Managing Covid-19

Corporate tax residency: potential implications of COVID-19

Published on 11th Mar 2020

Coronavirus-related travel restrictions may cause problems for certain non-UK companies if non-UK-resident directors cannot physically attend UK board meetings.


We are starting to see the effects of the coronavirus (COVID-19) for business in all sectors and across all regions. There are the immediate questions of how to deal with the spread of the virus, what employers should be doing and considering and what effect it will have on businesses' supply chains and cash flow.

There are other implications which may become more acute as the coronavirus spreads, including the impact on the tax residency of companies, which are resident for tax purposes outside their jurisdiction of incorporation. For example, there are many companies that are not incorporated in the UK but are treated as resident in the UK for UK tax purposes. This is because their central management and control (CMC) is carried on in the UK.

There are many reasons why a non-UK incorporated company would want to be UK tax resident. These include a relatively low level of 19% corporation tax, an exemption from chargeable gains on the disposal of substantial shareholdings and on dividends received from overseas subsidiaries as well as the ability to rely on the UK's extensive double-tax treaty network.

A company will generally be treated as UK tax resident if it is incorporated in the UK. However, a non-UK incorporated company will be treated as UK tax resident if it is centrally managed and controlled in the UK. The concept of CMC is not found in tax legislation, but is based on case law (the seminal case being De Beers Consolidated Mines v Howe).

The CMC test looks at where the real business is carried on and is directed at the highest level of control of the company (which is usually, although not always, the board level). HMRC guidance on tax residency suggests that the place where the company's board of directors physically meet is hugely important (though not necessarily conclusive). It would generally be expected that if a non-UK incorporated company regularly holds its board meetings in the UK and those meetings constitute the medium through which CMC of the company is exercised, then it should be treated as UK tax resident.

The outbreak of the coronavirus may cause problems for the CMC test if the directors are not resident in the UK and cannot physically get to the UK to hold the board meetings. This could ultimately lead to a loss of UK tax residency and give rise to adverse tax implications (such as exit charges) for the company if it unintentionally becomes tax resident in another jurisdiction (particularly if that other jurisdiction has a higher corporate tax rate).

We hope that the current situation will not last long but if the coronavirus leads to widespread inability for travel then precautionary measures are considered advisable. Non-UK incorporated companies which are treated as UK tax resident under the CMC test and which are faced with a possible loss of UK tax residency should consider whether the powers of the board could be delegated to other individuals who are UK resident for the duration of the outbreak to help ensure that CMC is still being exercised in the UK.

For further information and with help on corporate tax residency, please get in touch with any of our contacts below.


* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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