A full exemption from taxation of foreign dividends will apply if the dividend falls into one of several classes of exempt dividend. The most relevant classes are:
Dividends paid by a company that is controlled by the UK recipient company
Dividends paid in respect of ordinary share capital that is non-redeemable
Most portfolio dividends
Dividends derived from transactions not designed to reduce UK tax
Where these exemption classifications do not apply, foreign dividends received by a UK company will be subject to UK corporation tax. However, relief will be given for foreign taxation, including underlying taxation, where the UK company controls at least 10% of the voting power of the overseas company.
Capital Gains Tax Exemption
There is no capital gains tax on disposals of a trading company, by a member oman mobile database of a trading group, where the disposal is all or part of a substantial shareholding in a trading company or where the disposal is of the holding company of a trading group or sub-group.
To have a substantial shareholding a company must have owned at least 10% of the ordinary shares in the company and have held these shares for a continuous period of twelve months during the two years before disposal. The company must also have an entitlement to at least 10% of the assets on winding up.
A trading company or trading group is a company or group with activities that do not include ‘to a substantial extent’ activities other than trading activities.
Generally, if the non-trading turnover (assets, expenses and management time) of a company or a group does not exceed 20% of the total, it will be considered to be a trading company or group.
Tax Treaty Network
The UK has the largest network of double tax treaties in the world. In most situations, where a UK company owns more than 10% of the issued share capital of an overseas subsidiary, the rate of withholding tax is reduced to 5%.
Interest
Interest is generally a tax deductible expense for a UK company providing loans for commercial purposes. There are, of course, transfer pricing and thin capitalisation rules.
Whilst there is a 20% withholding tax on interest, this can be reduced or eliminated by the UK’s double tax agreements.