OECD Model Tax Convention on Income and on Capital (Condensed version 2010) and Key Tax Features of Member countries 2010 Sample excerpt United Kingdom 1. Corporate income tax I. Taxes on Corporate Income Corporate profits are subject to corporation tax. Companies incorporated under the Companies Act are taxable persons for corporation tax purposes. In addition, persons liable to corporation tax include unincorporated associations, building societies (housing loan financing associations), mutual insurance societies, state-owned industries, public utility companies, crown corporations and permanent establishments of non-resident companies. Partnerships are transparent for tax purposes. 1.1. Residence Companies incorporated in the United Kingdom are always resident there. Other companies are resident if the central management and control takes place in the United Kingdom. If a company is resident in the United Kingdom under domestic law but is treated as resident in another country for the purposes of a tax treaty, it is treated as not resident in the United Kingdom. 1.2. Taxable income Resident companies are chargeable to corporation tax on their worldwide profits, defined as income and chargeable (capital) gains. The computation of annual taxable profits and losses is based on commercial accounts, as adjusted for prescribed items. The only important item of exempt income is intercorporate dividends. A distribution exemption applies to distributions received by large and medium-sized companies, irrespective of the source of the distributions, i.e. whether domestic or foreign. The exemption also applies to distributions received by small companies (as defined for EU law purposes) where the payer is also resident in the United Kingdom. Foreignsource distributions received by small companies also qualify for exemption if the paying company is resident in a country with which the United Kingdom has a double tax treaty containing a non-discrimination article.
Capital gains on substantial (at least 10%) shareholdings in qualifying companies are exempt. 1.3. Losses Trading losses may be carried forward indefinitely in the same and continuing trade, provided that the company remains within the charge to corporation tax. Any loss carried forward is set off against the earliest available trading profits. Alternatively, a trading loss may be set off against the general profits (including non-trading income and chargeable gains) of the company of the same or preceding accounting period. The 1-year carry-back period is extended to 3 years in respect of terminal losses. Any other non-trading income losses (other than terminal losses) cannot be set off against trading profits. Such losses can only be carried forward and set off against the same class of income or capital gains. Capital losses are automatically set off against capital gains of the same period. Net losses may be carried forward to be set off against chargeable gains of subsequent years. 1.4. Rates 1.4.1. Income and capital gains The main rate of corporation tax is 28%. This rate applies to all closely owned holding companies and to other companies with taxable profits above GBP 1.5 million. Other companies are subject to corporation tax at the following effective tax rates for the 2010 financial year (i.e. 1 April 2009 to 31 March 2010): Taxable profits (GBP) Rate (%) up to 300,000 21 300,001-1,500,000 29.75 Over 1,500,000 28 1.4.2. Withholding tax There are no withholding taxes on payments to resident companies. 1.5. Incentives The following main incentives are available: research and development relief; venture capital trust relief; and tonnage tax regime.
1.6. Intercompany dividends and group treatment Dividends received from a resident company are exempt (see I.1.2.). However, for companies trading in shares, such dividends received are treated as trading income and taxed accordingly. There are no provisions for fiscal unity or other forms of tax consolidation. However, there are a number of provisions covering the surrender of losses and the transfer of assets within a group or a consortium. 2. Other taxes on corporate income Generally, there is no other tax on corporate income. Companies engaged in oil and gas production can be subject to corporation tax and, in certain cases, petroleum revenue tax and royalty levy. Income from fields given development consent on or after 16 March 1993 is subject only to corporation tax. Companies engaged in North Sea oil and gas activities are liable to corporation tax at 30% of their adjusted ring fence profits. They are also liable to a supplementary charge of 20% in respect of those profits. 3. International aspects 3.1. Resident companies Resident companies are taxed on their worldwide income. Foreign trading income is taxed without any special reductions. For other forms of foreign income, corporation tax is levied on the full amount arising within the tax period. Con t... 1. Individual income tax II. Taxes on Individual Income The United Kingdom imposes income tax and capital gains tax on individuals. Partnerships are treated as transparent for tax purposes. 1.1. Residence Residence is determined by (i) 183 days presence; or (ii) habitual visits to the United Kingdom extending over 4 consecutive years on an average of 91 days or more per tax year, leading to residence as from the fifth year. An individual is, in principle, resident in the United Kingdom for the full tax year in which he arrives in or departs the United Kingdom. However, by concession residence is deemed to commence or cease on the day of arrival or departure. For capital gains tax purposes, an individual who departs the United Kingdom qualifies for the concession only if he was neither resident nor ordinarily resident in the United Kingdom for the whole of at least 4 of the 7 tax years immediately preceding the tax year of departure. For an individual arriving in the United Kingdom, the capital gains tax concession applies if he had been neither resident nor ordinarily resident in the
