ADVANTAGES OF UK HOLDINGS
BRIEF RESUME

THE LAW
The UK government has introduced a corporation Tax Exemption for the capital gains of companies with substantial shareholdings in other companies.
The legislation sets up the UK as a major international holding company location, and is likely to draw business away from the Danish and Benelux international holding company regimes.
The exemption is from UK corporation tax which otherwise applies to the capital gains of UK companies.
The rate of corporation tax for a UK holding company is 30% so the exemption is a significant development
The investing company must have held a "substantial shareholding" in the investee.
A substantial shareholding is a holding of not less than 10% of the ordinary share capital of the investee company.
There is no dividend withholding tax in the UK, so a UK IHC can pay dividends to non treaty-protected entities.
There is no capital duty in the UK and no minimum paid up capital requirements shareholdings in other companies.
The legislation sets up the UK as a major international holding company location, and is likely to draw business away from the Danish and Benelux international holding company regimes.

PRACTICAL EXAMPLE
1 - UK Holding; 2 - European Fashion Company; 3 - Offshore Company "BVI"
A Company incorporated under the laws of an Offshore Country ("BVI") owns and holds copyright and design rights for the advertising of Fashion products.
Under the terms of a license agreement between the BVI Company and a UK incorporated and resident Holding company, the BVI Company grants the UK company, inter alia, the right to grant sub-licenses to other companies in territories outside the United Kingdom.
The UK Company agrees to pay the BVI Company a percentage of the royalties it receives from the companies to whom the UK Company granted sub-licenses.
In arrangements of this nature, the UK company will typically pay the BVI company, 90%-95% of the royalties it receives from the sub-licenses although regard must always be held as to what would be an arms' length percentage particularly if the BVI and UK company are under ultimate common control.
The UK Company will only be required to pay corporation tax on the margin it retains between the royalties received from abroad and the royalties it pays back to the BVI Company under the respective license agreements.
Furthermore, provided the UK Company can demonstrate that the rights do not relate to UK works or designs, the UK Company can pay royalties to the BVI Company without any UK withholding tax.

In conclusion therefore, correctly structured, the use of a UK company within a licensing arrangement involving copyright or design rights can result in an overall tax rate in the UK of as little as 1%-2% !!!

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