Family offices based in Singapore or Hong Kong that carry on a UK business (eg an investment business, or property business) may well do so through a UK company. Where the family office is also considering investing in US real estate (likely via a US corporate), doing so through its existing UK company may provide tax efficiencies.
If the family office were to hold the US corporate directly, it would suffer US withholding tax at a flat rate of 30% on any profits it extracts from the US corporate by way of dividends. The provisions of the double tax treaty (DTT) between the UK and the US, however, provide for a reduced withholding tax rate of 5% on dividends paid by a wholly owned US corporate to its UK holding company. Any dividends received by the UK holding company from the US corporate would generally be exempt from UK corporation tax.
In addition, non-UK resident shareholders of the UK holding company would be able to extract profit from the company, by way of dividends, without suffering any UK tax; dividends paid by UK resident companies to non-UK resident shareholders are not subject to withholding tax. Whether or not UK tax would be payable on any gains realised on a disposal of the shares in the UK holding company would depend on the extent of the company's UK property holdings.
As the UK holding company is already carrying on a business, and provided it maintains appropriate premises and staffing levels for its (now expanded) business, there should be minimal risk of any argument that it does not have sufficient “substance” in the UK, or that the use of the UK holding company is part of "treaty-shopping" arrangements, such that treaty benefits could be denied. It would also be important to ensure that central management and control of the company remain in the UK to avoid any risk of being considered a dual resident. Ideally, the company would have a majority of UK directors with all key decisions being made by the directors at board meetings held in the UK. Treaty benefits could also be denied under the UK/US DTT if it was considered that the arrangements were put in place to obtain treaty benefits and the UK holding company was regarded as a mere conduit for the ultimate beneficial owners. This may be less of a concern where there is an existing business and any profits are re-invested in that business.
