Services
Setting up a UK presence: the options open to French companies
When looking to establish a permanent physical presence in the UK, an overseas company will be faced with a choice: either set up a UK Establishment or incorporate a UK subsidiary company in the jurisdiction in which it wishes to operate.
Both a UK Establishment (often known as a branch) and a subsidiary must be registered with Companies House and there are advantages and disadvantages to each option. We asked industry experts Mazars to share their thoughts on the main points of difference and what to bear in mind.
1. Start-up and on-going compliance and administration costs
Whilst the Companies House filing requirements to set up a UK Establishment are more onerous, there are fewer ongoing costs. For example, there are no shares to be issued, the filing of accounts will be of the overseas company and, together with any audit, will depend on the legislation in that country. However, there will be requirements to include additional information on order forms, business letters and websites.
2. Tax advantages
In broad terms, a UK establishment will pay the same rate of corporation tax (currently 19%, rising to 25% from 1st April 2023) as a subsidiary. Equally, its employees will pay the same rate of income tax and national insurance. The main difference is that a UK establishment is part of its overseas parent and there can be difficulties in attributing the right amount of profit to the establishment and making sure double tax relief is available and that any profits are not taxed twice.
3. Legal liability
By using a UK Establishment, liability sits with the parent company. However, setting up a subsidiary company has advantages in terms of containing risk in the UK entity or being able to sell only the UK business.
4. Unity
Unlike in a UK Establishment, the legal responsibility of a subsidiary company’s director is to the subsidiary, which sometimes causes conflicts with any responsibilities they may have to the parent company or the group of companies. However, the management of a UK Establishment may need approval of all its major decisions from its parent, which may prejudice matters requiring swift action. There may be misunderstandings due to operating under different legal systems or difficulties due to different governance documents or incompatible board decisions.
5. Winding up
A UK Establishment may cease trading and give notice of closure, whereupon the overseas company would be liable for any outstanding debts. A subsidiary must be formally wound up, incurring costs and directors’ ongoing liability for their actions prior to dissolution, but the parent company will not be liable for outstanding debts unless it has given guarantees or otherwise agreed.
6. Privacy
An overseas company may not wish to publish its accounts in the UK; however, UK law may require the overseas company accounts to be filed at Companies House and published on its public register of the UK Establishment. For subsidiary companies, UK law requires only the subsidiary company’s accounts to be filed at Companies House.
Currently, an overseas company is not required to file details of its beneficial owners in order to set up a UK Establishment; however, it is likely that changes will be made which will require filing of these details in the future. In addition, the registered address of the UK Establishment will be its place of business. This may be an issue if this is the residential address of one of its officers.
7. Residence
A company will be regarded as resident in the UK for tax purposes if it is incorporated in the UK. It may also be regarded as resident where central management and control is exercised (broadly this is the highest level of control, usually exercised by the directors).
It may be important to ensure that this is exercised in the UK, often by having UK resident directors taking strategic and other high-level decisions in the UK. If central management and control is exercised outside of the UK the company may be dual resident, and this can lead to complexity, possibly including a lengthy process to determine residency for tax purposes, and potential tax issues.
Mazars is an international audit, tax and advisory firm committed to helping its clients build and grow their business.
Helen Harvey, Client Director, Company Secretarial
+44 19 0825 7157
David Sayers, International Tax Partner
+44 77 70 46 88 99
david.sayers(@)mazars.co.uk