Does the proposed UK corporate re-domiciliation regime measure up?

The UK government is planning to introduce a UK corporate re-domiciliation regime that would allow a non-UK incorporated company to change its place of incorporation to the UK whilst maintaining its legal identity as a corporate body.

The idea of introducing a corporate re-domiciliation regime in the UK was initially raised in a ‘feasibility’ consultation published at Autumn Budget 2021. A summary of responses was published in April 2022 which gave a tentative green light to the introduction of this regime, but the detail of the regime remains subject to further consideration by the UK government.

In our latest podcast, Joshua Critchlow discusses some of the key UK corporate and tax aspects of the proposals with tax partner Jill Gatehouse, corporate partner George Swan and senior tax knowledge lawyer Alison Dickie.

Corporate re-domiciliation is not currently available under UK corporate rules, although a number of other jurisdictions offer this type of mechanism. The proposals relate to corporate migration and not simply the movement of tax residence from one jurisdiction, which can in many cases (although not all) already be moved into/out of the UK by moving the company’s place of central management and control (or “CMC”).

A company may wish to move its place of incorporation for a number of reasons, but this will typically be for commercial reasons including moving closer to customers or being subject to particular regulatory regimes. It may also be attractive to groups including companies that are, for historic reasons, incorporated in an offshore jurisdiction and tax resident in the UK and this could provide an opportunity to more easily tidy up their group structures.

As UK corporate law does not currently allow for direct re-domiciliation, companies looking to more their place of incorporation to the UK currently use other methods such as implementing a scheme of arrangement to insert a new UK holding company above its current group or a whole business transfer from an existing entity to a new UK entity, but these are inherently more complex than a direct re-domiciliation.

The proposals envisage eligibility criteria that includes evidencing that the application to re-domicile to the UK is made in good faith and the directors of the re-domiciling company are of good standing, as well as requiring a report to be prepared explaining the full legal and economic impacts of the transfer as well as implications for key stakeholders. These requirements go beyond what is required when incorporating a new UK company and it is queried whether all elements of the eligibility criteria are necessary and also whether these requirements should be assessed by a UK authority (the consultation suggests Companies House) or by the departure jurisdiction. The detail of how it is proposed to map across different types of corporate entities to UK corporate forms also remains to be clarified and this could have consequential tax implications in certain cases.

The consultation raises the question whether companies that re-domicile to the UK should be treated in the same way for tax residence purposes as a company originally incorporated in the UK (ie automatically UK tax resident unless it is treaty non-resident), or whether a re-domiciled company should only be UK tax resident if its CMC is in the UK. This suggestion raises some interesting scenarios to consider, but ultimately it seems unbalanced for there to be different corporate tax residence rules for originally UK incorporated companies versus re-domiciled UK companies.

A further key tax issue is whether shares in companies that re-domicile to the UK will fall within the scope of UK stamp duty/SDRT in the same way as the rules apply to shares in originally UK incorporated companies. The expectation is that these rules would apply to shares in re-domiciled companies, but this could act as a deterrent to some companies making use of the regime. This leads to thinking about how the UK government could make the regime more attractive from a tax perspective – this could include allowing a blanket market value rebasing of asset base cost on re-domiciling to the UK and/or allowing some level of accrued foreign losses to be imported on a re-domiciliation.

The introduction of an inward UK corporate re-domiciliation regime has been given the go-ahead, but is not clear if the regime will also include an outward option. The view from the market appears to be that having a two-way regime is likely to be key to the success of the regime. This point itself flags an inherent restriction in how widely used the new UK regime will be as it will only be available where the departure jurisdiction allows for outward re-domiciliation.

In terms of next steps, the summary of responses suggests there will be further consultation on the detailed design of the regime, but does not commit to the timing for the introduction of the new regime.

You can listen to our full discussion about these points in our podcast, which is available here.

For further details on the tax implications of the proposals, see our briefing Tax aspects of proposed UK corporate re-domiciliation regime: time to make a move? or speak to your usual Freshfields contact.