UK incorporated companies are generally treated as UK resident. However, 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 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.
Permanent establishment (PE)
For non-resident companies, the liability to corporation tax depends on the existence of any kind of PE through which a trade is carried on (except where the trading profits are attributable to a trade of dealing in or developing UK land, when a PE is not needed). 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 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 is only adopting limited elements of the PE articles in the MLI.
From April 2019, gains that arise to non-UK companies on the direct disposal and certain indirect disposals of UK property are chargeable to UK corporation tax. From April 2020, income that non-resident companies receive from UK property will be chargeable to corporation tax.
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).