With international travel almost a distant memory and quarantine measures implemented across the globe, directors of non-UK companies who are currently in the UK may need to take steps to ensure they do not accidentally expose the non-UK company to UK corporation tax.
The UK’s corporate residency rules mean that if a non-UK company is “centrally managed and controlled” in the UK, that company will be treated as UK tax resident and within the charge to UK corporation tax on its worldwide income and gains. In contrast, if a non-UK company is not UK resident it should only be taxable on its income which arises in the UK.
If directors of non-UK companies who are living in the UK hold board meetings in the UK, dial into local board meetings from the UK or make strategic decisions in the UK, as opposed to flying out of the UK to make decisions and attend local board meetings, the “central management and control” of a non-resident company could shift to the UK along with its tax residency.
In its guidance, HMRC confirms that it does not consider that a company will necessarily become UK tax resident because it holds a few board meetings in the UK, or because some decisions are taken in the UK over a short period of time. But, to-date, no extra concessions have been announced by HMRC in light of COVID-19.
For companies that rely on flying directors to local board meetings, HMRC’s guidance in response to COVID-19 must offer a degree of comfort. However, we suggest that businesses exercise a degree of caution and the following steps may be helpful:
- consider delaying board meetings where possible (or at least those meetings where major strategic decisions are to be debated/made) until directors are able to travel more freely;
- review the company’s constitutional documents and articles of association (or similar) to determine whether it is possible to temporarily relax the company’s director quorum requirements and exclude the presence of directors in the UK if practical to do so.
- maintain proper records of any board meetings with board minutes detailing the reasons why the relevant meeting might not be held in the local jurisdiction or with all board members physically present (i.e. due to the global travel restrictions imposed by the extenuating circumstances surrounding COVID-19); and
- consider restructuring boards to include more local, non-UK based directors (particularly where the relevant company may be tax resident in a low tax jurisdiction or one where no favourable double tax treaty exists with the UK).
UK entities may also need to consider rules in other jurisdictions where travel restrictions and lockdown measures might have resulted in directors and/or employees being stranded abroad. Where necessary, legal advice should be sought.
As with many tax matters, corporate residency is a complex area so if you would like any further information, please do not hesitate to get in touch.