Corporate re-domiciliation

The measure

The government has announced its intention to introduce a “re-domiciliation” regime under which companies incorporated outside the UK could move their place of incorporation to the UK, while maintaining their existing legal identity. The government states this will increase the attractiveness of the UK as a destination both to locate a business and in which to invest. The government also believes this would lead to additional adoption of the UK’s high corporate transparency and governance standards, meaning better investor protections. A consultation has been launched to seek stakeholder views on the proposal by 7 January 2022, including the associated tax considerations. 

The consultation document indicates that the government is also considering whether a similar mechanism for outward re-domiciliation from the UK should be introduced. 

Under current rules it is generally possible for the tax residence of a company to be migrated to the UK (i.e. based on the location of central management and control of the company) but UK company law does not currently include any mechanism for a change in the place of incorporation. Accordingly non-UK companies seeking to achieve a UK place of incorporation typically need to undertake restructuring e.g. through creation of a wholly new company and a transfer of assets. The proposal would thus represent a significant change in approach. 

Notable points mentioned in the consultation document include:

• the government indicates that for inward re-domiciliation to the UK an economic substance test would not be needed, and that any such conditions may inadvertently preclude a wider range of companies relocating which the government is actually seeking to attract, such as holding or intellectual property companies;
• the government is seeking views as to whether legislation should ensure that, upon an inward re-domiciliation to the UK, the company’s tax residence should automatically follow the corporate law re-domiciliation (subject to applicable tax treaties) or alternatively whether the company should only become UK resident if central management and control is exercised in the UK;
• views are also requested on various other tax technical aspects such as the possible ‘step up’ in the base cost of assets of companies that re-domicile to the UK, protection against the inappropriate importation of losses, and stamp duty and VAT consequences.

Who will be affected?

Non-UK incorporated companies wishing to migrate their place of incorporation to the UK. This might be the case, for example, where it assists them in accessing capital markets or facilitates changes in their business operations. Depending on the detail of any final proposals, it may also be relevant to UK incorporated companies wishing to migrate their place of incorporation out of the UK.

When will the measure come into effect?

Consultation responses are requested by 7 January 2022. No timing has been announced for any ultimate enactment of the measure.