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HMRC internal manual

International Manual

Controlled Foreign Companies: exemptions - excluded countries: Income and gains requirement

SI1998/3081 Regulation 5

The requirement with respect to income and gains of a controlled foreign company is that, within an accounting period, the amount of its non-local source income does not exceed an amount equal to 10% of its commercially quantified income in that accounting period or a figure of £50,000 for a full year (to be reduced proportionately in accordance with the length of the accounting period) whichever is the greater. Computations are to be made in the currency of account and the £50,000 is to be converted into the local currency at the accounting date.

For accounting periods beginning on or after 3 December 2004 a controlled foreign company investing in a non-corporate entity, the income of which is not included in its commercially quantified income, but on which UK tax would have been payable, the income is to be included as part of its commercially quantified income when applying the cap. However, this will only apply if that entity:

  1. is controlled or is capable of being controlled by the controlled foreign company or the group which owns the controlled foreign company and
  2. receives more than half of its income from other entities which are connected or associated with the controlled foreign company or that group (corporate or otherwise).