NCPA - National Center for Policy Analysis

Companies Relocate to London: Low Corporate Tax

October 28, 2013

While London's many cultural opportunities, theater and good restaurants are a draw, a series of cuts in corporate income tax rates by the Conservative Party-led government has been a key motivating factor for a wave of overseas companies moving head offices to London, says a recent Bloomberg article.

"There is definitely a swing back to the U.K. under way and I think there will be more," says Angus Winther, a senior adviser at investment bank Evercore Partners Inc., in London. "There are huge advantages: you have a vast talent pool, infrastructure, language and lowered tax rates."

  • The United Kingdom's base corporate rate is now 23 percent, down from 28 percent in 2010. By 2015, the rate will drop to about 20 percent, compared with about 29 percent in Germany and about 33 percent in France.
  • The U.S. rate is 40 percent.
  • In addition to slicing the corporate tax rate, the British government last year reduced the amount of tax owed on profits earned outside the country.
  • That prompted some U.K. firms that had moved offshore to return.

The renewed interest in London from companies in a broad range of industries comes as the financial sector retrenches. The number of people employed in London's financial services firms is likely to decline to 236,000 next year, the lowest level since 1993, according to the Centre for Economics and Business Research.

Whether London will keep wooing foreign business to rebalance its economy away from banking will be determined by a combination of those policies, tax rates and intangible characteristics -- like its cosmopolitan atmosphere and educational institutions, says Ajay Bhalla, a professor of innovation management at Cass Business School.

Source: Matthew Campbell & Aaron Kirchfeld, "London's Low Taxes Lure Foreign Companies as Banks Retrench," Bloomberg, October 17, 2013.


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