Hamilton Pratt

Other Tax Information

Distributing and Repatriating Profits

The question of repatriating profits will only arise where it is decided to operate in the UK through a separate UK subsidiary:

Exchange control:  The UK has no exchange controls.  You may freely bring in and transfer sterling funds to and from the UK.  Withholdings of tax are required in the case of some payments of royalties and some interest payments to non-UK residents.

Distributions:  Dividends are paid out of after tax profits.

The system for the taxation of dividends changed in 1999.  A company no longer has to account for any tax when it pays dividends. A shareholder is entitled to a tax credit attaching to a dividend of 1/9th of the cash dividend. If a shareholder is resident in a jurisdiction which has a double tax treaty with the UK, it may be entitled to a repayment from the Inland Revenue of a part of this tax credit subject to a withholding. However, for most countries, the right to reclaim will now be eliminated or the amount that can be reclaimed will be marginal.

Double tax relief in your own jurisdiction may take account of the underlying tax on the profits from which the dividend was paid or may take account of the amount of the tax credit treated as withheld.

Royalties:  Royalty payments made by a UK company are usually deductible for corporation tax purposes provided that they do not exceed a market rate.  Tax must be withheld from royalty payments made to a non-resident.  However double tax treaties usually eliminate this withholding.

Interest:  Subject to the "thin capitalisation" rules explained above, interest payments can be a tax efficient way to repatriate profits to your own country.

Transfer Taxes

Stamp duty at varying rates is payable on the transfer of shares, property and fixed assets.  Some transfers of assets such as loose plant and machinery and intellectual property are free from stamp duty.  Transfers of assets between companies which are members of the same 75% group, including overseas companies, may qualify for relief from stamp duty.

Value Added Tax

Value added tax (VAT) is payable on the supply of most goods and services in the UK by a taxable person (a person who is registered, or should be registered for VAT purposes).  VAT is also payable on the import of goods from outside the EC and on the acquisition of goods from other member states of the EU.  Certain supplies are exempt from VAT the most important of which relate to finance, insurance, education, health and some supplies of land.

A business which makes taxable supplies in excess of a certain threshold figure a year (current thresholds are shown on the insert 'UK Tax Rates') is required to register for VAT and account to HM Customs & Excise for it.  A business which is registered for VAT must charge VAT on taxable supplies made by it (known as output tax) but can recover the VAT charged on supplies made to it (known as input tax) to the extent that the VAT was incurred for the purposes of making taxable supplies.  VAT will however be a real cost for businesses which are making exempt supplies.

A VAT liability can arise under the "reverse charge" provisions where a UK business receives certain supplies of services from abroad.  Problems can arise where an employee is seconded by a non-resident employer to a UK resident subsidiary.  The UK subsidiary will be deemed to have supplied the services of the employee to itself for a consideration equal to the consideration paid for the employee's services and will have to account for VAT.  The VAT should be recoverable if it makes taxable supplies, but if it makes exempt supplies this VAT may not be recoverable and will be a real cost to the UK subsidiary.

Any branch or subsidiary of an overseas company carrying on business in the UK will have to register for VAT if its taxable supplies in the UK exceed the minimum registration threshold.  In order to ensure full recovery of VAT input tax, a company should register as soon as possible.

Customs Duties

Import of goods from outside the EU may also be subject to Customs duties.  The rate of duty depends upon the nature of the goods imported.