The Government is to consult at Budget 2017 on bringing non-resident companies subject to income tax within the corporation tax regime.
At Budget 2017 the Government will consult on bringing all non-resident companies with UK taxable income into the charge to corporation tax.
If implemented, this would impact on non-resident companies receiving UK taxable income not through a permanent establishment or a property trade. For instance, non-resident companies receiving rental income from investment property in the UK.
The stated purpose is to deliver equal tax treatment for all companies, including in relation to the proposed limitation of corporate interest expense deductibility and loss relief rules. The potential extension of the interest limitation rules to non-resident investors in UK real estate was part of the latest consultation on these rules and this could be a simpler way of doing this. Non-resident companies may benefit from a later implementation date as a result of the consultation process and the commencement date for corporation tax of 1 April 2017.
In general, the proposal would be a welcome simplification to the UK tax regime and should provide non-resident companies with access to the proposed lower corporation tax rate (17% from 2020 compared to 20% for income tax payers) and greater flexibility in terms of the offset of expenses and losses both within entities and corporate groups. However, non-resident companies would become subject to an increased compliance burden as a result of various anti-avoidance and other legislation that currently only applies to corporation tax payers.
Overseas investment into UK property has provided a significant boost to the UK economy over many years and if the Government took this opportunity to eliminate the gains exemption for non-residents, this could have a significant economic impact at a time when overseas investment is critical to the economy. The current proposal only refers to UK income and it is to be hoped this remains the case.
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