How to setup a holding company in the UK?

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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Le informazioni contenute in questo articolo hanno un valore puramente indicativo. Non costituiscono consulenza finanziaria, legale o fiscale e non rappresentano una raccomandazione o una sollecitazione a investire. Alcuni fatti potrebbero essere cambiati dal momento della stesura.

What is a holding company?

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:

1. Formation of efficient production facilities and distribution chains.
2. High diversification of business, which makes it possible to achieve stability, high reliability, and in view of the fact that the holding produces and provides various types of goods and services.
3. Optimization of the management structure. The management of the holding, in the process of managing the parent company, develops strategic objectives related to the development of the entire group of companies. Current operations and solution of urgent tasks are delegated to subsidiaries.
4. Reducing risks. The introduction of new technologies, the introduction of innovations is easier and safer to carry out in the conditions of the holding. Any innovation is a certain risk, since it is expected to obtain a negative result. A risky project in case of failure will not become so critical if a limited liability company belonging to the holding becomes its implementation. Thus, all risks will be borne by the subsidiary, and the stability of the parent company will only increase.

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.

What kind of company can be holding?

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.

New opportunities for UK holdings

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:

• Low percentage of corporate tax or none at all.
• Dividend income is tax deductible.
• The UK has a law that exempts from taxation income earned from owning a leading shareholding.
• The UK is a member of one of the largest double tax treaties networks, which largely minimizes taxes on dividends and royalties.
• No income tax on the sale of shares in the holding company.
• No, the statutory limits of the authorized capital are established.
• Availability of various tax incentives.

What to expect after Brexit?

Post-Brexit UK holding companies will not lose their benefits, tax breaks will not be changed or reduced. Let’s consider the main ones:

• Complete release. All dividends received by a UK holding that are formed within the Kingdom or transferred from abroad are tax-free.
• No capital gains tax on disposal of shares. Subject to certain conditions, the amount of profit obtained as a result of the disposal of a significant interest in the company is exempt from tax.
• No tax on dividends paid to UK companies.
• There is no equity tax (paid or issued) in the UK. Only 0.5% Stamp Duty will be charged on transfer of shares.
• In the UK, there is no statutory limit on the minimum paid up share capital for limited liability companies. Public organizations must provide for a minimum share capital of £ 50,000.
• The UK will retain the lowest corporate tax rate in Europe – 19%. Provided that the company is incorporated by a non-resident and earns income outside the UK, income tax will not be charged to the country’s budget at all. As for the holding company, the main company can exempt its subsidiaries from taxation in the UK.
• Attractive R&D research modes and patent boxes.

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:

• Firms in the UK traditionally set the tone in world markets and are respected by business partners.
• It takes just a few hours to register a company, with no bureaucratic delays.
• The government has created a favorable tax regime for firms registered in the UK, so doing business here as a resident company is profitable
• Paper reporting and government relations are kept to a minimum. The tax report is submitted once a year
• Shareholders are liable only in accordance with the amount of their contribution to the capital of the company
• The company does not have to have a UK director. This position can be filled by a person who is also a shareholder
• The UK firms can be widely used as resident and non-resident, holding and nominee

Why is the UK attractive?

An investor who decides to invest a large amount of money in a British company has the opportunity to:

• get a UK residence permit
• live with your family in one of the most prosperous countries in the world
• conduct business according to transparent rules, without bureaucratic restrictions
• establish business relationships with partners in all EU countries
• keep savings in a reliable currency of the world
• move around most countries without visas
• teach children in the best universities in any country in Europe
• apply for a second citizenship without giving up the first

Why open a holding company in the UK?

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:

• The payment of dividends is not a tax deduction for the payer;
• A payout is not an interest payment treated as a dividend for tax purposes.

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:

• Received from transactions that are not intended to reduce taxes;
• Received from controlled companies;
• Non-redeemable ordinary shares;
• Dividends on securities portfolios.

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.

Basic requirements for registering a holding company in the UK

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:

• Each shareholder of the holding owns at least 5% of the company’s shares. At least 80% of the shares must be owned by legal entities or individuals – non-residents of the UK.
• The shares of the holding company itself must be owned by a non-resident firm whose shares are listed on the stock exchanges of other countries.
• The owner of all shares of the holding is another company (resident or non-resident of the UK), which has non-resident owners who own at least 80% of the company’s shares.

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.

How to minimize income tax on dividends?

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.

UK holding-companies: main types

In the UK you can find three main types of holding companies:

Limited Liability Company (Ltd)

• A company is registered by one person who can be a director and a shareholder.
• The amount of the authorized capital is not limited.
• The minimum number of shareholders is one (an individual or legal entity registered in any country in the world).

Public limited companies (PLC)

• A company may offer its shares publicly.
• The founder can be a non-resident of the UK.
• There must be a minimum of 2 directors of any nationality, a minimum of 2 shareholders and an obligatory secretary.

Società a responsabilità limitata (LLP)

• Partnerships can be formed by non-UK residents.
• Partners (legal entities or individuals) can act as the only participants. They run the business of the firm.
• The liability of the participants is limited to their contribution to capital.

LTD or LLP? Which is better for your holding?

The main tools for tax planning and the formation of holdings in the UK are:

• private limited companies – Ltd,
• Limited Liability Partnerships – LLP.

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:

• copy of the passport;
• certificate of actual place of residence (not older than 3 months);
• partnership structure;
• options for the name of the future company.

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.

Business investment and UK residence permit

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.

How much to invest?

The terms of obtaining a permanent residence permit and citizenship depend on the amount of investment:

• The minimum investment for a residence permit is 2 million pounds. These investments will allow you to get permanent residence after 5 years, and British citizenship – for the 6th year
• If you invest 5 million pounds, then apply for permanent residence in 3 years, and citizenship – for the 5th year
• If you invest 10 million pounds, you will be given permanent residence in just 2 years. You can also obtain citizenship in the 5th year.

Investment conditions

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.

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