UK Establishment versus Limited Company
17 September 2020
If you are considering starting or have recently started operating in the UK, we can help you to identify the most appropriate business structure to suit your needs.
UK Establishment | Limited Company |
|---|---|
| No legal identity distinct from the overseas parent company, which is liable for debts which may be enforced against overseas assets (subject to International Law). | Separate legal identity. |
| Unlimited liability. | Liability is limited to the extent of the share capital (minimum £1), can own property, sue and be sued, contract in its own right, liable for its own debts. |
| Registration is required with the UK Public Body, Companies House. | Registration is required with the UK Public Body, Companies House. |
| A copy of the certified and translated constitutional documents of the overseas parent company must be filed. | New constitutional documents are created under which the new company is to be operated. |
| A statutory audit is not a legal requirement. | A statutory audit is a legal requirement if 2 of the following thresholds are exceeded for the worldwide group: 1) a revenue of £10.2m 2) total assets at the reporting period end totalling £5.1m 3) average employees throughout the reporting period of 50 |
| Not subject to UK Company Law (although some less onerous obligations for overseas companies do apply). | Needs to be operated in accordance with UK Company Law so details of certain changes to the Company need to be filed with Companies House, as well as a Confirmation Statement annually. |
| The accounts of the overseas company which owns the UK Establishment must be filed at Companies House, where they become public domain information. | The statutory accounts of the UK company (but not the overseas parent) must be filed at Companies House where they become public domain information. |
| A UK Establishment may be perceived as being less committed to the UK market. | A UK company usually portrays a better local image and is a more credible vehicle. |
| Director and Company Secretary of the overseas parent company must be registered. | Director (and Company Secretary – recommended, but no longer required by law) are appointed as company Officers and a UK Registered Office is required. |
| UK Establishments are not subject to the PSC disclosure requirement. | Persons of Significant Control – individuals or specific types of entities – with significant control over the UK company must be identified and registered. |
| A UK based Permanent Representative (individual) can be appointed. | A UK based Permanent Representative (individual) is not required. |
| The authority of the Permanent Representative is set out in the application to register the UK Establishment. Note: even if the authority is limited, this will not necessarily protect the company where a third party relies on any actions of the Permanent Representative in good faith. | The authority of the Officers of the UK company is set out by statute and case law. |
| Service of documents can only be made to the Permanent Representative or other persons authorised to accept service, who must be named at the time of the application to register the UK Establishment. | Service of documents can be made to the Registered Office. |
| Gains on subsequent disposal of UK assets will generally be subject to UK Tax. | Gains on eventual disposal of the UK shares will usually not be subject to UK Tax, unless a shareholder is a UK resident individual |
| Royalties/interest paid by a UK Establishment to the foreign HQ is not tax-deductible. | Royalties and interest paid by a UK company to its foreign affiliates are tax-deductible, provided they are at arm’s length. |
| UK Tax losses can be set off against the profits of the overseas parent. | UK tax losses cannot usually be utilised against the profits of the overseas parent. |
| UK Establishment Tax Returns will need to be filed in both jurisdictions. The UK Establishment is only taxed on UK Profits, which may be more difficult to distinguish. | The Company will need to submit a UK Tax Return and is liable to Tax on its worldwide profits. The Company’s profits should be easy to distinguish. |
How we can help
If you are starting or have recently started a business in the UK, we are happy to help you identify the most appropriate business structure to suit your needs. The most appropriate structure will depend on a number of factors including consideration of taxation implications, the legal entity, ownership and liability.
Please contact us to find out more or to discuss your specific circumstances