United Kingdom at any time during the 5 tax years immediately preceding the tax year of arrival. The territorial limitation on an individual s liability to tax depends on two further factors, i.e. ordinary residence and domicile (for the concept of domicile in common law, see under Ireland). Ordinary residence is not defined in the legislation, but is generally taken to be based on: (i) an individual s present and future intention as regards his presence in the United Kingdom; or (ii) habitual visits to the United Kingdom over 4 consecutive tax years averaging 91 days or more for each tax year, leading to residence as from the fifth year. An individual who normally resides in the United Kingdom, but absents himself for a complete tax year will remain ordinarily resident, but be non-resident for the tax year of complete absence (see II.3.2.1.). 1.2. Taxable income A resident individual (domiciled in the United Kingdom) is taxable on his worldwide income. Income tax is assessed based on the nature of its source, e.g. income from a trade, profession or vocation, property income, savings and investment income, and miscellaneous income. 1.3. Personal deductions, allowances and credits The main allowable deductions include: certain interest payments, premiums paid to pension plans (subject to statutory limits), and donations to UK charities. The main personal allowances are: the basic personal allowance and the age-related personal allowance. The latter allowance is given to taxpayers aged 65 or over at any time during the year of assessment. Where such a taxpayer s income exceeds a statutory maximum, the age-related allowance is reduced according to a prescribed formula, but may not be reduced below the amount of the basic personal allowance. Tax credits at a rate of 10% are available to married couples as well as to same-sex couples in a civil partnership. The allowance is given where a spouse or civil partner was born before 6 April 1935. 3. International aspects 3.1. Resident individuals A resident individual (domiciled in the United Kingdom) is, in principle, subject to tax on his worldwide income and capital gains. An individual who is domiciled abroad, while being resident in the United Kingdom, is liable to tax on the remittance basis in respect of foreign income and capital gains. This means that only the funds
representing foreign income or gains that are remitted to the United Kingdom are subject to tax. An individual who is resident but not domiciled in the United Kingdom, is only subject to tax on offshore employment income (i.e. an employment with an employer resident outside the United Kingdom, the duties of which are performed wholly outside the United Kingdom) on amounts remitted to the United Kingdom. An individual who is resident, but not ordinarily resident, in the United Kingdom is liable on the remittance basis in respect of any earnings for duties he performs outside the United Kingdom. 3.2. Non-resident individuals 3.2.1. Taxable income and capital gains Non-residents are liable to income tax on all UK-source income, subject to reductions or exemptions given in a double tax treaty. An individual who is ordinarily resident, but not resident, is not subject to income tax on non-uk-source income, nor is he subject to higher-rate income tax on his UK investment income (other than rental income). His tax liability is limited to the 20% rate. He is, however, subject to capital gains tax on his worldwide chargeable gains. 1. Net worth tax / net wealth tax III. Taxes on Capital There is neither a net worth tax nor a net wealth tax. 2. Real estate tax There are two taxes levied by municipal authorities: business rates on non-residential properties, and council tax on residential properties. A tax on the occupation of non-residential property situated in the United Kingdom is payable by every occupier of business premises. The tax base is the annual rental value. The uniform business rate (UBR) is set annually by the government. The UBR for the year ending 31 March 2011 is 41.4% for England. Similar rates apply in Scotland and Wales. Each local authority charges annually a council tax on every property within its boundaries occupied as a separate dwelling. The council tax is payable by the occupier, or by the owner where the property is empty or is shared accommodation (such as a hostel or nursing home). The base of the tax is the value of the property. The tax charge is a percentage of the valuation, determined annually by the local authority.