21 January 2022
An initial consultation on the introduction of a corporate re-domiciliation regime as part of the Government’s ongoing aim of attracting more investment to the UK and ‘strengthening the UK’s position as a global business hub’ has recently concluded.
The consultation sought the views of stakeholders as to whether such a regime would make the UK more attractive to foreign investors and highlights several other jurisdictions which provide for the re-domiciliation of foreign corporate entities.
What is re-domiciliation?
Re-domiciliation is essentially a process whereby a company transfers its place of incorporation to another country (ie it changes the country under whose legal framework it is registered). Currently, if a non-UK business wishes to transfer its place of registration to the UK, perhaps because it wishes to relocate its operations to the UK, this process must generally be undertaken by way of the incorporation of a new UK entity, followed by the cross-border transfer of trade(s), business(es) and relevant assets to the UK entity, there being no scope in current UK company law regimes to re-register a foreign company as a UK company. This process can have many practical drawbacks, with the main three usually being cost, time and complexity.
A UK re-domiciliation regime, however, would allow an overseas corporate entity to move its place of incorporation to the UK whilst retaining its legal identity, thus making it a simpler process to relocate and re-register to the UK.
What might a UK re-domiciliation regime look like?
A recurring theme of the consultation is the Government’s concern to minimise the risk that any new regime may be subject to abuse, so the consultation sets out several potential conditions to be met including that:
- consent must be obtained from the departing jurisdiction;
- the legal form of the re-domiciling entity must be compatible with UK law;
- the directors of the entity must be of good standing;
- the entity must have passed its first financial period end and must provide relevant documentation; and
- the application is not contrary to the public interest and does not pose a national security risk to the UK.
In addition to the possible conditions listed above, the consultation also indicates that any UK re-domiciliation regime would only be available to overseas companies that are solvent. The Government is also keen to ensure that such a new regime would be structured to preclude opportunities for overseas companies to redomicile to the UK and declare insolvency shortly afterwards in order to evade foreign creditors.
The granting of further powers to Companies House, such that it can assist with the policing of the new regime, is also considered in the consultation.
Outward re-domiciliationThe main focus of the consultation was inbound re-domiciliation to the UK, but views were also requested on the introduction of an outward re-domiciliation regime. It appears that the Government is, however, wary of the potential economic impact in offering this option on a relatively unrestricted basis and would look to adopt minimum length of UK operations requirements to prevent companies seeking to abuse this facility for the purpose of short-term gains.
A key issue to be resolved will be whether re-domiciliation to the UK triggers UK corporate tax residence of itself, or whether UK tax residence will only arise where an entity’s central management and control is also located in the UK.
Other key tax issues that need resolving are how to deal with non-UK tax losses and their offset, as well as the tax base cost attributable to assets on re-domiciliation.
The Government will evaluate the responses received in the context of its objectives for the UK economy and determine its next steps.
Given the number of open questions posed by the consultation, it seems clear that there are some very fundamental issues that the Government will need to consider in a lot more detail before it is able to determine its approach and then establish whether there is sufficient commercial demand for a UK re-domiciliation regime.
If the Government does move ahead and introduces a re-domiciliation regime as envisaged by the consultation, it is likely that the benefits will primarily arise in relation to commercial and legal aspects rather than tax.
For more information, please get in touch with Suze McDonald, or your usual RSM contact.