UK and French Corporation tax - Moving business from UK to France
David Anderson at Sykes Anderson Perry solicitors in London
Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. International tax law is a complex subject and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice.
Brexit considerations mean that UK business people may have to relocate their businesses to within the EU. This article considers the corporation tax position of a UK company which relocates its business to France. A simple structure is maintained with the existing trade of the UK Company now carried on by a French company. The new French Company will continue to trade in the UK and also develop its business in France. This article only deals with ordinary trading income not profits such as from property transactions.
French corporation tax is territorial
French corporations pay tax on profits generated in France and on non-French profits which a tax treaty attributes to France. Otherwise French companies are exempt from corporation tax on profits generated outside France. Similarly losses incurred abroad cannot be deducted against French profits.
This is fundamentally unlike the UK where a UK resident company is taxed on its worldwide profits, subject to any tax treaty.
UK Corporation tax
UK corporation tax is payable by French companies on profits generated through a permanent establishment in the UK. The UK double tax treaty with France includes as a permanent establishment a branch, an office, a place of management and a factory. It does not include a place where stock is held for processing by another person.
No UK permanent establishment = no tax anywhere
If the French company continues to trade in the UK but without a UK permanent establishment it will pay no corporation tax either in the UK or in France on its UK profits. The company will only pay profits on what it generates from its French trade.
You will need to show the French company is managed and controlled from France and not the UK. Care must be taken not to have a UK permanent establishment.
Properly planned and executed this is a simple way of legally avoiding a substantial amount of corporation tax. It does not involve any “artificial” steps and the legal position is very clear. Extraction of the profits and the tax position of the individual shareholders and directors need to be considered.
Solicitor-Advocate and Chartered Tax Adviser