Country code - UK
Legal basis – Common law
Legal framework - UK Companies Act 1985, amended in 1985 and 2006
Company form – Company limited by guarantee (LBG) (Non-Profit Organisation)
Liability - The liability of members is limited by the articles of association to the amount that the members respectively undertake to contribute to the assets of the company in the event of its being wound up.
Capital – There is no share capital and the members are not required to make monetary contribution to the company at the time of incorporation. They are only required to give an undertaking to pay a certain amount to the company if the company is in liquidation. This nominal amount, set out in the company's articles, is usually £1 but it can be any amount that is thought fit.
Members – At least one member, who may be an individual or a legal entity of any nationality and domicile. A LBG may have different classes of members in a guarantee company. There may be non-voting members, for example, or members who have restricted rights in some other way.
Directors – There should be at least 1 director, who may be an individual or a legal entity of any nationality and domicile.
Secretary – The company may appoint a secretary, but it is not mandatory.
Registered Address – A LBG registered office address is where official communications will be sent, for example letters from Companies House. The address must be a physical address in the UK and in the same country the company is registered in, for example a company registered in Scotland must have a registered office address in Scotland.
General Meeting – Annual general meetings are not mandatory. If they take place, they can be held be anywhere and by electronic means or by proxy.
Electronic Signature – Permitted.
Re-domiciliation – Migration of domicile is not permitted.
Compliance – Company must maintain records about the company itself, financial and accounting records and supporting documentation, which must be kept for 6 years. Records must be kept at the registered office.
All UK Companies must file an annual return with their accounts with the Companies House, available to the public, and a tax return with the HM Revenue & Customs. Companies must appoint an auditor and file their accounts audited. A company may qualify for an audit exemption if it has at least 2 of the following:
An annual turnover of no more than £10.2 million; assets worth no more than £5.1 million; 50 or fewer employees on average.
- Corporate founder permitted
- Corporate council members permitted
- Protector/Guardian required
- Local regulated person required
- Founder not disclosed in a public registry
- Council members not disclosed in a public registry
- Protector/Guardian not disclosed in a public registry
- Beneficiaries not disclosed in a public registry
- Beneficiaries have right to information
- Merge permitted
- Redomiciliation permitted
- Charitable purposes permitted
- Registered agent required
Tax residency – A company is tax resident in the United Kingdom, if it is incorporated in UK or its place of central management and control is in UK.
Basis – Companies residents in UK are taxed on their worldwide income. Foreign profits and losses of a foreign P.E. may be excluded by making an irrevocable election.
Tax rate – Corporate tax standard rate is 19%.
A diverted profits tax may be levied at 25% on diverted profits of company groups creating a tax benefit by using transactions or legal entities that lack economic substance or companies that have structured their UK activities to avoid setting a permanent establishment.
Companies conducting certain activities, such as oil, gas, banking or insurance activities are subject to a special tax regime.
Capital gains - Capital Gains are subject to Corporate Income Tax. However, an exemption may apply to capital gains from the disposal of shares from both UK and foreign subsidiaries, provided that the selling company has continuously owned at least 10% of share for at least 12 months of the 24 months before the transaction, among other conditions.
Dividends - Dividends received from resident or non-resident entities are generally tax-exempt, with no minimum ownership period and no minimum ownership level requirements.
Interests - Interest income is usually subject to taxation at standard rates.
Royalties – Royalties are usually taxed as ordinary income if they arise from a trade. Royalties from intellectual property (IP) not comprising a trade will be taxed as income from intangible fixed assets.
Foreign-source income – Foreign-source income is usually taxable, but a tax credit for foreign tax paid is usually available, either under a treaty or through the unliteral relief rules.
However, a company may elect to be exempted on non-UK profits of a Permanent Establishment in a country where UK has concluded a tax treaty with. Election is irrevocable and relief of P.E. losses may be denied.
Withholding taxes – UK companies are not usually required to withhold tax on their payments on dividends to non-residents. Royalties and interests paid abroad are subject to a withholding tax at a 20% rate. Tax may be reduced or exempt due to a tax treaty.
Losses – Losses arising from taxable income may be carried forward indefinitely. Carryback of losses to the preceding year is permitted.
Inventory - Inventory valuations may be made by book and tax methods. In general, lower of cost or net realisable value valuation will be acceptable. First in first out method (FIFO) is permitted, while the Last in first out method (LIFO) is not allowed for taxation purposes.
Anti-avoidance rules – The transfer pricing regime in United Kingdom is comprehensive and it follows the OECD’s principles. It is required that companies prepare documentation to prove compliance with that transactions are in arm’s length. There may be exemptions excluding SMEs and dormant companies from the regime.
There may be debt capital rules limiting deductions that can be taken for financing costs.
When a UK company has interest (direct or indirect) of at least 25% in a foreign entity, CFC provisions may apply. If CFC rules apply, relevant profits of the controlled foreign entity are attributable to its UK shareholder.
Labor taxes – Employers and employees are required to make contributions to the National Insurance at 13.8% and 12%, respectively, on employees’ income above GBP 157 per week. Businesses may be exempt from the first GBP 3,000 per year.
Tax credits and incentives – A tax credit for foreign tax paid is usually available, either under a tax treaty or through the unliteral relief rules.
There are several tax incentives for companies in the form of enhanced tax depreciation allowances.
There is also usually available an annual investment allowance of 100% on the first GBP 200,000 per year of capital expenditure incurred.
