What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
Answer ... The United Kingdom has special corporation tax rates or regimes for each of the following sectors:
- oil and gas;
- life insurance;
- shipping; and
Answer ... The United Kingdom’s participation exemption (the substantial shareholding exemption) provides a wide-ranging exemption from chargeable gains arising on the disposal of shares which broadly applies where:
- the company owned 10% or more of the ordinary share capital of the subsidiary company throughout a continuous 12-month period in the six years prior to the disposal; and
- the subsidiary company is a trading company or the holding company of a trading group.
Special provision is made to allow companies to take advantage of the exemption in the case of hive-downs or other pre-sale reorganisations.
Reliefs are available that should ensure that assets may be transferred within a UK group of companies without any tax charge (direct, indirect or transfer) arising, subject to degrouping charges in the event that the transferee leaves the group within six years of the transfer.
More complicated reconstructions (including joint venture entries and demergers) can also generally be structured to be tax neutral.
Answer ... Generally, a company’s profits and gains should be calculated in sterling for corporation tax purposes. However, a company may elect to have a different functional currency for corporation tax purposes.
Answer ... For corporation tax purposes, the United Kingdom’s intangible fixed assets regime covering the taxation of intangibles broadly follows the Generally Accepted Accounting Principles accounting treatment.
The United Kingdom has a ‘patent box’ regime, which applies a lower rate (10%) of corporation tax to income that is attributable to patents. This regime was substantially amended in 2016 to comply with international agreements on Base Erosion and Profit Shifting, introducing a stronger link between research and development expenditure incurred by a UK taxpayer and the benefits available under the regime.
In April 2019 the United Kingdom introduced a UK income tax charge (20%) on amounts received in low tax jurisdictions in respect of intangible property, to the extent that such amounts arise in respect of the sale of goods or services in the United Kingdom.
Answer ... Employers can claim relief on contributions made to employee pension schemes, provided that the contributions are made wholly and exclusively for the purposes of an employer’s trade. This relief generally applies in the year that the contribution is made.
Answer ... Certain building societies and banking companies operating in the United Kingdom (as well as UK-based subsidiaries or branches of global groups) are charged an additional surcharge of 8% on profits, subject to an annual allowance of £25 million per group (or per company for non-group companies). A further ‘bank levy’ applies to the balance sheets of these entities (and groups containing such entities), chargeable at 0.08% of the value of long-term chargeable equity and liabilities and 0.16% of the value of short-term chargeable liabilities.
Companies involved in the exploration for, and production of, oil and gas in the United Kingdom and on the UK Continental Shelf are subject to ring fence corporation tax (RCFT) and a supplementary charge. Profits from these activities are calculated using the same methodology as that used for other corporate activities, but are ‘ring fenced’ from other activities to prevent a company using losses from other activities to reduce profits subject to RCFT. The main rate of RCFT is set at the higher rate of 30%, and the supplementary charge applies to ring fence profits (with any deductions for financing costs added back) at a rate of 10%.
Companies operating qualifying ships that are strategically and commercially managed in the United Kingdom can elect to apply tonnage tax in place of corporation tax. Tonnage tax is an alternative method of calculating corporation tax profits by reference to the net tonnage of in-scope ships.
Answer ... No, but see question 2.7 for reference to special bank taxes.