US Companies Establish Residency in the UK
July 2nd 2014
There is a growing trend of US companies moving their operations overseas to cut corporate taxes. This corporate migration is not to the Cayman Islands, Gibraltar or even Ireland; it is to the United Kingdom.
Corporate tax, also called Corporation tax is defined as a tax levied against profits earned by a corporation in a given tax period. The UK is quickly becoming a popular destination for US firms who want to save on corporate taxes. Reuters reported that over seven US companies have redomiciled to the UK in the last year to take advantage of the country’s friendly tax regime. In addition, the requirement for a UK corporate tax residency is simply to have central management and control located in the UK. That is, the highest level of decision making must be present in the country for the company to be considered a UK corporate resident.
The interpretation of “the central management and control” remains flexible. For example, Rowan Companies, a global offshore drilling company valued at US$4billion, was able to claim UK corporate tax residency by moving their legal and tax department to the UK but maintaining headquarters and main office in the US. This corporate restructuring helped the former Delaware-based multinational lower its effective tax rate from 34.6 percent in 2008 to 3.3 percent in 2013.
The UK Treasury office makes it clear that the UK is not a tax haven. Instead, they insist, that their tax incentives are aimed to attract "genuine business investment." George Osborne, UK Chancellor of the Exchequer has worked to make the UK a strong contender for foreign investment. Since taking the Treasury seat in 2010 he has overseen a significant decrease in corporate tax rates, from 28 percent in 2010, to 21 percent in 2014, and scheduled to go even lower to 20 percent in 2015. In comparison to the UK, the United States has a corporate tax rate of 40%.
The UK also does not tax on world-wide income, like the US does. Only income earned in the UK is taxable in the UK. Once the company becomes a foreign corporation for US tax purposes, the US can tax the company only on its US-source income, not on its world-wide income. This is why some US based companies are going through a corporate restructuring to become legally domiciled in the UK.
Klueger & Stein, LLP works with multinational business, setting up world-wide operations and corporate structures.