UK tax implications of overseas entity classification and distributions from overseas entities
Produced in partnership with Robert Langston of Saffery Champness
UK tax implications of overseas entity classification and distributions from overseas entities

The following Tax guidance note Produced in partnership with Robert Langston of Saffery Champness provides comprehensive and up to date legal information covering:

  • UK tax implications of overseas entity classification and distributions from overseas entities
  • Taxation of overseas entities and their members
  • Taxation of distributions from opaque overseas entities
  • Nature of return from overseas entities
  • Hybrid entities
  • UK permanent establishments of overseas entities
  • Double tax treaties and overseas entities
  • Offshore funds rules and overseas entities
  • Transfer of assets abroad rules and overseas entities
  • Ordinary share capital and overseas entities

An overseas entity may be characterised for UK tax purposes as transparent or opaque. This Practice Note explains how such classification will affect how the entity is taxed, and how the members of the entity are taxed.

UK legislation provides little guidance on whether an overseas entity is to be treated as transparent or opaque for UK tax purposes. For an explanation of the relevant case law and HMRC’s views on entity classification, see Practice Note: Entity classification case law and HMRC's interpretation, and Classifying overseas entities for UK tax purposes—checklist

Taxation of overseas entities and their members

Transparent overseas entities

If an overseas entity is treated as transparent, UK resident members (shareholders, beneficiaries, partners etc) will be subject to tax as profits or gains arise in the entity.

This means that, from a direct tax perspective, transparent entities generally provide a tax neutral vehicle for members, as no UK corporation tax (or income tax or capital gains tax) is charged on the entity itself, A partial exception relates to some income tax—‘transparent’ trusts: there may be some ‘sticking’ income tax in a trust with one or more UK-resident trustees, where there are beneficiaries with successive (not concurrent) interests, including a vested life interest.

In the UK, for example, there are specific provisions that deal with the taxation of partnerships (see: Partnerships—overview) and