With effect from 3rd March 2023, the tax residence of Prudential plc changed from the UK to Hong Kong. The change in tax residence does not impact Prudential plc’s legal structure or place of incorporation which remains in the UK.
The following is a summary of the principal UK tax, US federal income tax, Hong Kong tax and Singapore tax considerations for holders of Prudential plc ordinary shares or ADSs arising from the change of tax residence of Prudential plc. The summary is intended only as a general guide and does not constitute tax advice. It is not intended to be a comprehensive description of all of the tax considerations that may be relevant to any particular investor, and does not address the tax treatment of investors that are subject to special rules, investors who are not the beneficial owners of their Prudential plc ordinary shares or ADSs and any dividends paid in respect of them, or investors who do not hold their ordinary shares or ADSs as investments. You should consult your own tax adviser regarding the tax consequences of the ownership of Prudential plc ordinary shares or ADSs in the context of your own particular circumstances. The summary is based on laws, treaties, judicial decisions, published practice and regulatory interpretations in effect on 3rd March 2023, all of which are subject to change possibly retrospectively.
General
As noted above, the change in Prudential plc’s tax residency does not impact Prudential plc’s legal structure or place of incorporation which remains in the UK. Ordinary shares issued by Prudential plc that are registered on the main UK share register or the Hong Kong share register will continue to be so registered. The change in Prudential plc’s tax residence should leave the legal form of shareholders’ investments undisturbed i.e. the ordinary shares or ADSs held before the change in tax residency are the same as the shares held after.
Withholding taxes
Prior to the change in tax residence, dividends paid by Prudential plc in respect of the ordinary shares or ADSs were not subject to withholding tax at source in the UK. Upon Prudential plc becoming a tax resident of Hong Kong, there will be no change in this position. Dividends paid by Prudential plc in respect of the ordinary shares or ADSs will not be subject to withholding tax at source in Hong Kong.
UK tax resident shareholders
Subject to the exception below in respect of “small companies”, the UK tax treatment of dividends received by UK tax resident shareholders in respect of ordinary shares in Prudential plc after the tax residence change of Prudential plc should not differ from the UK tax treatment of such dividends prior to the tax residence change.
Shareholders who are within the charge to UK corporation tax as "small companies" (as that term is defined in section 931S of the Corporation Tax Act 2009) will be liable to UK corporation tax on dividends paid to them by Prudential plc in respect of ordinary shares following its tax residence change because Prudential plc is not resident in a "qualifying territory" for the purposes of the legislation contained in the Corporation Tax Act 2009. This is because Prudential understands that HMRC does not consider Hong Kong to constitute a “qualifying territory”.
For UK tax resident shareholders who are required to complete UK tax returns, dividends received by such shareholders after 3rd March 2023 should be taxed under the heading of dividends from non-resident companies rather than dividends from UK resident companies.
The UK capital gains tax treatment (and UK corporation tax on chargeable gains treatment where relevant) of disposals of Prudential plc ordinary shares after the tax residence change of Prudential plc should not differ from the UK tax treatment of disposals of Prudential plc ordinary shares before the tax residence change.
UK stamp duty / stamp duty reserve tax (SDRT)
In summary, the change in tax residence of Prudential plc should not affect the UK stamp duty / SDRT position in respect of Prudential plc ordinary shares.
A sale of Prudential plc ordinary shares will generally be subject to UK stamp duty (if the shares are in certificated form) or SDRT (if the sale is settled through the UK’s CREST system of paperless transfers). Any stamp duty payable (as opposed to SDRT) is rounded up to the nearest £5. No stamp duty (as opposed to SDRT) will be payable if the amount or value of the consideration is (and is certified to be) £1,000 or less. Stamp duty or SDRT is usually paid or borne by the purchaser. It should be noted that there are special rules relating to clearance services and depositary receipts. Certain categories of person, including market makers, brokers, dealers, and other specified market intermediaries, are entitled to exemption from stamp duty and SDRT in respect of purchases of securities in specified circumstances.
The above comments on stamp duty and SDRT apply in respect of Prudential plc ordinary shares on the main UK register. Generally speaking (subject to special rules relating to clearance services and depositary receipts), a sale of Prudential plc shares on the Hong Kong register should not be subject to UK stamp duty or SDRT provided that any instrument of transfer in respect of such ordinary shares is executed outside the UK.
US tax resident shareholders
Dividends received with respect to the Prudential plc ordinary shares or ADSs should be qualified dividends if Prudential plc was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a passive foreign investment company (PFIC)) and either (i) at the time a dividend was paid, Prudential plc was eligible for the benefits of the 24th July 2001 Treaty between the United States and the UK (“the US-UK Treaty”) or (ii) such ordinary shares or ADSs were at such time readily tradeable on an established securities market in the United States.
Based on the nature of its business activities and its expectations regarding such activities in the future, Prudential plc believes that it was not treated as a PFIC within the meaning of the US tax code with respect to its 2022 taxable year and does not anticipate becoming a PFIC for its 2023 taxable year.
Dividends received with respect to ADSs are expected to continue to be qualified dividends as the ADSs are expected to continue to be listed, and be viewed as readily tradeable, on the New York Stock Exchange (an established securities market in the United States). The US tax treatment of dividends received with respect to ADSs is not expected to be impacted by the tax residence change of Prudential plc.
Following the change of tax residence of Prudential plc from the UK to Hong Kong effective from 3rd March 2023, Prudential plc is no longer eligible for the benefits of the US-UK Treaty, and as a result dividends paid after that date with respect to ordinary shares (which are not listed on an established securities market in the United States) are not expected to be qualified dividends. This change affects ordinary shares only and not ADSs.
The US tax treatment of disposals of Prudential plc shares and ADSs after the tax residence change of Prudential plc should not differ from the tax treatment of disposals of Prudential plc shares and ADSs before the tax residence change.
Hong Kong tax resident shareholders
Any dividends received from Prudential plc should generally not be subject to Hong Kong tax in the hands of shareholders. This tax treatment should not be affected by the change of tax residence of Prudential plc.
Similarly, the Hong Kong tax treatment of the disposal of Prudential plc shares should not be affected by the change of tax residence.
Hong Kong stamp duty is chargeable on the purchase and sale of the Prudential plc shares listed on the Hong Kong stock exchange (borne equally by the purchaser and seller). In addition, a notional duty of HK$5 will also be payable on the instrument of transfer (if any). This treatment is unaffected by the change of tax residence of Prudential plc.
Singapore tax resident shareholders
As Prudential plc is incorporated in the UK and is not tax resident in Singapore, dividends paid by Prudential plc will be considered as foreign-sourced (i.e. sourced outside Singapore).
Foreign-sourced dividends received in Singapore by an individual tax resident in Singapore are exempt from Singapore income tax. Foreign-sourced dividends received or construed to be received in Singapore by Singapore corporate tax residents will be subject to Singapore tax at the prevailing corporate tax rate, in the absence of any available tax incentive or tax exemption.
No stamp duty is payable in Singapore on the issuance or transfer of any Prudential plc shares.
Disposals of Prudential plc shares by Singapore tax resident individual shareholders should generally be viewed as personal investments in Singapore and therefore should not be taxable. Disposals of Prudential plc shares by Singapore tax resident corporate shareholders should be exempt from tax in Singapore if the investment in Prudential is regarded as being held on capital account.