Tax Residence

HMRC are focussing on corporate residence and UK permanent establishments in order to bring within the charge to tax activities of overseas companies carried out in the UK.

UK law would make an overseas company UK resident if it’s central management and control was found to be in the UK. Central management and control generally refers to the strategic decision making and the first step therefore would be to determine who undertakes this activity. In the majority of cases, this would be the Board of directors but there may be instances for example where decisions are made by shareholders or a parent company and “rubber stamped” by the Board.

Once it has been established who is carrying out central management and control, one needs to consider where those individuals are physically located when carrying out that activity. Whether HMRC are able to claim UK residence depends on the exact facts and circumstances of each company and the degree to which activities are carried out in the UK.

If a company was found to be UK and overseas resident, this is known as being dual resident and it would potentially be taxed in both countries, with double taxation relief given by one country. The exact outcome would be dependent on several factors including whether there is a double taxation agreement in place, the exact details of the agreement and the laws of the overseas country. However, this may result in additional tax being payable in the UK if the UK tax rate is higher than overseas or the basis of taxation results in a higher taxable profit. In addition there would be additional compliance costs.

If you have an overseas company and have any concerns about central management and control being carried out to any extent in the UK or if you have a UK resident company seeking to avoid becoming resident overseas, then please contact us to discuss your circumstances and we can advise accordingly.


Blog written by Parminder Gharial


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