UK Companies

Offshore companies and double tax treaties : the UK company

UK companies are widely used by non-UK residents (both individuals and corporate groups) to mitigate foreign taxation. Such strategies will often involve the use of UK double tax treaties. As such, in these cases, the UK company is an offshore company.

Comment

Assuming that the UK company is UK resident, the dividend paid from Spain is almost certainly exempt from UK corporation tax as a result of new UK tax legislation passed with effect from 01 July 2009.

Assuming that the UK company beneficially owns the dividend, the rate of Spanish withholding tax normally applied to dividends paid from Spain to non-residents of Spain is greatly reduced. This is something non-treaty protected offshore companies cannot achieve.

The UK company can distribute dividends to the non-UK resident shareholder without any form of UK withholding tax
Note that UK tax payers can benefit from the type of corporate planning described above
UK companies are by no means restricted to European investments:

Example

Comment

Dividends from Russia are within the scope of the new UK corporation tax exemption, but because the UK/Russia double tax treaty requires the dividends to be “subject to tax” in the UK to obtain the treaty benefits, the UK company may be best advised to “opt out” of the exemption regime and rely instead on credit relief.
If the UK company opts out of the new tax exemption regime and accepts liability to UK corporation tax on the dividends from Russia, it can credit the treaty-rate of Russian withholding tax and underlying Russian corporate tax against its UK corporation tax liability (nb to be able to claim underlying Russian tax credits the UK company must control not less than 10% of the voting power of the Russian LLC).