Corporation Tax on Overseas Income for UK Companies
If your UK limited company earns income from abroad — whether from overseas clients, foreign property, or international investments — you need to understand how corporation tax applies.
The basic rule is straightforward: UK-resident companies pay corporation tax on their worldwide income. But the detail matters, especially when foreign tax is involved.
The Worldwide Income Principle
A company resident in the UK for tax purposes is liable to corporation tax on all its profits, wherever they arise. This includes:
- Trading profits from overseas contracts and clients
- Rental income from foreign property
- Interest from overseas bank accounts
- Dividends from foreign companies
- Capital gains on overseas assets
- Royalties and licensing income from abroad
"Resident in the UK" means the company is incorporated in the UK or is centrally managed and controlled from the UK. If your company is registered at Companies House, it's UK-resident.
This worldwide scope means you can't avoid UK corporation tax by earning income abroad — but you can usually avoid paying tax twice on the same income.
Double Taxation Relief (DTR)
When you earn income overseas, the foreign country may also tax it. This creates double taxation — the same income taxed in two countries.
The UK has an extensive network of Double Taxation Agreements (DTAs) with over 130 countries. These agreements determine:
- Which country has the primary right to tax specific types of income
- The maximum rate of tax the source country can charge
- How the UK gives relief for foreign tax paid
How DTR works
If your company pays tax overseas on income that's also subject to UK corporation tax, you can claim relief in one of two ways:
Treaty relief (most common): Credit the foreign tax paid against your UK corporation tax liability on the same income. The credit is limited to the lower of:
- The foreign tax actually paid
- The UK corporation tax on the same income
Example: Your company earns £100,000 from a contract in Germany. Germany withholds 15% tax (£15,000). UK corporation tax at 25% on the same income is £25,000. You claim £15,000 DTR credit, paying only £10,000 to HMRC.
Unilateral relief: Even without a treaty, the UK provides unilateral relief — you can still credit foreign tax against UK tax on the same income. The calculation works the same way as treaty relief.
Deduction method (alternative): Instead of claiming a credit, you can deduct the foreign tax as an expense. This is sometimes beneficial when the foreign tax exceeds the UK tax on that income (since unused credits can be complex to carry forward).
Types of Overseas Income
Trading profits from foreign clients
If your UK company provides services to overseas clients or sells goods abroad, the profits are fully taxable in the UK.
In most cases, the foreign country won't tax you unless you have a permanent establishment (PE) there — such as an office, branch, factory, or dependent agent.
If you do have a PE abroad:
- The foreign country taxes the profits attributable to the PE
- The UK taxes the worldwide profits (including the PE's profits)
- You claim DTR for the foreign tax paid on the PE's profits
If you don't have a PE:
- Only the UK taxes the trading profits
- No foreign tax should arise (though some countries may withhold tax on certain payments — in which case you claim DTR)
Foreign rental income
UK companies that own property overseas pay corporation tax on the rental profits. The foreign country will typically also tax the rental income.
Calculating the UK taxable profit:
- Start with the gross rental income (converted to sterling)
- Deduct allowable expenses (maintenance, management fees, insurance, interest)
- The resulting profit is added to your total UK taxable profits
You claim DTR for any foreign tax paid on the same rental income.
Currency conversion: Use the exchange rate on the date the income is received or the average rate for the accounting period. Be consistent in your approach. HMRC accepts either method provided it's applied consistently.
Overseas dividends
Most foreign dividends received by UK companies are exempt from UK corporation tax under the dividend exemption rules.
The exemption applies to dividends from:
- Companies controlled by the UK company
- Companies where the UK company holds less than 10% (portfolio dividends)
- Most other companies, unless specific anti-avoidance rules apply
This means if your UK company owns shares in a foreign company and receives dividends, you generally don't pay UK corporation tax on them — regardless of whether foreign withholding tax was deducted.
There are exceptions for dividends from:
- Companies resident in territories with which the UK doesn't have a DTA and where the income isn't subject to local tax
- Certain arrangements designed to convert non-exempt income into exempt dividends
Interest from overseas
Interest received from foreign sources is taxable as part of your company's total profits. If the foreign country deducts withholding tax on the interest payment, you claim DTR.
Many UK DTAs reduce withholding tax on interest to 0% — meaning the foreign payer doesn't deduct any tax, and you simply pay UK corporation tax on the gross amount.
Royalties and licensing income
Similar to interest, royalties from overseas are taxable in the UK. Withholding taxes may apply in the source country, relieved via DTR or the relevant treaty.
Reporting Overseas Income on the CT600
Overseas income must be reported on your CT600 company tax return.
Key boxes and supplementary pages
CT600 main return:
- Box 21 (Income from a non-trading loan relationship) — for foreign interest income
- Boxes 1–4 of the calculation section include worldwide profits
Supplementary pages:
- CT600C (Group and consortium relief) — if the overseas income involves group companies
- CT600E (Charities and community amateur sports clubs) — not relevant for most companies
- CT600F (Loan relationships and derivative contracts) — for foreign currency loans and derivatives
The Double Taxation Relief claim is made in the CT600 tax calculation, reducing the corporation tax payable.
