The government of Boris Johnson promises to make the UK even more competitive and tax attractive. The transition period was over on December 31, 2020, and today you can start summing up the results.
Let’s talk about the corporate environment and holding companies, for which an era of prosperity and unprecedented growth has come. After all, it is these business structures that are most actively used by foreign entrepreneurs.
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The information in this article is for general guidance only. It does not constitute financial, legal, or tax advice, and is not a recommendation or solicitation to invest. Some facts may have changed since the time of writing.
Asset security, development and tax planning are strategic tasks that are constantly being addressed by entrepreneurs. And to help them, you can offer a holding company in the UK.
The name “holding” is of English origin and literally means “to hold”. That is, it is an organization that holds shares, controlling stakes in other companies. It is the parent company that controls the activities of the subsidiaries.
This structure is used when a significant part of income is represented by dividends from companies registered in countries with a high level of dividend tax. In other words, holdings are companies that invest their assets in projects in other countries.
The main goals of creating a holding:
In the UK, holdings are most often formed in the format of English companies Ltd and limited partnerships LLP, the registration of which we will talk about a little later.
The target structure of the holding, viewed from the Companies House point of view, does not exist as such. But from the accounting and tax side, the holding is different. In the Companies Law, there are definitions and concepts in this regard that dictate the specifics of reporting and taxation, taking into account European directives. Any limited liability company in the UK can be a holding company. It can be used for any business entity based in any part of the world.
The UK is a prestigious jurisdiction and is often used by holding company owners. The UK government has created a favorable corporate arena that offers:
Post-Brexit UK holding companies will not lose their benefits, tax breaks will not be changed or reduced. Let’s consider the main ones:
Owning a company in the UK is a stable and highly profitable business, living in a safe and developed country, as well as the opportunity to obtain a residence permit and citizenship in one of the best countries in the world. In order to open a business in the UK, you need to have solid capital. However, the benefits that will open up to you are worth the cost.
Investing in British companies is an investment in an absolutely legal business that has nothing to do with offshore companies and has a high level of profitability and liquidity:
An investor who decides to invest a large amount of money in a British company has the opportunity to:
Foreign dividends are generally not taxed in the UK. If the holding company sold its blocks of shares in subsidiaries under certain conditions, then there is no need to pay capital gains tax. Also, there is no such tax on capital gains and on profits when the holding’s shares are sold to non-UK resident shareholders. To date, the UK has signed more than one hundred double taxation treaties, which makes it possible to reduce taxes on dividends received.
The conditions under which companies are exempted from dividend taxes directly depends on the size of the firm. So, small companies are considered to have no more than 50 employees, and the annual balance sheet is no more than 10 million euros. Such companies will not pay dividend tax if they meet the following conditions:
At the time of receipt of the payment, the payer is either a British resident or a resident of the territory with which the UK has signed an agreement to avoid double taxation.
A medium or large company is exempt from paying taxes on dividends if these payments are:
And even if dividends do not belong to any of the above classes, then for foreign taxes in the UK there are discounts of 10% or more.
Why do many entrepreneurs seek to register a holding company in the UK? Registration and maintenance costs are low, and there are no strict residency requirements for shareholders and directors. The positive commercial image of the jurisdiction also plays an important role.
The number of directors can be any, but not more than one person. The founder of the holding can also be non-residents of the jurisdiction. The directors of the company can have any nationality and any specialty – there are no clear requirements on this score.
Holding companies must include a secretary. Moreover, he can be both an individual and a legal entity. But at the same time the director of the company cannot be the secretary. The minimum number of shareholders for a UK holding is one person (natural or legal). There are no minimum and maximum share capital requirements.
The office of the holding company must be located in the UK. The board of directors can be held anywhere in the world – it does not have to be British territory. The number of issued shares must be limited by the share capital, but not less than one. Submitting annual accounts is the responsibility of the British holding company.
The status of a holding company can be obtained if it meets one of three criteria:
It is beneficial to register a holding company in the UK if a significant part of the income comes in the form of dividends from firms that are based in countries with high dividend taxes and their transfer to another jurisdiction.
All registration processes are carried out on a remote basis, so the personal presence of the founders is not required. Company registration in the UK takes no more than two weeks. It is necessary to collect a package of documents: a copy of a foreign passport, constituent documents for the founders, proof of place of residence (utility bills for the last three months), a completed application form and an application.
Great Britain has signed more than 160 treaties with different countries to avoid double taxation. It is one of the world’s largest treaty networks whereby a UK holding that owns more than 10% of the issued share capital of a foreign company can count on a reduced tax rate of 0-15%.
Also during the Transition Period, the UK has access to the EU Parent and Subsidiary Directives, which also reduce the withholding tax to 0%. After Brexit, access to European directives will be closed. Therefore, it is very important to obtain tax exemptions under one of the double taxation treaties.
Based on the listed list of advantages of UK jurisdiction and a number of legally available tax benefits, it is beneficial to register a holding in the UK. And we advise you for this a company such as LTD or LLP, the specifics of the establishment of which we propose and discuss further.
In the UK you can find three main types of holding companies:
The main tools for tax planning and the formation of holdings in the UK are:
Companies differ in structure and principle of operation. But the registration procedure for both Ltd and LLP is the same.
The founders will need documents:
From legal entities owners will have to send financial statements and constituent documents of the company. Application and documents are submitted online.
Information about the new company is recorded in the state register within 24 hours. In 1-3 days, corporate documents will be ready, which will be sent together with the courier to the customer.
This is how quickly and easily you can become the owner of an Ltd or LLP in the UK, which you can use as a holding.
Among the ways to obtain a residence permit in the United Kingdom is the purchase of a certain amount of British government bonds or mutual funds. But if you are purposefully interested in business investments, then this path is also provided for by the Investor program.
You can purchase a share in a company or the company itself, registered and resident in the UK. One of the main conditions is that it is necessary to invest officially confirmed equity capital. Any financial borrowing will not work.
The terms of obtaining a permanent residence permit and citizenship depend on the amount of investment:
A participant of the “Investor” program submits an application to the visa center at the place of residence. For temporary entry and residence in the UK, he is issued an Investor Visa (Tier 1) for 3 years and 4 months.
To be issued, you do not need to pass medical tests, interviews at the UK Home Office, provide an employment plan, confirm your business experience.
You just need to prove your own solvency: you have enough money in your bank account to support your family. The entire process of obtaining a Tier 1 visa (in fact, this is a residence permit) takes 8 weeks.
Within 3 months, the applicant is obliged to invest the required amount in the purchase of the company or its share. If this does not happen, the Tier 1 visa will be canceled and the financial losses incurred by the applicant will not be compensated.