UK “holding” company of Russian / CIS group

UK companies to act as “holding” companies for Russian & CIS trading groups

The UK has an exemption to UK tax upon capital gains arising from the disposal of substantial shareholdings (from 1 April 2002) as well as an exemption to UK tax on foreign earnings (from 1 July 2009).  Both reliefs are well-established.  The capital gains tax exemption relates to the sale of all, or part of, a substantial shareholding i.e. more than 10{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} of the ordinary shares of the Russian trading company.  The investment must have been held for at least 12 months in the two years prior the sale of the shares.   For the capital gains exemption, the group must remain a “trading group” both before and after the disposal of a subsidiary.

Following these new provisions the attractiveness of the UK as a International Holding Company (IHC) jurisdiction can be summarised as follows:

  •  More robust and safer structure following the recent Russian “anti-offshorisation” laws which could affect current Cyprus and other offshore structures.
  • The establishment of a UK holding company provides access to one of the largest double taxation treaty networks in the world;
  •  No  further UK tax upon dividends received (exemption of foreign dividends) by the UK holding company from its Russian/CIS subsidiary;
  •  No withholding tax upon dividends paid from the UK holding company to foreign shareholders including to offshore companies.
  •  An Exemption from UK tax upon capital gains tax as outlined above;
  •  A UK bank account for the UK holding company if so required in any currency.  However, a UK company may also have its bank account(s) in any other stable jurisdiction.
  •  No minimum capitalisation or capital duties payable. UK companies are quick, simple and cheap to incorporate;
  •  Low corporate income tax rates in case there is UK-source income – 20{e68217344b855fcd608ed2c4c41f83644da7cd41ea524fbfa2ad06c632d3255d} from 2015- which make these the lowest in western Europe and almost half the corporate tax rate in USA.
  •  The UK holding company can apply for a Sponsor Licence enabling employees from its overseas group companies to obtain visas to work in the UK;
  •  The excellent security, infrastructure, communication and access to global markets as a result of incorporating in one of the world’s leading jurisdictions.

The diagram below illustrates the tax advantages of using a UK international holding company.

UK IHC for Russia operations – dividend & gains treatment