Foreign groups setting up operations in the UK

Diviya Ramaiya, Director Business Solutions

Setting up operations in a new market is both exciting and terrifying for businesses and we know how critical it is to get the structure right. Businesses often ask for our guidance on what the best structure is and there is no right or wrong answer, it all depends on what your UK arm intends to do.

Do you intend on entering the UK market for research purposes, for a limited amount of time or to test the market? Or, do you intend on entering the UK market with a long-term growth strategy?

If for research, a limited amount of time or to test the market, then it makes sense for you to setup a branch, which is effectively an extension of the overseas company. If you are expecting to commit for the long term, then it may make sense for you to setup a limited liability company, which is essentially a 100% subsidiary.

The size of your group, group tax status and other factors will also influence your decision.

Here are the key differences between setting up a branch or limited liability company:

Limited Liability Company 

Is not considered a separate legal entity.
Any contractual arrangements entered into by a branch are binding to the overseas company.

  Separate legal entity. 
Must have a UK trading address.    Must have a UK registered office. 
Setting up a UK branch can be complicated.    Easy and quick to setup. 
Can cease operating easily and promptly. Therefore, third parties often prefer dealing with a UK Company which are regarded as more permanent, independent legal entities.    More difficult to dissolve. Contractual arrangements remain with the UK entity on dissolution insulating the overseas parent company from any liabilities. 
Accounts of the UK establishment are not required to be filed at Companies House however, the overseas holding company accounts-translated into English-would need to be filed yearly.    UK company accounts must be filed at Companies House. There is no requirement to file the overseas holding company’s accounts. 
The overseas company would have to create a physical presence in the UK and pay UK taxes on its trading activities. The branch would need to keep separate accounting records in order to prepare the annual UK corporation return.    The UK company will be required to meet all accounting, tax and company secretarial compliance matters. 
The branch would not be subject to statutory UK audit.    A statutory audit may be required if the size of the worldwide group of companies exceeds the audit thresholds.

In summary, we find that most overseas companies setting up operations in the UK form a subsidiary instead of a branch because it can be quicker and cheaper. Also, customers tend to feel more comfortable dealing with a UK Company subject to UK law and often view a company as a more permanent establishment. While the closure of a UK Company can be a lengthy and a complicated process, the benefits of ‘limitation of liability’ for the overseas parent usually outweighs the disadvantages on closure.

Ultimately, which type of legal entity you decide on setting up will all depend on the particular circumstances of your business and so, it is always worth talking to your trusted advisor before taking the plunge!

Navigating this process can be tricky but it is doable and can be made easier with the right advice. For more support in this area, please get in touch with Diviya Ramaiya or your usual Crowe contact.

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Diviya Ramaiya
Director, Business Solutions