Japanese companies are set to invest over £18 billion in British wind farms, infrastructure, and financial services, but tax complexities are threatening to jeopardize the relationship.
A leading tax firm has cautioned that HMRC's treatment of visa paperwork and Japanese health insurance may deter investment before it even arrives in the UK.
Aliona Le Khak, a Director leading Global Mobility services for Japanese clients, warns that the UK needs to ensure its tax and regulatory frameworks support, rather than deter, inward Japanese investment.
The UK Government trumpeted agreements with Japanese Prime Minister Sanae Takaichi last month, promising over £18 billion in economic gains and tens of thousands of new jobs.
However, HMRC's clarification that the Certificate of Sponsorship (CoS) is a taxable Benefit in Kind (BIK) has been criticized by Le Khak, who says this further increases the financial burden on Japanese employers expanding into the UK.
Visa costs, including CoS, are not taxable when assignees come to the UK for the first time, but HMRC's position on CoS has been questioned by Le Khak, who argues that it does not hold a monetary value and provides no direct benefit to the employee.
Another concern is Kenko Hoken, the employer premiums that form part of Japan's social security system, which HMRC is seeking to tax in the UK despite assignees typically holding private medical cover while here.
Le Khak has warned that these technical disputes may drive foreign investment away from the UK, citing the recent decline in the expatriate workforce and the increasing tax burden associated with employing expatriate assignees in the UK.
She notes that many multinational companies are now more inclined to redirect investment and operations to alternative locations, including nearby EU countries that offer more favourable tax regimes for expatriates and lower employment costs.
The stakes are high, with Japanese investors showing significant appetite for the UK market, having poured almost £118 million into Greater Manchester in a single year.
Le Khak fears that increased costs and uncertainty in tax treatment may prompt companies to reconsider further expansion in the UK, undermining the UK's attractiveness as a destination for international business.
