HOLDING COMPANIES IN THE UNITED KINGDOM

HOLDING COMPANIES IN THE UNITED KINGDOM

The UK Government recent fiscal policy is aiming at creating the most competitive corporate tax administration within the G20 Countries. Since 2010, corporate tax policy has been reformed in order to yield lower tax rates and a broader tax base, focused on taxing profits generated in the UK.

The income tax rate is currently 21%, and it will drop to 20% by April 2015. The UK does not have any additional local taxation on corporate profits. The British corporate income tax rate is the lowest in the G7, and will soon reach the lowest rates across G20 Countries.

On July 1, 2009, it was introduced a total exemption from taxes on dividends for UK holding companies. Unlike some other Countries, there is a 100%tax exemption, with no limits on tax deductions for expenses, and no holding or minimum tax rate requirement.

A series of tax reforms was undertaken, with a competitive and comprehensive administration for UK based holding companies:

  • UK fiscal reforms over the last few years show that this Country is now highly attractive for holding companies wanting to establish their headquarters in Britain.
  • It offers an attractive corporate tax rate, combined with dividend and capital gains exemptions.
  •  The UK is unusual in not having an outbound dividend withholding tax and, thanks to its international agreements, withholding taxes on interest and royalties are often reduced to zero.
  • HM Revenue & Customs (HMRC) can support taxpayers in settingAdvance Pricing Agreements (APAs) in accordance with other fiscal authorities for complex transfer pricing issues, or through unilateral agreements with HMRC.
  •  In 2002, the UK introduced a tax exemption on capital gains earned through the sale of 10% (or greater) shares of a trading company. The selling company must be a trading group and the sold shares must have been owned for more than one year. There also are various tax relief options related to company reorganizations, which allow for extraordinary corporate operations with neutral taxation.

At the same time, the UK continues to offer generous tax regulations for interest expense, with no restrictions on financing coming from overseas Countries .

For holding companies’ shareholders, most dividends in the UK are tax free. There is no withholding tax on dividends paid by a British company. There is no minimum requirement for shareholding period nor any restriction on the originating Country (whether EU-based or not) where the dividend was issued(except when the foreign holding company’s employees are less than 50 worldwide). Said regulations are also applied in case there is no fiscal treaty in place between the UK and the company’s Country of origin.

FAQ

What is the rate of withholding tax on dividends paid to non-resident holding companies?

  • With an existing treaty:0,00%
  • Without an existing treaty:0,00%
  • EU/EEA, including Switzerland: 0,00%

What is the rate of withholding tax on interest paid to non-resident holding companies?

  •  With an existing treaty:20,0%
  •  Without an existing treaty:0,00%-20,00%
  • EU/EEA, including Switzerland: 0,00%

Taxation on Holding Companies income: How are cashed dividends taxed?

  •  It is a taxable income, subject to exemption. Dividends are taxable, unless they fall into one of the five tax-exempt categories and comply with existing anti-evasion regulations. Tax-exempt categories include dividends received from a company controlled by the payee, dividends arising from non-redeemable ordinary shares, and dividends received from non-qualifying holding companies (e.g. those in which the payee owns less than 10% of the issued share capital).

Author: EMILIO MENEGHELLA
download https://it.linkedin.com/in/emilio-meneghella-53b6348

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