Entity classification

Produced by a Tolley Corporation Tax expert

Corporation Tax

Guidance

Non-UK entities do not always obviously correspond with UK entity classifications. A number of jurisdictions have legal entities which have no direct UK legal equivalent. For UK tax purposes, it is necessary to determine whether a foreign entity is transparent (like a partnership, where the individual partners are taxed rather than the partnership as an entity itself) or opaque (like a company, which is taxed in its own right).

When a foreign subsidiary is established it is important to consider all the facts and circumstances and, if the position is in any way unclear, consider whether clearance from HMRC on the classification of the foreign entity should be obtained.

Implications of entity classification

If a subsidiary is established, it is important to determine how it will be treated for UK tax purposes as this will determine the basis on which it is taxed. A subsidiary may either be transparent or opaque.

If a subsidiary is transparent, then any UK members (who may be shareholders, beneficiaries, partners or something else) will be taxed on profits as they arise, regardless

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