New foreign profits rules for small companies

Small companies can now take advantage of the new taxation rules for foreign profits. But some foreign income remains taxable.

A small company - defined as having no more than 50 employees, or a turnover or gross assets of no more than €10m - will be able to receive a dividend free of tax if the company paying the dividend is resident in a territory with which the UK has a double taxation treaty which includes a suitable non-discrimination provision. The HMRC site provides a list of territories where this exemption applies.

Medium and large companies will be able to receive tax-free dividends, wherever the subsidiary is located, subject to anti-avoidance rules.

No exemption

Although the new foreign profits rules provide a wide-ranging exemption for many dividends, some foreign income sources will still be taxable. These include dividends arising from tax avoidance arrangements, capital distributions, branch profits and controlled foreign companies.

If you need advice as to whether your business is affected by these new rules, contact your usual Littlejohn tax adviser or email tax@littlejohnllp.com