1. Why The United Kingdom
The World Bank has ranked the UK as one of the top European countries in which to operate a business. It takes only 13 days to set up a business in the UK, compared to the European average of 32 days. There are already more than 2.6 million registered companies in the UK and over 350.000 new companies are registered each year. There is relatively minimal red tape involved in forming and running a UK offers ease of access to many overseas markets. In particular, as the business gateway to the European Union, the UK is a very attractive place to set up and do business and serves as a springboard for global growth.
2. Legal Framework
The UK has three systems. English law and Northern Ireland law are based on common-law principles. Scotland has a pluralistic system based on civil-law principles, with common law elements. The UK has implemented all major EU legislation.
3. Banking
UK banking is regulated by the bank of England. Nearly all the World's banks have branches or subsidiaries in London which is one of the reasons why the UK's capital city is recognized as a world-leading financial center. The UK is not part of the Euro but business is often conducted in non-sterling currencies.
4. Financial Regulatory Authority
The Financial Regulatory Authority in the UK effectively consists of three separate bodies. The bank of England operates independently of the British government and its chief responsibility is to maintain the stability of the financial system as a whole by overseeing the operation of the UK's financial infrastructure. The FSA supervises all financial services providers and the financial services providers and the financial markets. The Treasury's responsibility is to direct the overall institutional structure of financial regulation and legislation.
5. Taxation
5. a. Corporate Tax
UK resident companies and UK branches of overseas companies are liable to Corporation Tax ("CT") on profits including cpaital gains. An overseas company may be resident in the UK if its central management and control takes place in the UK. If there is a double taxation agreement in place with the country in which a non-UK company is resident it will generally not be subject to CT unless it has a permanent establishment in the UK. The standard rate of CT is 28% once annual profits are pound 1.5m, or 21% if the profits are not more than pound 300,000. For profits between pound 300,000 and pound 1.5m the rate is 29.75%. The standard rate is due to fall by 1% per annum from April 2011 to take the rate down to 24% by 2014. The small profits rate will be reduced from 21% to 20% from April 2011. The threshold are divided by the number of associated companies. Non-UK companies are liable to income tax on UK property income at rate of 20%. There are transfer pricing provisions, rules on the allowability of interest and controlled foreign company legislation. Subject to treaty provisions and EU law, withholding taxes may apply to interest and royalty payments.
5. b. Personal Tax Rates
UK resident domiciled individuals are taxed on their world wide income and gains. Normally an individual is UK resident if days spent in the UK are at least 183 days in a tax year or average 91 days or more annually over 4 years. The UK tax year is 6 April to the following 5 April. Typically income tax is levied at 20% until income reaches the low pound 40,000s, then 40% up to pound 150,000 when a 50% rate applies. Capital gains tax is generally 28% but 10% on business assets up to pound 5m of life time gains. Non residents are liable to UK taxes on certain UK source income and gains including UK property income where 20% withholding may apply. Subject to a threshold of pound 325,000 inheritance tax is levied at 40% at death on the value of worldwide assets (but see "Special Notes" section regarding non-domiciliaries), or 20% on certain lifetime asset transfers.
5. c. Social Security
Generally employees, employers and self-employed in the UK are required to make national insurance contributions. These entitle an individual to the state pension and, for employees, certain unemployment benefits. The first pound 6,000 (approximately) is exempt, there after 11% and 8% for employees and the self-employed respectively until earnings are in the low pound 40,000s, then 1% on all further earnings. The employer's rate is 12.8% on all earnings of an employee over the pound 6,000. These rates increase by 1% from April 2011. The positions of individuals coming to the UK is complex, Can be subject to agreements between countries, and advice should always be sought.
5. d. Customs & Excise Duties
As an EU member state, the UK normally follows EU customs procedures. In general, goods from other EU member states are subject to VAT on acquisitions, while goods from outside the EU are subject to VAT and excise duty on importation.
5. e. V.A.T.
VAT must be charged on a taxable supplies of goods or services made in the course of business. The registration limit is pound 70,000, but voluntarily registration is possible if taxable supplies are less. The standard rate is currently 17.5% but rises to 20% on 4th January 2011. VAT is applied to imports and intra-EU acquisitions of goods.Generally supplies of services to businesses in other EU countries and to businesses and non-businesses out side the EU are not liable to VAT, but there are exceptions, notably if the supply relates to UK Land. Likewise, generally reverse charge mechanism has to be applied to services received in the UK form businesses outside the UK.
5. f . Tax Incentives
For business income purposes, depreciation is disallowed and instead capital allowances apply.The rate is 100% on the first pound 100,000 per group of annual expenditure on most fixed assets which amount is due to fall to pound 25,000 in April 2012.There is also a 100% rate on the acquisition of certain environmentally friendly assets with no monetary limit.Otherwise the capital allowances rate is 20% per annum on a reducing balance basis with the exception of certain long life and integral building feature assets where the rate is 10%. These rate are due to fall to 18% and 8% respectively from April 2012.There are tax incentives for investing in certain small trading companies.
