UK tax on foreign dividends for holding company

UK holding companies have a number of benefits not least the fact that they don't appear on any OECD blacklists. One of the key benefits though is the treatment of dividends. Outgoing dividends are free of UK withholding tax. In terms of incoming dividends from abroad the UK gives tax relief in the hands of the holding company, but in a different way from other EU countries. European countries typically exempt the foreign dividend from tax, if the profits out of which the dividend is paid have suffered tax abroad. The UK approach is to tax the foreign dividend, but to allow credit for the foreign tax, including tax paid on the operating company's profits. The full rate of corporation tax in the UK is 28%. Therefore provided the overseas company's dividend has suffered at least 28% tax abroad, the UK holding company enjoys the same freedom from domestic tax on the incoming dividends as is enjoyed under the EU systems.