Canadian parent company

[Xerkki]

Hello.

Any experience to pay dividends from UK holding company to Canadian Ltd. which own 100% shares of this UK holding company?
(UK company gets dividends and interests from EU)

Is there 5% tax for dividends or how between UK and Canada on this case?

This is not under Canadian corporate tax either?
Im not a citizen of UK or Canada.

 

[CaptK]

You need to pay CIT @20% then the dividends are free to be delivered wherever you want.

 

[Martin Everson]

Xerkki said:
Is there 5% tax for dividends or how between UK and Canada on this case?
Click to expand...

Yes there is a 5% rate.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[Xerkki]

But is it like this....
Income from Denmark to Danish company.
Danish company pay corporate tax to Denmark.
After this UK holding company takes dividends.
5% witholding tax but no corporate tax to UK based on DTA between UK and Denmark (because corporate tax already paid to Denmark)
UK company then pays dividends to Canada (UK and Quebec do not tax non-residents from their foreign income).
So on this point corporate tax is paid or not?
UK and Canada have also DTA.
But on this Action there is 5% witholding tax also?

 

[JustAnotherNomad]

There shouldn't be WHT from DK to UK because of the parent-subsidiary directive (PSD). But of course that can change with Brexit.

The way I understand it, the UK generally does not charge WHT on dividends:
https://taxsummaries.pwc.com/united-kingdom/corporate/withholding-taxes
So you should probably also be able to send the dividends from the UK company to Canada without paying additional taxes. But that would only work if there is substance in the UK.

I'm assuming your plan is to use the UK holding company to avoid Danish WHT on dividends? That's called treaty shopping, so it's important that you have substance in the UK and good advisors in DK.

Last edited: Sep 9, 2020

 

[CaptK]

The plot thickens.
You have Danish regulations, UK, Canadian and the final jurisdiction of the funds for you to access.
It seems over complicated, so to give you a full opinion we need to know where the funds will end up.

 

[JustAnotherNomad]

But why the complicated setup? You don't live in Canada, do you?
Just use an Estonian holding company (to avoid issues with Brexit):
https://www.offshorecorptalk.com/threads/estonia-as-holding-company.27508/
Or even better, just move to Estonia:
https://www.offshorecorptalk.com/threads/tax-free-residency-in-estonia.29531/
If you live in Estonia and your company actually has operations in DK (employees etc.) and it is not managed from Estonia, then you only pay the Danish CIT. No personal income tax will need to be paid. Estonia is a Schengen country and there is no minimum number of days to spend in the country. You would just have to make sure you're no longer tax resident in DK, but that should be quite easy.

 

[Martin Everson]

Xerkki said:
Income from Denmark to Danish company.
Danish company pay corporate tax to Denmark.
Click to expand...

Ok

Xerkki said:
After this UK holding company takes dividends.
Click to expand...

UK company makes use of EU parent subsidiary so no further tax is due on dividends distributed to EU parent company (i.e UK company). This was implemented by EU to avoid the same corporate income being taxed twice between a parent company and its subsidiary.

Xerkki said:
5% witholding tax but no corporate tax to UK based on DTA between UK and Denmark (because corporate tax already paid to Denmark)
Click to expand...

No. See EU Parent subsidiary above discussed above.

Xerkki said:
UK company then pays dividends to Canada (UK and Quebec do not tax non-residents from their foreign income).
Click to expand...

5% tax is applies where Canadian company owns at least 10% of paying UK company. If dividends are paid to a Canadian person and not company than tax is 15%. If you are a non-resident in Canada check DTA to see if you even have access to the DTA.

Xerkki said:
So on this point corporate tax is paid or not?
Click to expand...

Yes its paid

Xerkki said:
UK and Canada have also DTA.
Click to expand...

Yes

Xerkki said:
But on this Action there is 5% witholding tax also?
Click to expand...

Yes. Dividend WHT rate of 5% for Canadian company and 15% for Canadian person. So depends who receiving it.

Last edited: Sep 9, 2020
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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[NicolasMaduro]

As Justnomad says you cant use UK as a pass trough entity then Denmark will tax you. And I think his suggestion to simply use Estonia Holding is one of the cheapest and headache-free solutions. You have eID to sign eveything. And you only pay Danish Corporate tax since Estonia dont tax dividends and they dont do 20% cit tax if u already paid in Denmark

 

[Xerkki]

Thank you for your answers.
My colleague just want the money out from EU (Ok, UK is not an EU member anymore but he rather want more far) this is why Canada was there as a reputable jurisdiction.

 

[JustAnotherNomad]

I'm not sure I understand your answer. Doesn't really give me the impression that you understood what we wrote...

 

[Xerkki]

I mean that for me you gave better options than this UK/Canada thing but i tried also explain why i even started the topic.

 

[JustAnotherNomad]

Ah, I see. Because with the Estonian holding company you would also be able to get the money out of the EU, but the structure would be much simpler.
However, we don't know anything about the recipient. Danish CFC rules etc. could foil the plan.