For many private clients, recent changes to the taxation of non-domiciled individuals, non-resident corporate landlords and UK land have reduced or even eliminated the tax advantages for maintaining their wealth in offshore structure. In other cases complex offshore structures were established to take advantage of long gone UK tax advantages and now serve no or little purpose. Considering the tax implications and, where appropriate, making offshore companies UK tax resident is a subject in itself but can normally be achieved with relative ease.
"...These are interesting proposals that might significantly streamline and smooth the process of bringing non-UK companies ashore..."
However the result is a company tax-resident in the UK but incorporated offshore. This means a choice between the ongoing, and essentially wasted, costs of administering a company incorporated in another jurisdiction or the very complex restructuring required to decant the contents of the offshore company into a new UK incorporated company and then bring the offshore company to an end. This process is messy and expensive, but necessary because the UK has no law permitting re-domiciliation of a company. So it was exciting to hear in the Autumn Budget of plans consult on this much needed addition to UK law.
The proposals are aimed at attracting new business to the UK by making it easier for companies to move and the tax consequences of so doing more straightforward. This in turn, it is hoped, will bring more investment, skilled jobs, and demand for professional services to the UK. A corporate re-domiciliation regime is already existent in “around 50 countries and jurisdictions”, and so the change would bring the UK in-line with other financial centres in terms of the flexibility allowed to companies looking to relocate their operations. The consultation document issued with the Chancellor’s Autumn Budget sets out the government’s plans, rationale, and intentions for this new system.
There are many commercial advantages for companies able to take advantage of a re-domiciliation regime. The company can keep intact contracts, assets and structures which would otherwise need to be transferred, dismantled, or otherwise disrupted by the recreation of the company in a different country. However, the proposal is not to make the process universally accessible; entry requirements will apply. For example, a prospective company would need to be solvent, and its directors in good standing and not embroiled in litigation in their previous home jurisdiction. Approval would be required from both the UK’s registration authorities and regulators, as well as those in the home jurisdiction. And obviously any company moving to the UK would need to adhere to the UK’s laws and regulations in terms of its structure and activities.
The consultation proposal suggests a number of checks and balances including evidence that the company’s re-domiciliation would not be against the public interest or national security, that its wider impact has been properly assessed and understood and the payment of a registration fee.
To ensure this is all done correctly, the consultation also sets out the government’s intention to broaden and strengthen and powers of the registrar in the UK, including the ability to verify the identity of company directors and Persons of Significant Control, to challenge and query information provided to them and to share that information with other authorities.
The government is also considering the implementation of an outward re-domiciliation procedure to go along with the inward version already proposed. This is a facility that most, but not all, other jurisdictions employing a re-domiciliation regime possess. The theory is that by making it easier for a company to cease to be UK resident, companies will be more willing to move to the UK in the first place, since the decision is less final and the consequences less difficult to reverse. However, other recent re-domiciliation regimes such as that in Ireland and Hong Kong have no outward re-domiciliation facility, and according to the consultation document, the demand is far more for inward than outward. As such the additional burden of complexity and administration may not be worthwhile.
Returning to the tax consequences of re-domiciliation, the government asks whether new legislation is needed in a number of tax-related areas. Firstly, similar to Societas Europaea rules, there may be legislation to ensure that companies that re-domicile to the UK are subject to UK tax and only UK tax. If they re-domicile outward, the question is whether they should cease to be UK resident or continue to be taxed as such unless and until a double tax treaty prevents it. At what value would assets be brought into the UK for tax purposes? Would additional anti-avoidance measures be required for personal taxes, indirect taxes and to prevent abuse of the system? We shall have to wait and see.
These are interesting proposals that might significantly streamline and smooth the process of bringing non-UK companies ashore if the financial and tax conditions make it favourable to do so. Of course, any and all changes suggested in the consultation document are subject to alteration and may simply never materialise at all. At this stage, their planning value is necessarily limited. But this will be an area to watch over coming months and may give many investment companies the confidence to move their tax residence in the hope that the next stage of redomiciling to the UK may become relatively painless. Reviewing offshore structures is a critical first step and the time to act is now.