The United Kingdom is known as a respected and well-regulated jurisdiction.  In fact, the UK has played a vital role in assisting the EU and the Organization for Economic Cooperation and Development (OECD) to help regulate and implement procedures to tackle the flaws in the international tax systems by imposing sanctions, Anti-Money Laundering procedures and substance requirements among other equally stringent measures within the UK and the UK-linked tax havens.  Unlike the Crown Dependencies, companies incorporated in the United Kingdom are seldom suspected of tax-avoidance or lack of transparency which is probably why the UK has not yet enacted a specifically outlined Act or legislation related to substance requirements for UK based companies.   

In the UK a company is considered tax-resident of the country, by default, upon incorporation.  This, however, does not mean that the company will remain considered as such if its effective management is exercised outside of the country.  The concept of substance over form connotes that regardless of the place of incorporation of the company, the country which will have primary taxing rights over the income of the company will be the country where it has the most dominant presence in terms of general management, decision making, physical offices and day-today employee operations.  Tax authorities take into consideration many factors when determining the tax residency of a company, such as the company’s expenditure in a particular location, the presence of hired employees and their place of employment and special attention is given to the physical place of residence of the Board of Directors.  It is highly advisable that at least the majority of the directors of the company are qualified individuals that reside or at least regularly visit the country of the company’s tax residence in order to review and agree on major strategical decisions and key transactions of the company which should always be recorded in detailed Minutes and kept at the registered offices of the company for presentation if requested.  With this in mind, it is therefore, imperative to exercise caution and build the proper substance foundation to make sure that the company does not unintentionally become tax resident in another jurisdiction.  Tax residency in more than a single jurisdiction can expose the company and its beneficial owner to unexpected tax liabilities and additional reporting obligations, either through dual residence, which is permitted by the UK Company Law, or the need to claim relief from double-taxation where applicable. 

There is no doubt that the United Kingdom offers many advantages as a corporate jurisdiction with vast opportunities for investment and growth, however it is important to take into account the period of instability and the possibility of significant changes to the tax regime, regulatory framework and global relations affected by Brexit.  This may be of particular importance for those who wish to base their business in the UK with an intent to trade within the European Union.  To read more on some of changes in the UK corporate sector related to Brexit as well as a general overview of UK as a jurisdiction for company formation, please visit our Registration of a Company in the United Kingdom page or contact our expert team for a comprehensive tax opinion or an alternative solution individually formed with your business model in mind.