UK incorporated companies are generally treated as UK tax resident. The exception to that general rule is that companies resident in the United Kingdom under domestic law but treated as solely resident in a different country under that country's DTT with the United Kingdom are not treated as UK tax resident for the purposes of UK domestic tax law.
Additionally, subject to the above exception, companies incorporated overseas are also treated as UK resident if their central management and control is situated in the United Kingdom. This means if the place of the highest form of control and direction over a company's affairs, as opposed to decisions on the day-to-day running of the business, is in the United Kingdom.
As noted above, following a consultation, the UK government announced in April 2022 that it intends to introduce a re-domiciliation regime, which will make it possible for companies incorporated outside the United Kingdom to move their domicile to and relocate to the United Kingdom. It is yet to be confirmed whether the new rules will also permit re-domiciliations of UK incorporated companies to other territories. This policy will require legislation to be enacted, but the government has stated that more detailed analysis and stakeholder engagement is needed before that is possible, and it has not yet given a timeline for the completion of those tasks.
Permanent establishment (PE)
For non-resident companies, the liability to corporation tax generally depends on the existence of any kind of PE through which a trade is carried on. However, there are a number of exceptions to this general rule that apply to income and gains arising on UK property. A non-UK resident company will be subject to UK tax on the following types of profit even if there is no UK PE:
- Trading profits attributable to a trade of dealing in or developing UK land.
- Gains that arise on the direct, and certain indirect, disposals of UK immovable property.
- Profits of a UK property rental business.
The meaning of PE for UK tax purposes is set out in statute; it is largely based on the OECD Model Tax Convention definition, but it is not identical in all respects. Subject to the terms of the relevant DTT, a non-resident company will have a PE in the United Kingdom if:
- it has a fixed place of business in the United Kingdom through which the business of the company is wholly or partly carried on, or
- an agent acting on behalf of the company has and habitually exercises authority to do business on behalf of the company in the United Kingdom.
A fixed place of business includes (but is not limited to) a place of management; a branch; an office; a factory; a workshop; an installation or structure for the exploration of natural resources; a mine, oil or gas well, quarry, or other place of extraction of natural resources; or a building, construction, or installation project. However, a company is not regarded as having a UK PE if the activities for which the fixed place of business is maintained or which the agent carries on are only of a preparatory or auxiliary nature (also defined in the statute). From 1 January 2019, this will not be the case where the non-resident has artificially fragmented their business operations to avoid coming within the charge to corporation tax.
The OECD, under Action 7 of its BEPS Action Plan, has recommended a widening of the scope of the PE definition in Article 5 of the OECD Model Tax Convention. It is intended that the amended definition will be incorporated into bilateral double taxation conventions via the multilateral instrument (MLI). The United Kingdom ratified the MLI in 2018, and it is now effective in relation to covered DTTs; however, the United Kingdom has only adopted limited elements of the PE articles in the MLI.
Special rules exist to explain how the PE's profits should be evaluated for UK tax purposes (see the Branch income section for more information).