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Redomiciliation of Companies

Corporate redomiciliation is the process by which a company moves its domicile from one jurisdiction to another by changing the country under whose laws it is registered or incorporated, while maintaining the same legal identity.

Companies’ redomicile for a variety of reasons including to take advantage of more favourable tax laws or less stringent regulatory provisions; to align their place of registration with their shareholder base; to access specialist capital markets, etc.

Many offshore jurisdictions allow foreign companies to change their jurisdiction of incorporation. The legislation usually permits the transfer of a company’s “seat of incorporation” into or out of the jurisdiction. The alternative to redomiciliation is to liquidate the existing company and transfer the portfolio to an entity incorporated for the purpose in the new jurisdiction.

Fidelitas offers international redomiciliation services to a number of jurisdictions.

European Union law

Article 52 provides that “restrictions on the freedom of establishment of nationals of a Member State shall be abolished by progressive stages in the course of the transitional period. Such progressive abolition shall also apply to restrictions on the setting up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State. Freedom of establishment shall include the right to…set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 58, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.”

(Paragraph 2 of Article 58 says that “‘companies or firms’ means companies or firms constituted under civil or commercial law, including co-operative societies, and other legal persons governed by public or private law, save for those which are non-profit making.”)

Article 53 says that “Member States shall not introduce any new restrictions on the right of establishment in their territories of nationals of other Member States, save as otherwise provided in this Treaty.”

These provisions are almost identical to the provisions of Article 31 and 34 of the European Economic Area Agreement.

“Freedom of establishment” includes the right to set up and manage undertakings in a Member State. Establishment may be constituted by the taking of steps necessary for the pursuit of a particular activity on a regular basis, such as creating an undertaking in the host Member State (Case 182/83 Robert Fearon & Co Ltd v Irish Land Commission [1984] ECR 3677 at 3685).

Where it appears that such steps are taken for the purpose of carrying out a particular operation, rather than the conduct of activity on a regular basis, it may be inferred that the establishment is of a temporary nature.

Article 58 of the European Community Treaty requires the same rights to be provided for commercial legal persons as for natural persons. A company planning to establish itself in another Member State must therefore be granted the same rights as companies domiciled in the State in question.

The EU has also signed the OECD’s so-called Third Decision to extend the same rights and obligations to foreign companies as to domestic companies. (The Decision concerns the treatment of companies established in an OECD country that are dominated by foreign interests.)

Subject to some limited exceptions (of which the States must formally advise one another), the EU and OECD Member States are bound to extend to undertakings which conduct business activities in their territories and which are residents of another Member State (or are controlled directly or indirectly from another State) treatment that is not less favourable than the treatment the State would grant to domestic companies under similar circumstances. (See Opinion 2/92 of 24 March 1986 by the European Court).

The European Court allows little or no compromise in upholding these rules. For example, see:

• the judgment of 28 January 1986 in Commission v France, C-270/83, concerning double taxation
• the judgment of 10 July 1986 in Segers v Bedrijfsvereiniging, C-79/85 Coll. 1986 p. 2375, relating to sickness benefits
• the judgment of 13 July 1993 in Commerzbank, C-330/91, regarding interest on tax repayments,
• the judgment of 12 April 1994 in Halliburton Services NV, C-1/93, relating to stamp duty on fixed property,
• the judgment of 15 May 1997 in Singer, C-250/95, relating to indirect taxation, and
• the judgment of 6 June 1996 in Commission v Italy, C- 101-94 concerning stockbroking activities.

The Treaty and its interpretation in these cases grant four main freedoms to companies:

• the right to establish anywhere in the EU/EEA,
• the right of company owners to conduct business in any EU or EEA State through a company from any other EU or EEA State,
• the right, in transnational establishments, to select the form of establishment desired (including, for example, the right to choose between a branch and a subsidiary) and
• the right, once established in another State, to enjoy the same rights as those enjoyed by that State’s own companies and others.

The law governing the company’s affairs (the valid law) depends on the establishment of the company’s nationality. Three contradictory criteria exist in EU law for the establishment of that fact:

• the registered office criterion or incorporation criterion says that the decisive factor in determining the company’s nationality is the national company law under which the company was registered,
• the main seat criterion says the decisive factor is the country in which the company has its genuine main seat (that is the pivotal point of its administration, such as its board and management) ,and
• the compromise Uberlagerungstheorie, which proposes the registered office criterion as the main criterion, but allows the application of the main seat criterion in certain limited circumstances.