Controlled Foreign Companies (CFCs) – Requirements for UK Companies

The CFC rules are designed to protect against international groups diverting profits to non-UK jurisdictions.

 

The CFC rules will only apply if the UK company has more than a 25% interest in an overseas company. However, importantly, the CFC legislation includes a number of exemptions which most international groups will benefit from. The most common exemptions are:

 

  • Where the non-UK company meets the low profit condition;
  • Where the non-UK company is resident in a treaty country; and
  • Where the non-UK company is tax resident in a country that applies a tax rate to profits, of at least 75% of that which applies in the UK (be careful with this one as if the UK corporation tax rate increases to 25% from 1 April 2024 as expected, then some group companies may no longer fall within this exemption).

 

Importantly, even if the non-UK company qualifies for an exemption, the UK company is required to confirm this on its UK corporation tax return.

 

We therefore strongly recommend that you speak to us in the first instance so that we can work together to identify your position.

 

What next?

If you have any questions or would like assistance, please contact Thomas Adcock or a member of the tax team.

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