When George Osborne delivers his autumn statement today, he will have bragging rights to claim credit for the economic recovery which is currently underway in the UK. Indeed, the latest financial data indicates Britain´s economy is performing stronger than other countries in the G7 and is even testing the economic growth of China.
Whilst the Treasury is under pressure from trade bodies to offer small businesses in the UK more tax relief – something which is looking increasingly more likely – the coalition government is putting the focus on attracting foreign investment to free trade zones that have been constructed in key areas across Britain.
The tax implications for overseas businesses looking to invest in the UK are complicated, particularly now that HM Revenue and Customs is looking to prevent the loophole which allows multi-national companies to siphon taxable revenue through offshore business accounts.
UK holding companies
Companies with active business premises in the UK are subject to Corporation Tax of 23 per cent for the tax year 2013/2014. Next year it will fall to 21 per cent and settle on 20 per cent in 2015 meaning the UK will be one of the most tax friendly havens for foreign businesses – providing Osborne´s budget plans are not scuppered by trade unions on the home front.
Foreigners can invest in a UK holding company by either lending money or purchasing shares in the company. UK companies may be entitled to deductions in corporations tax if they make an interest payment to investors providing the transfer of money does not violate tax avoidance regulations or the country in which the investing company is resident has a dual tax treaty with Britain.
Shares and dividends
In circumstances where dividends are received by the UK holding company from investors, whether UK-based or overseas, the investing company will be entitled to benefit from the dividend exemption which gives them relief on corporation tax liabilities.
The rule works the same for the UK holding companies that is considered a small business – categorized as having less than 50 employees and an annual turnover of less than €10 million. However, this rule only applies where the small UK business has paid dividends to investors and other conditions have been satisfied.
When the holding company is not considered a small company, the dividend is only available if it is paid by a company which the holding company controls. Again there are mitigating circumstances to satisfy. If a UK investor sells their shares in the UK holding company, profits will be due to capital gains tax, but non-UK residents will not be liable for the same.
Tax liabilities that involve overseas companies investing in UK-resident businesses are complex area of tax and accounting and should be handled by a qualified expert. If you are contemplating investing in the UK, or are a British small business attracting foreign investment, call Taxaccolega, an accountant in London, on 08000 235 234 for more information.