International Accountant 121

CORPORATE RE-DOMICILIATION

Your place of choice?

Christy Wilson Tax Associate, Katten Muchin Rosenman UK LLP

Re-domiciliation enables a company to change its place of incorporation to another jurisdiction, whilst maintaining its legal identity as a corporate body. The main advantage of this process is that it gives companies maximum continuity over business operations and reduces administrative complexity compared to other routes of relocation and re-incorporation.

The government would like to establish a re‐domiciliation regime that is open to as broad a range of companies and corporate bodies as possible.

Currently, it is not possible for a non-UK company to re-domicile in the UK. However, the UK government launched a consultation on 27 October 2021 asking for views on the introduction of a re-domiciliation process to the UK. The thought is that re-domiciliation might increase the UK’s attractiveness and availability as a destination in which to locate business and this should in turn increase UK investment. Approximately 50 jurisdictions across the world already have some form of re-domiciliation (be that inward, outward or both ways).

UK proposal

The government would like to establish a re‐domiciliation regime that is open to as broad a range of companies and corporate bodies as possible. Re-domiciled companies will have to abide by the same rules and standards as any other UK incorporated companies, and authorisation from the FCA or any other regulatory body may be required.

The consultation suggests that an incoming company will need to set out a transfer case in which it must confirm that it meets the following eligibility criteria:

● authorisation from departing country;

● corporate form;

● directors of good standing;

● application poses no national security risks and is not contrary to public interest;

● registration fee;

● reporting evidence;

● solvency; and

● wider impact (i.e. the full legal and economic impacts of the transfer and the implications on shareholders, etc.).

The government is also considering outward re-domiciliation. This would enable UK incorporated companies to shift their place of domicile to a different jurisdiction. It is broadly the norm for countries to have both inward and outward re-domiciliation (e.g. New Zealand, Canada, Portugal, Luxembourg and Switzerland), although Singapore, Hong Kong and Ireland only offer inward re-domiciliation.

The government needs to consider the potential economic consequences of allowing outward re-domiciliation. Potential conditions are:

● standardised exit fee;

● high requirements for shareholder approval;

● minimum length of operation in the UK;

● fees and payments made; and

● settlement of any legal disputes.

Tax considerations

A key concern for the government is to ensure that any re-domiciliation regime does not have unintended tax avoidance consequences. For example, there is a risk that the instances of loss importation would increase by virtue of re‐domiciliation.

Companies are treated as UK resident for corporation tax purposes if they are incorporated in the UK or if their place of central management and control is exercised in the UK (subject to being treated as non-UK resident by virtue of a double tax agreement). For a company that re-domiciles in the UK, the government is considering whether legislation should ensure that, subject to any double tax agreement, the company will:

● be treated as UK resident by virtue of the re‐domiciliation; or

● only be treated as UK resident if central management and control is exercised in the UK.

For a company that re-domiciles out of the UK, the government is considering whether legislation should be introduced which ensures that it will:

● cease to be UK resident by virtue of the re‐domiciliation (subject to central management and control being outside the UK); or

● continue to be treated as UK resident and so continue to be within the charge to UK corporation tax, unless and until it is treated as non-UK resident by virtue of any double tax agreement.

When companies migrate their residence to the UK, assets that are brought into the UK corporation tax net are brought in at their market value if the migration is from an EU country. The government is considering whether those rules should be expanded to migrations from non-EU jurisdictions as well. Otherwise, assets would be brought in at different values depending on their previous jurisdiction of domicile.

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Re-domiciliation in Hong Kong and Singapore

Recently, Hong Kong introduced their re‐domiciliation regime, which is not particularly restrictive in terms of eligibility requirements. A foreign fund that wishes to re-domicile in Hong Kong must provide certain factual company information (e.g. details of directors, investment managers, etc.) when making its application and there is also a solvency requirement. The registration of foreign funds in Hong Kong does not amount to a transfer, or change in beneficial ownership, and so no additional stamp duty will be incurred.

In Singapore, there are more prescriptive eligibility requirements. For example, only companies of a particular size may re-domicile:

● the value of the foreign corporate entity’s total assets must exceed $10 million;

● the annual revenue of the foreign corporate entity must exceed $10 million; or

● the foreign corporate entity must have more than 50 employees.

The UK government proposal has not mentioned any size requirements and is intended to be open to lots of different companies; therefore, it is unlikely to follow a Singaporean route in this respect. The other Singaporean requirements are largely focused on the financial and legal status of the company. There are also a number of conditions that a company must satisfy in order to show that it is solvent and sufficiently profitable in order to relocate to Singapore.

Conclusion

It makes sense for the UK government to consider the introduction of a re-domiciliation process, especially in order to remain competitive in the international financial market. The UK government has the benefit of reviewing the re-domiciliation regimes across the world and cherry-picking elements from each that achieve the UK’s desired outcome. Perhaps the most interesting of the proposed eligibility criteria is the requirement for the incoming company to explain the “wider impact” of its move. This is a much more evaluative concept and it would be intriguing to see how legal and financial reasons for relocation might be assessed. ●