CTM34230 - Residence: non-resident companies: differences in treatment compared to resident companies

The other main areas in which the taxation of non-resident companies differs from that of resident companies are listed below.

A non-resident company cannot:

• Join in an election under ICTA88/S247 (1) for distributions made prior to 6 April 1999, CTM80085.
• Join in an election under ICTA88/S247 (4) for payments made before 11 May 2001, CTM80085.
• Claim a deduction for management expenses, CTM08000 onwards.
• Make a payment that ranks as a charge unless it is made under a liability incurred wholly and exclusively for the purposes of a trade carried on in the UK through a branch or agency. Payments made before 1 April 2000 which are 'covenanted donations to charity' and payments made on or after 1 April 2000 which are 'qualifying donations' do rank as charges, CTM09020.
• Make a payment to a non-resident person which ranks as a charge on income unless DT1951 applies.
• Receive a surrender of ACT, CTM81200 onwards.
• Be a close company (but may be treated as close for the purpose of establishing the close company status of a resident company).
• Claim small companies relief under ICTA88/S13 ( CTM03500 onwards) for any accounting period in which it is non-resident (see DT1954 for foreign companies with a permanent establishment in the UK).
• Make or receive dividends and other distributions, which are within the scheme of ICTA88/S7 and ICTA88/S20.

This means a non-resident company:

• is not liable to account for ACT on distributions made prior to 6 April 1999,
• cannot have 'franked investment income',
• cannot have surplus franked investment income for the purposes of ICTA88/S242,
• cannot set trading losses against dividend income to augment its trading income for the purposes of absorbing losses brought forward.

Distributions received by a non-resident company from UK companies remain outside the charge to CT.

Distributions made by a non-resident company do not carry tax credit and are not franked investment income when received by a resident company. This applies even if the non- resident company trades in the UK.