An Independent Expert Panel, convened by the Department of Business and Trade, published a report on 1 October 2024 outlining a framework for introducing corporate re-domiciliation in the UK. Currently, companies incorporated outside the UK cannot re-domicile directly and for this reason introducing a corporate re-domiciliation regime would simplify this process.
What is Corporate Re-Domiciliation?
Corporate re-domiciliation allows a company incorporated in one jurisdiction to transfer its registration to another jurisdiction while preserving its legal identity. This means the company maintains its corporate history, contracts, and business relationships without needing to dissolve and re-incorporate.
Currently, UK law does not allow re-domiciliation. Companies must establish a new entity or merge with an existing one to relocate to the UK, which can create legal and financial challenges, including potential corporation tax implications such as capital gains charges and VAT liabilities.
The proposed re-domiciliation regime would simplify this process, enabling companies to relocate more efficiently and at a lower cost. This would make the UK a more attractive destination for international businesses.
The report recommends a dual re-domiciliation regime, allowing companies to move both into and out of the UK.
Eligibility Criteria
To qualify for inward re-domiciliation, companies must:
- Be authorised under their existing jurisdiction’s laws.
- Be solvent and capable of continuing operations in the UK.
- Not be in liquidation or involved in insolvency proceedings.
UK-incorporated companies could also re-domicile out of the UK, provided they meet solvency requirements and maintain a UK address for 10 years post-re-domiciliation.
Application Process
Applications would be managed by Companies House, which would ensure compliance with UK regulations. Companies would need to provide:
- Confirmation that future activities are lawful.
- A proposed company name and registered office address.
- Details regarding share capital and liability of members.
By aligning with existing UK company registration standards, the process would ensure consistency and transparency. For businesses considering re-domiciliation understanding the changes to UK company law is essential as described in one of our recent articles here .
Corporation Tax Implications
A key part of the proposed regime is how re-domiciled companies would be treated under UK corporation tax rules. A company that re-domiciles to the UK would automatically become a UK tax resident from the date of issuance of the certificate of re-domiciliation by Companies House. This means the company would be subject to UK corporation tax on its global income and gains from that date.
Similarly, companies re-domiciling out of the UK would cease to be UK tax residents from the date of re-domiciliation, unless they retain a significant presence in the UK. Aligning the corporation tax treatment of re-domiciled companies with existing UK tax rules would ensure consistency.
Market Value Rebasing
The report recommends market value rebasing of assets upon inward re-domiciliation to simplify capital gains calculations and align with current corporation tax rules.
Exit Taxation
For companies re-domiciling out of the UK, an exit charge on capital assets would apply to prevent companies from avoiding UK corporation tax liabilities. Existing reliefs such as the substantial shareholding exemption and the foreign branch exemption would still apply.
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Loss Importation and Withholding Taxes
The report proposes that losses incurred before re-domiciliation would not be deductible for UK corporation tax purposes. Re-domiciliation itself would not alter the source of cross-border payments for UK withholding tax purposes.
We offer expert support on Treaty Interpretation & Withholding Tax as part of our corporate relocation services for international clients. You can find more information here.
Stamp Duty
Shares transferred in a company that has re-domiciled to the UK would be subject to UK stamp duty and stamp duty reserve tax (SDRT). However, the act of re-domiciliation itself would not trigger a stamp duty charge, as it would not constitute a change in ownership of shares.
Solvency and Creditor Protections
To protect creditors and stakeholders, companies applying for re-domiciliation would need to provide a solvency statement confirming their ability to meet future liabilities. Directors would be required to declare the company’s solvency under section 643 of the Companies Act 2006.
Additionally, creditors and shareholders who believe that the re-domiciliation would materially affect their rights could challenge the process in court within 21 days of the application’s publication.
Legislative Changes and Future Consultation
To implement the proposed regime, amendments to the Companies Act 2006 would be required. For example, Section 20 would need to be updated to apply default model articles to re-domiciled entities, and Sections 29 and 30 would need to be amended to cover resolutions and agreements made before re-domiciliation.
Further consultation within our corporate relocation services is recommended on complex issues such as tax alignment, accounting treatment, and cross-border compliance before finalising the legislation.
Why It Matters for Corporation Tax
The proposed re-domiciliation regime has significant implications for UK corporation tax. By automatically classifying re-domiciled companies as UK tax residents, the regime would expand the UK tax base and increase revenue from multinational businesses.
Aligning the tax treatment of re-domiciled companies with existing corporation tax rules would provide greater certainty and predictability for businesses. Market value rebasing, exit charges, and withholding tax rules would ensure that re-domiciled companies are taxed fairly and consistently.
Businesses considering re-domiciliation should carefully assess the corporation tax consequences, including potential capital gains, exit charges, and limitations on loss relief. Understanding these factors is crucial for making informed decisions about relocating to the UK.
Conclusion
Introducing a corporate re-domiciliation regime represents a significant step toward enhancing the UK’s competitiveness as a business hub. By simplifying the relocation process and integrating re-domiciled companies into the existing corporation tax framework, the regime would attract more international businesses while maintaining robust regulatory oversight.
If you want to learn more about our corporate relocation services and how UK corporation tax rules might apply to your business, contact us.
