Migrating  a UK company offshore

There are various methods to use an offshore company to reduce your UK corporation tax charge in your UK company.

However, in many cases if you wanted to avoid UK tax completely you would need to consider a company migration.

The benefit of this is that the company would be exempt from UK tax on overseas profits as well as UK and overseas capital gains.

UK trading profits would still be subject to UK tax, however for companies with overseas operations the tax benefits of moving abroad can be substantial. In the case of this company is should be able to avoid having a UK trade.

You can then establish the company in a low tax jurisdiction such as Ireland or Cyprus with corporation tax rates as low as 12.5%/10% (or a tax free offshore jurisdiction).

Where you have a UK incorporated company there are two main ways that it can effectively migrate:

  1. Firstly it can become non UK resident by virtue of having treaty residence overseas.
  2. Secondly, you can look at restructuring to interpose a new offshore holding company

Treaty residence

This is the only real way to completely migrate.

If the UK company is resident in an overseas country by virtue of the overseas country rules you would then need to look at the double tax treaty to see which country the company is ‘treaty resident’ in.

For companies the standard double tax treaty decides the question of treaty residence by looking at which country the effective control is exercised from. If it is the UK, the company would be UK treaty resident. If it’s controlled from overseas it could be classed as treaty resident overseas. Any company that is treaty resident overseas is classed as non UK resident for UK tax purposes.

This therefore means that the transfer of control overseas under the scope of a double tax treaty could cause a UK exit charge on the migration (as the company would be deemed to be non UK resident).  It would then be deemed to have sold all of its assets at the market value, and UK corporation tax would be due on the gains treated as arising. Again business goodwill would usually be the most significant asset.

The exit charge is a significant disadvantage to using the treaty non residence option.

Interposing a Holding company

You could consider a form of restructuring to achieve the benefits of migration by creating an offshore holding company.

You would achieve this by interposing a new non-UK holding company between the UK company and its shareholders. ie the shareholders now own shares in a non resident company, which then owns the UK company.

This is relatively straightforward and can be achieved by a share for share exchange provided the share exchange is accepted as being for bona fide commercial purposes. If not then you’d be looking at further reorganising to implement the holding company.

You’d need to ensure that the holding company was genuinely managed from abroad to ensure it was not UK resident and was exempt from UK corporation tax on overseas income.

The key advantage in having an offshore holding company is that: (1) it can receive overseas income streams generally free of UK tax, and (2) it can hold shares in controlled foreign companies (‘CFC’s’)  without being subject to the onerous CFC provisions.

The exit charge is avoided as the UK company would still be controlled from the UK, but the shareholders can obtain the benefits of the tax treatment of an offshore company.

Therefore the offshore holding company can be used to undertake new trades, and could even own shares in offshore trading companies.