An expert panel established by the previous Government has published its report on initiating a corporate re-domiciliation regime. Further consultation is expected to move the proposals forward.
Following a Consultation in 2021-22, the previous Government signalled their intention to introduce a corporate re-domiciliation regime.
An independent expert panel was established by the Department for Business and Trade in December 2023 to design specific proposals for changing the legal framework to enable companies incorporated in overseas jurisdictions to transfer to the UK while retaining the same legal personality.
That panel has now published its report.
What is corporate re-domiciliation?
Re-domiciliation allows a company incorporated in one jurisdiction to become a company incorporated in another jurisdiction whilst retaining its legal personality.
It is not possible, under existing UK legislation, for a foreign-incorporated company to become UK-incorporated and retain its legal identity.
Current workarounds include transferring assets to a new or existing UK-incorporated company or selling its shares to a new UK holding company. These can be complex and costly exercises, with unwanted tax consequences or liabilities.
The panel's findings
In its 114-page report, the panel strongly supports the introduction of a two-way re-domiciliation regime which would allow:
- A body corporate registered outside the UK to become a UK company.
- UK companies to re-domicile outside the UK.
The panel states that a re-domiciliation regime would make it easier and more cost-efficient for certain companies to move their businesses to the UK while increasing the overall attractiveness of the UK as a destination of choice.
The report makes suggestions as to how various components of the regime could work. These include:
- Identify which organisations would be eligible to re-domicile.
- The information which would have to be provided to re-domicile.
- The process for dealing with a re-domicile application.
- How this would interact with requirements in another jurisdiction.
The panel suggests that re-domiciliation to the UK should be available to bodies corporate which are solvent and intend to carry on business following their re-domiciliation.
Once a body corporate has re-domiciled to the UK, the panel submits that, as far as possible, it should be treated in the same way as a company originally incorporated in the UK.
The report explores how a company would be treated once it has been re-domiciled to the UK, not only for company law purposes but also how legislation relating to tax, accounting and insolvency could be changed to take account of these firms.
Several considerations around tax are highlighted, including:
- Determining when UK tax residence starts/ends.
- The base cost of assets following re-domiciliation to the UK, including under the capital gains, Intangibles, stock and Capital allowance rules.
- Loan relationships and derivatives: this is noted as an area of particular complexity.
- Interaction with the Controlled Foreign Companies rules.
- Relief for expenses or losses arising prior to re-domiciliation and pre-UK tax residence.
- The foreign branch exemption.
- Withholding taxes.
- Tax charges on exit.
- Interaction with the Remittance basis.
- Situs of assets for Inheritance Tax purposes.
It is recommended by the panel that any tax system for re-domiciled companies should leverage existing UK tax legislation as far as possible and not create a separate tier of tax system for re-domiciled companies.
What next?
The Government intends to consult in due course on a proposed regime design.
Useful guides on this topic
Companies: Permanent establishment & residence
What are the rules for determining a company's country of residence? What is central management and control? When does a company create a permanent establishment in another country?
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