What does an overseas or international company need to know about opening an office in the UK?
The United Kingdom is home to one of the world's most competitive economies, and is therefore considered a hub of innovation and a very attractive business location for companies looking to establish their presence in the UK and beyond. Overseas business owners can set up an office in the United Kingdom provided that they comply with a series of legal regulations. Here's a quick guide to the main things to consider before opening an office in the UK.
Overseas companies looking to establish their presence in the United Kingdom can choose to do so by opening a branch or a subsidiary. Branches (also referred to as representative offices) have limited powers in terms of the type of transactions they can perform. Generally speaking, a foreign branch in the UK is intended to provide information or promote products and services to local clients, whereas a subsidiary has full legal status to close deals, sign contracts, and carry out other major business transactions. Unlike branches, subsidiaries are independent legal and business entities and have a clearly separate status from the parent company. Setting up a subsidiary is therefore a more complex and costly venture than opening a branch.
Another important difference between branches and subsidiaries is their tax status. Foreign businesses that operate in the UK are not automatically liable to pay corporate tax. For instance, a foreign branch does not necessarily have a taxable presence in the country (although it may need to pay tax on the profits made by its parent company), whereas a subsidiary is liable to pay UK corporate taxes due to the nature of its activities and to its standalone legal status. However, it is important to seek professional legal advice from a taxation expert, as there are many other factors involved in determining whether a foreign company with presence in the UK is subject to taxation or not.
It must also be noted that the establishment of a branch or subsidiary does not exempt foreign representatives from obtaining and maintaining legal status in the UK. Foreign nationals who are not EEA or Swiss citizens must obtain the necessary visas before arriving in the country. This visa is known as the Representative of an Overseas Business Visa. Processing time is approximately 3 weeks and visas are initially valid for up to 3 years.
Legal aspects and regulations
All overseas companies that have a presence in the UK through a branch or a subsidiary must be aware that registration with the Companies House is mandatory. This also applies to European companies. The registration procedure is governed by the Overseas Companies Regulations of 2009, which stipulate that:
- A foreign company must register with the Companies House within one month of setting up an office in the UK
- Along with the registration form and fees, a branch must submit the articles of association and other essential information about its parent company
- A company must be incorporated either using the parent company name or under a different name, as long as the chosen name does not infringe the relevant restrictions
Once registration is complete (same day service is available), the foreign company will receive a certificate of registration from the Companies House. The certificate contains a registration number that must be clearly displayed in all written communications, including websites and stationery. For detailed information on the registration process and the applicable requirements, please visit this site.
Subsidiaries are also required to prepare and submit their annual audited accounts within the stipulated deadline, which is up to 6 months after the end of the financial year for public companies and 9 months after for private companies. Failing to file the accounts within the given deadline carries a penalty of £1,500 - £3,000. This statutory requirement applies to foreign companies with a presence in the UK that exceeds any two of the following three criteria:
- The group as a whole (including the parent company and any other subsidiaries worldwide) has 50 employees
- The group's annual turnover is £6.5 million (net) / £7.8 million (gross) and above
- The group's gross assets are £3.26 million (net) / £3.9 million (gross) and above
Foreign companies who sell goods in the UK must also register for VAT if their taxable revenues exceed £77,000 a calendar year. VAT registration must be submitted to HM Revenue and Customs. Certain goods will also incur Excise Duty.
Foreign companies that are considered liable to pay UK taxes and that employ workers in the UK must also register for the PAYE scheme, which is used to deduct tax on income and National Insurance payments from employee?s wages. If a foreign company employs workers in the UK but does not have tax presence in the country, employees must make the appropriate contributions under the self-assessment scheme.
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