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HMRC internal manual

Savings and Investment Manual

Dividends and other company distributions: tax credits on foreign distributions: tax years up to 2015-16

Tax credits: foreign distributions: tax years up to 2015-16

FA08 and FA09 made tax credits available to most ‘relevant distributions’ (see SAIM5104) from non-UK resident companies made to UK residents and to certain non-UK resident persons. This legislation was at ITTOIA05/S397A to S397C. The following paragraphs describe the regime in force for tax years 2008-09 to 2015-16.

From 6 April 2008, a tax credit was available for a relevant distribution if the shareholding in the foreign company was less than 10% of the company’s issued share capital and the company was not an offshore fund. Under this legislation most individuals with shareholdings in foreign companies were eligible for tax credits.

From 22 April 2009 (for qualifying distributions arising and certain other dividends, see SAIM5104) a tax credit was available for a relevant distribution if one of the following conditions was met:-

  • the company was an equity-based offshore fund, or
  • the company was not an offshore fund and the shareholding was less than 10% of the issued share capital of the company or of any class of its shares, or
  • the company was not an offshore fund, was resident in a ‘qualifying territory’ and was not an ‘excluded company’.

If an offshore fund held more than 60% of its assets in interest bearing or economically similar form, any distribution was taxed as a payment of interest and the tax credit was not available.

A ‘qualifying territory’ is a territory with which the UK has a double tax treaty with a non-discrimination article. There is a list of ‘qualifying territories’ at INTM432112.

An ‘excluded company’ was a company resident in a qualifying territory but excluded from any or all of the benefits of the double tax treaty (see list below). If the distribution was one of a series paid as part of a ‘tax advantage scheme’, as defined in ITTOIA/S397AA (5), each company in the series needed to be resident in a qualifying territory. A ‘tax advantage scheme’ was an avoidance scheme having as its sole purpose the securing of the tax credit or any tax relief in relation to a company distribution.

The ‘excluded companies’ were:

Barbados Companies established under the International Business Companies Act(s)
Cyprus Companies entitled to any special tax benefits under various Cyprus enactments
Jamaica Companies established under enactments relating to International Business Companies and International Finance Companies
Luxemburg Holding companies established under the Luxembourg 1929 and 1937 Acts
Malaysia companies carrying on offshore business activity under the Labuan Offshore Business Activity Act 1990
Malta Companies entitled to special tax benefits under various enactments