UK government consults on introducing a corporate re-domiciliation regime

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Every company has a country in which they are domiciled in, meaning the country that is considered their permanent home and in which they were incorporated. Consequently, all companies are bound to follow the laws of the country of their domicile.

At present, foreign incorporated companies wishing to change their domicile status to the UK are unable to do so. Therefore, the UK government carried out a consultation regarding introducing a corporate re-domiciliation regime to allow companies which are not domiciled here to re-domicile to the UK.

What is re-domiciliation?

A re-domiciliation regime allows a company to change their country of domicile. Countries that currently allow companies to re-domicile include:

  • Canada
  • New Zealand
  • Jersey
  • Switzerland

Currently, to achieve UK domicile a foreign company needs to incorporate a new company as a holding company and complete a ‘share for share’ swap. However, the holding company is considered a new legal entity. The proposed new scheme would allow a company to change its country of incorporation to the UK but keep its legal identity, which means that no property, stock or assets needs to be transferred. Thus, the process is less complex and relatively straightforward.

It is important to note that although the UK government is looking to allow a re-domiciliation scheme for countries to relocate here, UK companies are not incorporated in the UK as a whole, but rather they are incorporated in each of the UK countries. For example, a Scottish company is incorporated in Scotland and has to follow the laws of Scotland (in so far as they differ to the rest of the UK). It’s also worth noting that the potential new regime would not  permit companies registered in one UK country to change to another country in the UK.

What are the advantages of re-domiciliation?

The UK Government believes re-domiciliation would “modernise the UK’s legal framework, bringing it into line with around 50 countries and jurisdictions which also have re-domiciliation regimes”[1].

The intention of re-domiciliation would be to put overseas companies on an equal footing with their competitors already in the UK market. It would also allow companies to have access to the UK market that may currently have barriers due to their domicile status. As an example, following Brexit and the end of free trade movement, most EU businesses trading with the UK now face additional duties, customs and administrative process. Permitting a company to change its domicile status to the UK would be beneficial, especially if its main trade is conducted in the UK.

From an administrative point of view, it would allow business continuity and vastly reduce the administrative process. The UK Government believes that “Re-domiciliation would therefore enable a company to maximise continuity of its operations while enabling it to shift its place of incorporation. Its corporate history, management structure, assets, intellectual and other property rights, contracts, and regulatory approvals will generally remain intact.”[2]

The existing routes currently available for foreign incorporated companies, such as creating a UK holding company and transferring the shares of the foreign incorporated company to the holding company, can create complex tax and legal problems. The introduction of the regime is intended to remove these problems.

A company may wish to change its domicile status if the laws and regulations in its current country do not align with the company’s objectives. By transferring a company’s country of domicile, a company becomes subject to its new country of domicile’s laws and tax regulations, allowing it to achieve its strategic business and financial goals free from the constraints of its country of origin.

What the UK government plans to do

The government’s plan is to introduce a re-domiciliation regime that “is open to as broad a range of companies and bodies corporate as possible, to support jobs and growth in the UK”.[3] It also wishes to have appropriate checks to protect the UK’s reputation for corporate governance. Currently, it does not plan on enforcing an economic substance test for companies wishing to re-domicile to the UK.