Benefits of UK Holding Company 

There are a variety of considerations to keep in mind when determining the best location for a holding company.

We have detailed below the main considerations, albeit that each decision should be based upon a Group’s individual circumstances and priorities.   

Corporate income tax rate 

The headline rate of corporate tax in the UK is 25%. However, it should be noted that since most holding companies will not have significant business activities this may not be an important factor in the decision to locate a holding company in the UK.   

Withholding taxes 

The UK does not impose withholding tax on the payment of dividends by a company which means that profits can be returned to parent entities/ shareholders without any tax leakage.   

The default rate of withholding on interest and royalties locally in the UK is 20% but this can be reduced or even eliminated entirely under the UK’s double tax agreements with other countries, which is one of the most extensive double tax treaty networks in the world. 

Similarly, by having access to this extensive tax treaty network, UK companies can also reduce or in many cases eliminate withholding taxes suffered on income and profits where the respective double tax agreement provides for it.  

Taxation of dividend income 

Dividends and distributions received by UK companies are typically exempt from corporate income tax regardless of whether they are paid by UK or overseas companies. In particular, subject to specific anti-avoidance cases, the following are normally exempt:  

• Distributions from controlled companies;
• Distributions from portfolio companies (<10% shareholding);
• Distributions in respect of non-redeemable ordinary shares.

Taxation on sale of subsidiaries 

The Substantial Shareholding Exemption (“SSE”) can apply to the disposal of shares in a subsidiary (UK or overseas). Where it applies, any capital gain (or loss) is exempt from tax. Broadly the SSE applies where:  

• More than 10% of the shares in the subsidiary have been held for a continuous 12-month period during the six years to the date of disposal 
• The company being disposed of has been a trading company, the holding company of a trading group or the holding company of a trading sub-group

Controlled Foreign Company (“CFC”) rules 

Like many jurisdictions the UK has CFC rules. However, the UK has moved to a much more territorial basis of taxation through a broad range of exemptions and exceptions which can mitigate the application of the CFC rules. The exemptions and exceptions include: a tax avoidance Gateway Test, an excluded territories exemption, a low profits exemption and a low profit margin exemption. 

Commercial considerations 

The UK consistently ranks as one of the best places to locate a holding company due to its robust legal system, relative political and economic stability, geographical location, low costs of company administration and attractive tax environment.  

If you would like advice on navigating overseas or multi-territory tax issues, get in touch with our team today. Our specialist international tax team can help you understand the benefits of the UK as a holding company.