What to include in your computations
Your tax computation should clearly show:
- Overseas income, broken down by source and country
- Foreign tax paid on each source
- The DTR calculation — credit claimed, limited to UK tax on the same income
- Any overseas income that's exempt (such as qualifying dividends)
Keep supporting documents including:
- Foreign tax certificates or receipts
- Contracts showing the nature of the income
- Exchange rate records
- DTA articles relied on
Permanent Establishment Issues
If your UK company has employees, an office, or regular activities in a foreign country, you may have a permanent establishment there.
A PE typically exists if you have:
- A fixed place of business (office, branch, workshop) in the country
- An employee or agent who habitually concludes contracts there
- A construction or installation project lasting more than 12 months (threshold varies by treaty)
Having a PE means:
- The foreign country can tax profits attributable to the PE
- You may need to register for tax and file returns in that country
- You'll need to prepare a separate profit allocation for the PE
- You claim DTR in the UK for the foreign tax paid
Avoiding an unintended PE is a key concern for companies with international operations. Common pitfalls:
- Sending employees abroad for extended periods
- Having a home-working employee in another country
- Signing contracts while visiting a foreign office
Transfer Pricing
If your UK company transacts with overseas connected parties (subsidiaries, parent companies, companies under common control), the transactions must be at arm's length prices.
Transfer pricing rules ensure that profits aren't artificially shifted between countries. HMRC can adjust your taxable profits if prices between connected parties don't reflect what independent parties would have agreed.
Small companies are generally exempt from UK transfer pricing rules — the rules only apply to companies that are large or medium-sized under the transfer pricing regulations.
Foreign Currency Issues
Overseas income is often received in foreign currencies. For corporation tax purposes:
- Convert income and expenses to sterling using an appropriate exchange rate
- Exchange gains and losses on monetary items (debtors, creditors, bank balances) are taxable or deductible under the loan relationship rules
- Your company's functional currency for tax purposes is normally sterling, unless you elect otherwise
Consistent treatment of exchange rates is essential. HMRC publishes monthly exchange rates that you can use.
Controlled Foreign Companies (CFC)
If your UK company controls a foreign subsidiary, the CFC rules may apply. These rules tax the UK parent company on profits of a foreign subsidiary that are:
- Subject to a low rate of tax overseas
- Artificially diverted from the UK
The CFC rules are complex and primarily affect larger companies. Small companies with foreign subsidiaries should take advice if the subsidiary is in a low-tax jurisdiction or earns significant passive income.
Practical Tips for Managing Overseas Tax
- Identify all sources of overseas income — even small amounts of foreign bank interest are technically taxable
- Check the relevant DTA before assuming how foreign income is taxed — treaties vary significantly
- Keep foreign tax certificates — you need evidence of foreign tax paid to claim DTR
- Track exchange rates — document the rates you use and apply them consistently
- File on time — foreign income doesn't change your UK filing deadlines
- Take advice on PEs — if you have staff or activities overseas, get a professional opinion on PE risk
- Claim all reliefs — some companies forget to claim DTR and end up paying tax twice unnecessarily
Frequently Asked Questions
Do I pay UK tax on money that stays in a foreign bank account?
Yes. UK corporation tax is based on profits earned, not money brought into the UK. Even if the income remains in a foreign bank account, it's taxable in the UK. There is no "remittance basis" for companies — that concept only applies to certain individuals.
What if the foreign tax rate is higher than the UK rate?
If foreign tax exceeds UK corporation tax on the same income, the excess credit is generally lost for that period. However, you can choose the deduction method instead (treating the foreign tax as an expense), which may give a better result. Some treaties also allow carry-forward of excess credits.
See also: If your company is based overseas but trades in the UK, the rules are different — see our non-UK company corporation tax guide. For international groups sharing losses, read our group relief guide.
Do I need to register for tax in every country I sell to?
Not necessarily. Selling goods or services to a foreign country is different from having a taxable presence in that country. If you sell remotely from the UK without a PE, you typically only owe UK tax. However, VAT/GST obligations may arise separately.
How do I convert foreign income to sterling?
Use the exchange rate on the date the income is received, or an average rate for the period. HMRC accepts either method provided you're consistent. For large or material transactions, the spot rate on the date of the transaction is safest.
Can I offset a foreign loss against UK profits?
It depends. Losses from an overseas PE can generally be set against UK profits in certain circumstances. Losses from overseas property are ring-fenced — they can only be set against future overseas property profits of the company.
What if a country taxes me but there's no DTA?
The UK provides unilateral relief for foreign tax even where there's no treaty. You claim the credit in the same way as treaty relief — the foreign tax is credited against UK tax on the same income, up to the UK tax amount.