111: Companies relocating to the UK: an update

In January this year, we reported on the Government’s consultation on offering foreign companies a chance to ‘redomicile’ to the UK Foreign companies: a chance to move to the UK.

The Government has now published responses to the consultation.

If implemented, the proposal would offer a streamlined process for foreign registered companies to change their registration status to the UK while maintaining their corporate identity. This would bring the UK into line with around 50 other jurisdictions, including Canada, Australia and many US states, and the Government believes it will increase UK competitiveness. At present, if a foreign company needs to change its incorporation to the UK a new UK company needs to be incorporated and the foreign company’s assets transferred to it, which is cumbersome and expensive and can give rise to numerous tax and practical difficulties.

Almost 80% of respondents broadly supported the proposal, though some noted that only limited detail had been provided as to how the regime would work. Most respondents supported re-domiciled companies being treated as other UK incorporated companies for tax purposes, rather than their tax residence being governed by a management and control test (as applies to foreign incorporated companies at present).

Most agreed that the attraction of a UK re-domiciliation regime would be significantly influenced by the tax rates in the UK compared to other jurisdictions with re-domiciliation regimes. This was not simply the corporation tax rate: it was noted that personal tax for the shareholders and directors of a redomiciled company could be affected, so personal tax rates would also be a factor. Respondents agreed that it was fair to rebase assets for tax purposes on redomiciling to the UK, but only if the original jurisdiction imposed an exit charge on re-domiciling.

Most supported a two-way regime, permitting both inward and outward re-domiciliation. It was noted that some jurisdictions may not permit their companies to redomicile to the UK if the UK did not permit its own companies to relocate to the other jurisdiction.

There was concern that the new regime should have sufficient safeguards to ensure corporate standards were maintained, though most respondents believed an economic substance test should not be required and that there should not be a minimum turnover or size requirement for a company to redomicile.

Holding companies were most often identified as being a likely source of demand for re-domiciliation. Others noted were companies in the sectors of real estate, natural resources, financial services and sectors which have experienced changes following the UK’s exit from the EU. However, having an effective redomiciliation regime was seen to be less important as a factor for attracting companies to the UK than the general business environment in the UK compared to other jurisdictions.

The more detailed responses can be found here.