Where is your company resident?
A company is resident where it is incorporated. In this case we will look at a company incorporated in Hong Kong. However if the company has its central management and control operated from another country, i.e. the UK it can be considered resident there and become liable to tax there.
The key point is where the central management and control is operated. Central management and control is considered at the highest level, which normally means where the board sits and holds it meetings, although this test is a strong indication it is not conclusive in its own right.
If a company is considered to be UK tax resident it will be liable to corporation tax in the UK on its worldwide income and gains. But a company not resident in the UK is only liable to corporation tax on the profits and gains realised in the UK, these will usually be attributable to a permanent establishment.
In the case of a Hong Kong company, this is clearly not incorporated in the UK and will be resident in Hong Kong unless its central management and control is operated from the UK. The phrase central management and control is not in statue, but comes from case law and specifically a case form the early 20th century, so the definition has stood the test of time.
The case setting the main principle in this area is Bullock v Unit Construction Ltd. The company was a UK company with several subsidiaries in Kenya, the articles of the subsidiaries said their management and control was operated by their respective boards, so HMRC contended the central management and control was outside the UK so they were not UK resident, however the case found that they were UK resident because although the boards met outside of the UK the real control was in the hands of the parent company, as in respect of matters of real importance the directors stood aside and allowed the parent company to make the decisions and they only acted I n respect of minor decisions.
Therefore, if the board of the company is formulated in Hong Kong and even better has a Hong Kong resident sitting upon it, it is unlikely to considered to be UK resident if the meetings are all held in Hong Kong.
The only other point to consider here would be whether shareholder control could override this if the shareholders were all UK resident. Here it is necessary to look at the wording of the definition which says corporate residence involves the identification of the place of central management AND control, not OR control, this is not therefore the control which vests in shareholders. This position was confirmed in the Bullock case mentioned above and confirmed by the court of appeal in the same case.
There have over the years been a number of cases relating central management and control and the principles mentioned above still apply, it is not where the company operates but where its central governance is carried on.
Two further indications that central management and control are located are where policy decisions are made and where the key financial decision are made and implemented. This could include for example where dividends are declared.
Once you have stablished who has central management and control you have to determine where they exercise it from. This will be where the board meetings are held. So provided that this is control is not usurped this will be the pace it is operated from.
Services we offer
We are pleased to be able to offer the following taxation-based services:
A General tax consultation and/or specific tax advice;
Tax planning for your general situation or for a specific transaction;
Registration for National Insurance and Unique Tax Reference numbers;
Preparation and submission of annual self-assessment returns;
Preparation and submission of return for overseas landlords;
Formation of UK and offshore companies in respect to an acquisition of the commercial property and administrative and accounting services for corporate entities.
All taxation services are arranged on a fixed fee basis with the fee to be charged agreed in advance of any work being undertaken.
For all questions regarding your business in the UK and tax planning, please contact our Business Consultancy team at Law Firm Limited on +44 (0)20 7907 1460 or via emailback to top