The UK has long been known for its embrace of free trade and cross-border commerce. English became the lingua franca of international business, not only because of the UK’s colonial reach, but also because of the rise of the United States as a global power at the beginning of the 20th century. The English common law legal system was famed for its precision and practicality (and relative lack of notaries!), its long history of case law and the independence of the judiciary and these attributes all helped cement London as a centre of global business. Today the English courts are the jurisdiction of choice for commercial agreements; and UK companies the joint venture vehicle of choice for international business.
In the distant past the UK tax rules lagged somewhat behind but some years ago this changed. The tax rules were revised to offer international business a “participation exemption” – these rules permit dividends received by a UK holding company to be free of tax in the UK (detailed provisions apply) and capital gains made by a UK holding company on the sale of shares in a subsidiary to be tax free (again detailed provisions apply). This allows gross re-investment of funds with a minimum of compliance overhead. There is no exit tax on dividends being paid by a UK company to an overseas shareholder and the UK’s excellent network of treaties and agreements allows tax efficient profit extraction by way of interest or royalties. The UK tax authorities allow both statutory and non-statutory advance clearances where assurance is needed in advance of a transaction taking place.
The benefits extend beyond UK companies. High net worth investors are able to benefit from the UK’s residence and domicile rules which offer flexibility to internationally mobile entrepreneurs for income tax, capital gains tax and inheritance (estate) tax.
Setting up a UK company could not be easier. The cost of setting up a company with a default Memorandum and Articles of Association (the “constitution” for a UK company) is nominal. The share capital – which can be as little as GBP1 or less – does not have to be paid in immediately and the whole process usually takes just 24 hours.
Areas where advice may need to be taken include:
- Multiple share classes – these can give flexibility for special rights and in paying dividends to different shareholders.
- Shareholders Agreement – if there is more than one shareholder, normally it is best practice to agree how to manage and fund the company. This is not a public document.
- Outsourcing – often businesses choose to run a small finance team initially and outsource much of the financial reporting, management accounting, and company secretarial and payroll compliance.
- Tax structuring – ensuring that cross-border trading, royalty and management service agreements are tax and VAT efficient and that the group is compliant in all territories where it does business.
- Transfer Pricing – proper advice helps ensure that the group’s pricing structure is both tax efficient and acceptable to the tax authorities in jurisdictions worldwide where the group does business.
We help many clients every year pre-empt and navigate these issues. If you would like to discuss this in greater detail, please contact us on +44 (0)330 024 3200
