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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Global | Publication | November 2018
The October Budget confirmed a number of items which were announced in 2019 (such as the extension of non-resident capital gains tax) but also contained a new form of capital allowance for the cost of constructing or refurbishing commercial property – a significant development.
Capital allowances for structures and buildings: A new form of capital allowance, relating to the costs incurred in the construction or renovation of commercial property, will be introduced following a period of consultation. The new allowance will be known as the “Structures and Buildings Allowance” (SBA) and it is expected that:
As a consequence of this announcement, the special rate of capital allowances will reduce from 8 per cent to 6 per cent from April 2019, while the main rate of allowances will remain at 18 per cent.
Non-resident capital gains tax on commercial property: The Chancellor confirmed that the non-resident capital gains tax regime will be extended to investors in commercial property and widely held residential property for both direct and indirect disposals. The charge will come into effect from April 1, 2019 and will apply to capital gains that accrue and are realised by non-residents after that date. Existing tax exempt investors (such as pension schemes and sovereign wealth funds) will not be subject to the charge.
Real estate funds that are regarded as “collective investment vehicles” will be able to make a tax transparency election (i.e. to look through the vehicle and the investor is treated as holding the land directly) or an election for exemption (so that the fund is not taxed on realised gains, but instead the investors will pay tax when they sell their interest in the fund or on certain other trigger events). The definition of a “collective investment vehicle” is key. The draft legislation was published on November 7, 2018. These changes, together with bringing non-resident landlords into the scope of UK corporation tax on income from April 2020, are significant and both new and existing fund structures should consider their impact.
In addition, certain changes will be made to the way in which UK Real Estate Investment Trusts (REITs) are taxed. Currently, UK REITs are exempt from UK capital gains tax when they dispose of a property held for the purposes of its property rental business, but there is a tax charge if shares in a property owning company are sold. Going forward, it is expected that share sales made by a REIT will also be exempt from capital gains tax. Any gains realised in the structure will be subject to 20 per cent withholding if paid out to investors by way of a Property Income Distribution.
Stamp Duty Land Tax (SDLT): A consultation will be launched in January 2019 to consider introducing a 1 per cent surcharge on non-resident purchasers of residential property.
HMRC as a preferred creditor: With effect from April 2020, HMRC will become a preferred creditor in relation to taxes that are collected by companies on behalf of HMRC. These include PAYE, VAT and Construction Industry Scheme deductions.
For further information please contact Julia Lloyd
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Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Publication
On February 2, 2024, the Belgian Presidency of the Council of the European Union confirmed that the Committee of Permanent Representatives had signed the Artificial Intelligence (AI) Regulation, referred to as the AI Act. Approval by the EU Parliament followed on 13 March 2024, and the AI Act is likely to appear in the EU’s Official Journal around May 2024. The AI Act aims to establish a stringent legal framework governing the development, marketing, and utilisation of artificial intelligence within the region, thereby marking a significant advancement in the regulation of this burgeoning domain.
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