On 14 October 2024, a UK independent expert panel (the “Panel”) published its Report on Corporate Re-domiciliation. The Panel was convened in December 2023 to provide advice to the (then) government on how best to establish a UK corporate re-domiciliation framework, and its report follows a consultation launched in October 2021 and concluded in 2022 (read more here). In this context, re-domiciliation is a process whereby an entity incorporated in one jurisdiction can relocate its corporate form to another jurisdiction whilst retaining its legal personality, and is already permitted in various forms in many countries. It is to be distinguished from re-domiciliation from a tax perspective, which can refer to a change of tax residence of a company or a reorganisation under which a new parent company resident in the new jurisdiction is inserted in the group.
The Panel has noted its strong support for the introduction of a two-way re-domiciliation regime, allowing non-UK companies to become UK companies (inward re-domiciliation) and vice versa (outward re-domiciliation), and its belief that “the flexibility to re-domicile both into and out of the UK will increase the overall attractiveness of the UK as a destination of choice.” The government’s October 2021 consultation had proposed an inward re-domiciliation regime only.
For inward re-domiciliations, the Panel recommends that the regime is limited to “bodies corporate” which are solvent. For outward re-domiciliations, the Panel recommends that it should be available for UK companies (but not other entities, including LLPs) that are solvent.
The Panel’s report sets out its views in detail on, amongst other things: information requirements; the application and determination process; certain administrative aspects and the crucial role to be played by Companies House; national security and investment considerations; share capital and distributable reserve considerations; the impact on contracts to which the company is a party; and accounting considerations. The report also considers the interrelationship of re-domiciliation with insolvency and creditor protection regimes, with particular regard to solvency requirements for re-domiciling entities.
The Panel dedicates an entire section of its report to possible tax-related changes necessitated by a re-domiciliation regime, but recommends that existing UK tax legislation should be leveraged to the extent possible. This would, the Panel suggests, ensure simplicity and certainty and avoid creation of a “separate tier of tax system” for re-domiciled companies, although the Panel acknowledges it is likely that some new tax legislation would be required. On an inward re-domiciliation, the tax commentary goes on to address the following points in some detail, some of which they recommend should change the current position regarding “tax migrations” (i.e. shifting central management and control to the UK) as well as the new regime for corporate migrations:
- corporate tax residence, where the Panel proposes that, subject to any applicable treaty tie-breaker provisions, inwardly re-domiciled entities should generally be treated as UK tax resident from the date on which Companies House issues a certificate of re-domiciliation (although the Panel notes that there may be unusual permutations in terms of dual residence which may benefit from an HMRC statement of practice);
- the base cost of assets following re-domiciliation, including a proposal for market value rebasing (which would represent a change to the existing position for migrating tax residence to the UK for certain purposes including chargeable gains) and dealing with complexities involving loan relationships and derivative contracts;
- controlled foreign company (CFC) legislation;
- the application of loss importation provisions (and, specifically, restrictions on use of losses); and
- the application of UK withholding tax (including a recommendation for clarification that re-domiciliation itself does not give rise to a UK source).
Outwardly re-domiciled entities would cease to be UK tax resident when they cease to be registered in the UK, subject to case law principles regarding UK tax residence as a result of UK-based “central management and control” and to any applicable treaty tie-breaker provisions; subject to reliefs and exemptions, and consistent with existing legislation for companies migrating tax residence, an “exit charge” would apply.
On the topic of UK stamp duty, the Panel considers that a transfer of shares in a re-domiciled UK company should be subject to stamp duty / SDRT in the usual way, and that the event of re-domiciliation should not itself give rise to any such charge provided there is no transfer of shares. As regards VAT, the Panel notes that re-domiciliation to the UK would create an establishment in the UK for VAT purposes, and so existing legislation and guidance should generally apply, with the reverse being the case for an outward re-domiciliation.
The Panel further notes that the changes may also be relevant to personal taxation for individuals holding interests in companies which re-domicile (including the “non-dom” regime and inheritance tax).
In terms of next steps, the current government has said that it “welcomes the panel’s report and intends to consult in due course on a proposed regime design.” It is possible that we will see some further announcements in this week’s Budget.
Please speak to your usual Weil London Tax contact for further information in the meantime.