The United Kingdom is one of the most frequently used jurisdictions for the incorporation of a holding company. Some of the features which make it attractive are:

• One of the largest networks (over 100) of double taxation treaties
• EU member
• Reputable jurisdiction with excellent business infrastructure
• No restrictions on the movement of capital

The U.K. holding company

A U.K. holding company is a U.K. registered company, or a foreign registered company which is resident in the U.K. for tax purposes, established by a parent company, for the sole or main purpose of holding shares in subsidiaries incorporated in countries in which the Group is engaged in business activities. The holding company will receive the dividends paid by those subsidiaries and use them to declare a dividend to the ultimate parent. Branches of foreign registered companies may also qualify for holding company status.

The requirements for U.K. holding company status

As with every country in which a holding company can be incorporated, there are various conditions which must be met and some of the main requirements are:

• The holding company must hold at least 10% of the ordinary share capital of the subsidiary for a continuous period of at least twelve months
• The holding company must be a trading company or a holding company of a trading group
• The subsidiary must be a trading company or the holding company of a trading group

For the purposes of the legislation

• A group is the principal company and its 51% subsidiaries, owned directly or indirectly
• There is a very broad definition of what constitutes trade and it includes almost every type of activity carried on with a view to profit. Financial companies generally do not qualify.

The attractions of U.K holding companies

The tax laws in the United Kingdom make the country an attractive location for holding companies and the jurisdiction passes the four main tests, providing the qualifications are met,

• If the subsidiary is incorporated in an EU country and, if the EU parent / subsidiary Directive applies, dividends paid to a U.K. holding company will not suffer deduction for withholding tax in the country from which the dividend is paid. Some EU countries have however introduced legislation to prevent the abuse of the provisions of the directive by holding companies controlled by non-EU residents.
• Where the directive does not apply the dividend may qualify for a reduced or nil rate of withholding tax under one of the U.K's many double taxation treaties.
• U.K law provides relief for foreign tax suffered, either by way of the EU directive or under the terms of a treaty or, where neither is available, unilaterally. The effect can be to eliminate any liability to U.K. corporation tax on the holding company. This can produce a more favourable result than is obtainable in some other jurisdictions.
• No withholding tax on dividends paid by the holding company
• Exemption from capital gains tax on the disposal by the holding company of the shares in the subsidiary

Some special features of U.K. holding companies

• A simple, quick and relatively cheap formation procedure
• No capital duty
• No minimum paid up capital requirement
• Tax free routing of dividends to offshore centres, not possible with some other jurisdictions.