SMEs may claim a deduction equal to 230% of the qualifying expenditure on R&D in the year in which it is incurred, which can be surrendered for a cash payment (at a rate of GBP 33.35 for each GBP 100 of qualifying R&D spend) by companies that are trading at a loss or have not yet started to trade.
If taxable profits can be attributed to the exploitation of patents, a lower effective tax rate of 10% may apply. Profits may include a significant part of the trading profit from the sales of a product that includes a patent, not just income from patent royalties.
Compliance – On average, a Limited company in UK may require 8 payments and 110 hours per year to prepare, file and pay taxes.
Personal income tax – An individual is tax resident in the UK if he or she spends at least 183 days in a year within the country or his or her only home is in the UK for at least 91 days in a year or work full-time in the UK or fulfills one of the previous conditions during the three preceding years.
If the individual is resident but not domiciled (permanent home) in the UK, his or her investment income and capital gains will be only taxed if are remitted to the UK.
Personal income tax rates are progressive up to 45% on income exceeding GBP 150,000. Dividends are also taxed at progressive rates (7.5%, 32.5% and 38.1%) with an allowance of GBP 5,000.
Interest income is taxable as ordinary income, but a 0% may apply to the first GBP 5,000. Rental income is taxed depending on the location of the property.
Capital gains are taxed separately. The first GBP 11,000 may be tax-exempt. Gains exceeding this amount up to 32,000 may be taxed at 10% and 20% on the excess.
Other taxes – Local authorities levy real property tax on business premises. There is a stamp duty of 0.5% on the transfer of UK shares payable by the transferee. Stamp duty land tax applies on transfers of real property, rates are between 0% and 15%. There is an Annual tax on enveloped dwellings (ATED) levied to companies who own residential properties valued at more than GBP 500,000.
There is also an inheritance tax up to 40%. The total tax-free allowance for a surviving spouse/partner is GBP 1,000,000. UK does not levy wealth taxes.
V.A.T. standard rate is 20%, reduced rates of 5% and 0% may apply to certain items.
- Offshore Income Tax Exemption
- Offshore capital gains tax exemption
- Offshore dividends tax exemption
- CFC Rules
- Thin Capitalisation Rules
- Patent Box
- Tax Incentives & Credits
- Property Tax
- Wealth tax
- Estate inheritance tax
- Transfer tax
- Capital duties
- 19% Offshore Income Tax Rate
- 19% Corporate Tax Rate
- 19% Capital Gains Tax Rate
- 0% Dividends Received
- 0% Dividends Withholding Tax Rate
- 20% Interests Withholding Tax Rate
- 20% Royalties Withholding Tax Rate
- 1 Losses carryback (years)
- Indefinitely Losses carryforward (years)
- FIFO Inventory methods permitted
- 110 Tax time (hours)
- 8 Tax payments per year
- 12.00% Social Security Employee
- 13.80% Social Security Employer
- 45% Personal Income Tax Rate
- 20% VAT Rate
- 142 Tax Treaties
The United Kingdom of Great Britain and Northern Ireland (UK), is a state located in the northwest of Continental Europe. Its territory is formed geographically by the island of Great Britain, the northeast of the island of Ireland and small adjacent islands. Northern Ireland is the only part of the country with a land border, which separates it from the Republic of Ireland.
Great Britain delimits to the north and the west by the Atlantic Ocean, to the east by the North Sea, to the south by the English Channel and to the west by the Irish Sea.
The UK is a unitary state comprised of four constituent nations, Scotland, Wales, England and Northern Ireland, and several overseas territories. Populated by more than 65 million people.
The capital, London, on the River Thames, is home of British Parliament, Big Ben and the 11th-century Tower. Its official legal tender currency is the Pound Sterling (GBP), being the fourth most traded currency in the international exchange market behind the US$, the euro and the Japanese yen.
Although, UK is still a member of the European Union, its citizens voted in a referendum on June 23rd 2016, the untying of the state to the EU, the so-called BREXIT. Its terms are still being negotiated, with a 2 year term to become effective.
The United Kingdom is a parliamentary monarchy whose head of state is Isabel II. She is also the Head of State for the other fifteen countries of the Commonwealth of Nations, placing the United Kingdom in a personal union with those nations.
It has a parliamentary government, based on the Westminster system, which has been emulated around the world, one of the legacies of the British Empire. The Parliament of the United Kingdom, which meets in the Palace of Westminster has two chambers: the House of Commons (elected by the people) and the House of Lords. Any law passed by parliament requires real consent to become law. The fact that the decentralized parliament in Scotland and the assemblies in Northern Ireland and Wales are not sovereign bodies and can be abolished by the British Parliament makes the latter the most important legislative body in the country.
The United Kingdom is one of the world’s most developed countries. It is the fifth largest economy and the second largest in Europe after Germany, and ahead of France.
Its technologically developed industry is comprised mainly of machinery, transport equipment (vehicles, railways and aeronautics) and chemicals. UK is also the second European producer of oil and gas, ahead of Norway.
The services sector is the major GDP contributor, which includes the stock market, banking services and insurance companies. The London Stock Exchange is the second largest financial market after New York.
Its agriculture is highly mechanized, its main productions are potatoes, beets, wheat and barley. However, it only accounts for only 1% of GDP and only 2% of purchasing power parity. Livestock is significant, especially sheep and cattle, being a large European producer of milk and its derivatives.
Tax treaties Map
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