Foreign trading income and loss relief

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Corporation Tax

Guidance

Direct earnings

Foreign source trading income of a UK company earned directly (where trading with a country, rather than trading in a country) is taxed in the UK as trading income of the company, after deduction of allowable expenses in the usual way (see the Adjustment of profits ― overview guidance note). Where the income has been subject to tax in the jurisdiction in which it is earned, relief will be available against UK tax by way of double tax relief in the form of any of the following:

•
treaty relief
•
unilateral relief
•
deduction relief

See the Double tax relief guidance note.

The maximum tax credit available in the UK for foreign tax paid on overseas trading income of a UK company is restricted to the UK tax on the overseas trading profits.

Where the UK company does not have a permanent establishment (PE), any foreign taxes are most likely to be in the form of a withholding tax. This is generally calculated on a gross basis. Full deduction

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Anne Fairpo

Barrister

With effect from 1 June 2021, Anne Fairpo is a judge of the First-tier Tribunal sitting in the Tax Chamber. She was previously a fee-paid judge in the same Chamber. Her contributions to LexisPSL Tax and TolleyGuidance were written before her full-time appointment and are her personal view as she is not authorised to write on behalf of the Tribunals Service or the judiciary. Until April 2021, Anne was a tenant at Temple Tax Chambers. She was called to the bar in 2009 after 15 years as a solicitor. Anne’s experience and expertise covers UK and international corporate tax planning and disputes, having acted for a range of clients from small owner-managed businesses to listed multinationals, as well as having advised on intellectual property taxation and UK-US cross-border tax planning, with regard to both direct and indirect tax matters

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