21 June 2022

A corporate re-domiciliation regime edges ever closer

Earlier this year, we wrote about the government’s consultation requesting views on whether foreign-incorporated companies should be able to re-domicile to the UK without any loss of, or impact on, their legal identity (the Consultation). The publication in April of the response to that consultation (the Response) has made clear that the government intends to put in place such a regime, although no timescale has yet been given and the Response suggests that it could be some time before we see draft legislation.

The Response

With 40 respondents, the Response may not be particularly compelling in showcasing public opinion on the issue, but this may have been (at least partly) down to the fact that views were requested at an extremely early stage of the process with only a high-level overview of how the regime might work in practice being provided; presumably to allow the government to gauge opinion before tackling the detail.

What is clear is that the majority of respondents were broadly supportive of a corporate re-domiciliation regime, although it was noted that such a regime is unlikely to be enough on its own to attract overseas companies to the UK. That said, respondents were of the view that such a regime would provide a number of advantages to the current ways in which a company can relocate to the UK.

One-way or two-way?

Interestingly, although probably to be expected, the Response indicates that a two-way regime is favoured, i.e. the regime should permit overseas companies to re-domicile to the UK and UK-incorporated companies to re-domicile to other jurisdictions. This would provide flexibility for companies, allowing them to change their mind about their domiciliation in the future. It is also considered an incentive for overseas jurisdictions to permit re-domiciliation to the UK on a “playground”-type basis, i.e. an overseas jurisdiction is less likely to permit its own domestic companies to re-domicile to the UK if the UK does not permit re-domiciliation to that jurisdiction.

Eligibility criteria

In terms of the criteria likely to be required to be satisfied by an overseas company wanting to re-locate to the UK, much more detail is needed but an economic substance test is probably off the table. The government was leaning away from this even at the Consultation stage and the responses received were in a similar vein.

The Response indicates mixed views on financial reporting requirements. The Consultation suggested that one set of financial accounts should be provided by an overseas company wishing to re-domicile to the UK, but some respondents considered this to be too lenient, suggesting that a company should evidence a longer track record, while others were of the view that start-ups should not be penalised.

Tax

With questions surrounding group taxation, tax residency, stamp taxes, VAT and loss importation to name just a few, the tax aspects of the new regime are likely to cause headaches, not least for the civil servants involved in its design and implementation. That said, if the government follows the Response, it is likely that companies which have re-domiciled to the UK will be treated as UK tax resident by virtue of the fact of their re-domiciliation, rather than on the basis of the location of their central management and control.

Conclusion

What is clear is that we can probably expect to hear more about this new regime over the coming months and possibly years, and also to see further consultations as the plethora of detail for such a regime is ironed out at Whitehall. However, on the basis that respondents are, understandably, requesting flexibility, “predictability and certainty”, and a balancing of “simplicity of design with sufficient rigour and appropriate checks”, I suspect they will also need to accept that they will simply have to wait for it.

Disclaimer

This note reflects our opinion and views as of 21 June 2022 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.


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