exempt from tax in the UK because the dividend is being paid from a company controlled by the UK recipient company.

As the UK company is wholly owned by non residents of the UK, it would be difficult to argue that there is a UK tax avoidance motive and therefore anti-avoidance provisions are unlikely to be applicable.

Dividends can therefore be paid to the Nevis company without any deduction of tax.