6. Main Types of Corporate Forms
These are: limited liability company (Limited Company),public limited company(PLC) and Limited Liability Partnership (LLP).For a limited company the liability of the shareholders is limited to the nominal value of the shares held. A PLC must have minimum share capital of pound 50,000 of which a quarter is required to be paid up. A PLC is perceived to have more substance to it and has greater statutory obligations than a limited company. All UK companies traded on an exchange in the UK will be PLCs. Directors of PLCs (Minimum of 2 are required compared with 1 for a limited company) have increased statutory responsibilities. Members of a LLP have their liability limited to a fixed amount and are registrable at companies house.Unlike companies,LLP is generally treated as transparent for tax purposes and the members are subject to personal taxes on their shares of the LLP's profits and capital gains.Business may also be operated by sole traders or partnerships.
Both have unlimited liabilities and in the case of partnership a partner has liability for all the liabilities and debts of the partnership.
7. Company Incorporation
Companies are incorporated at Companies House. Shelf companies are permitted. A UK company can be incorporated with in 1 day. This means that the business of the company can commence almost immediately. Certain statutory registers must be maintained. A private company need only have a minimum of 1 share which can be of any currency. A PLC must have at least 2 in issue. Shareholders and directors may be of any nationality or country of residence. LLPs are governed and by the terms of any partnership agreement.
8. Reporting & Auditing
UK company accounts must comply with either the UK companies Acts, where financial statements must comprise a balance sheet as at the last day of the financial year and a profit and loss account for the financial year, or with EU-adopted IFRS where financial statements are prepared in accordance with international accounting standards. Private companies and LLP's have 9 months and public companies 6 months, from the end of their accounting reference period to file their accounts with companies house. Generally an audit is required if the annual turnover is greater than pound 6.5m or gross assets exceed pound 3.26m or if the shareholders otherwise require one. Certain categories of company registered with the FSA automatically require an audit irrespective of level of turnover. Once a year a company must file an Annual return with Companies House. The accounts together with a CT return must be filed with her Majesty's Revenue & Customs ("HMRC") with in 12 months of the company's year end. CT has to be paid with in 9 months of the year end. Larger companies (taxable profits greater than pound 1.5m divided by 1 plus number of associated companies) pay by quarterly installment. HMRC has 1 year from the filing date to inquire into the return, although this can be later if a 'discovery' is made. LLP and partnership returns must be submitted to HMRC for each tax year ended 5 April by the following 31 January if submitted online. Partners disclose their profit share on their individual tax returns or on the CT return if a member is a company and pay tax directly to HMRC.
9. Special Notes / Country Update
Holding Companies : With certain exceptions, UK and foreign dividends are exempt from CT. The substantial shareholding exemption means there is no CT on gains arising from the disposal of shareholdings in trading companies - a minimum holding of 10% is required and the shares must have been owned for at least 12 months. There is no withholding tax on dividends paid to shareholders. All in all, UK is an attractive location to set up a holding company to own foreign trading subsidiaries.
Domicile : In the UK domicile, different from residence, refers in basic terms to the country which an individual regards as his permanent home. Non-domiciliaries can avoid tax on foreign income and gains by not remitting the income/ proceeds to the UK. once UK resident in 7 out of the 9 years prior to the year in question, this generally comes at an annual cost of pound 30,000. non-domiciliaries are also not liable to inheritance tax on their non-UK sites assets and for this purpose an individual is deemed UK domiciled once resident in the UK during 17 out of 20 years.
Sundry : Stamp Duty Land Tax (SDLT) is levied on the purchase of UK property with the rate varying between 0% and 4% with the latter applying where the purchase price exceeds pound 500,000. From April 2011 a 5% rate will apply to residential transactions over pound 1m. UK property is often held by an offshore company, and rather than sell the property, the shares in the offshore company are sold to avoid SDLT. It has been proposed that from April 2013 UK companies will pay corporation tax rate at 10% on income from new patents.
10. Double Taxation Agreement
UK has double taxation treaty with the following countries:
- Argentina
- Austria
- Bulgaria
- China
- Cyprus
- Czech Rep.
- France
- Germany
- Hungry
- India
- Indonesia
- Israel
- Italy
- Japan
- Jersey
- Kuwait
- Malaysia
- Malta
- Mauritius
- Mexico
- Morocco
- Netherlands
- Poland
- Portugal
- Romania
- Russia
- Singapore
- Slovenia
- Spain
- Switzerland
- Tunisia
- Turkey
- USA
- Venezuela
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