Setting up a Subsidiary in the UK.
An overseas subsidiary setup in the UK is a UK limited company whose shares are wholly owned by the overseas parent company.
The UK subsidiary is a separate legal entity, governed under UK law. The UK subsidiary is separate from its parent company owner.
The minimum share-capital requirement can be as low as £1. This differs in other neighbouring European countries where the requirements are much more rigorous and costly.
Establishing any sort of UK operation, be that a subsidiary or a branch can be costly and time consuming long term, unless the appropriate planning steps are not undertaken and professional advice not sought throughout the process.
The potential advantages of a UK subsidiary are:
- The corporate status is sometimes thought to add to the credibility or commercial respectability of the business.
- Incorporation of a UK subsidiary normally provides limited liability.
- A company enjoys legal continuity – it can own property, sue and be sued.
- Effective ownership or part ownership of the business may be readily transferred, subject to the provisions of the Articles of Association. Whilst such transfers may well be covered by inheritance tax business property relief, the capital gains tax position needs careful review.
Other potential advantages of setting up a UK subsidiary are:
- Growing UK businesses can re-invest profits after a corporation tax charge of 20% (if profits are below £300,000), compared with 40% income tax for higher-rate tax paying sole traders and partners together with a 1% class 4 National Insurance charge on profits over £43,875.
- Accumulated funds could be withdrawn on a sale of shares with the benefit of capital gains tax (CGT) entrepreneurs’ relief which reduces the capital gains tax to an effective rate of 10% on the first £2,000,000 of capital gain. Thereafter, any gain is chargeable at a flat rate of 18%.
Setting up a UK subsidiary does come with various reporting requirements, and can be very beneficial for establishing your overseas company in the UK and Europe. However, appropriate advice should be taken prior to setting up the subsidiary as there may be other forms of entity that are more opportune for your objectives.
We have been setting up many subsidiaries, and advising our clients of the potential risks and benefits. Please get in touch if you are looking to setup your company in the UK and leveraging that, as a launchpad for your European operation.
- Annual accounts must comply with the requirements of the 2006 Companies Act. In most cases, a statutory audit is not required for companies with an annual turnover of £6.5 million or less.
- A company’s accounts must be filed on public view with the Registrar of Companies at Companies House. A Confirmation Statement must also be submitted to the Registrar of Companies together with a filing fee of £30 (£15 if filed online).
- A company must file a corporation tax return.
- Companies pay tax on capital gains at their corporation tax rate (20% for profits up to £300,000). In a company, a capital gain is reflected in the value of its shares and if these are sold a “double charge” to capital gains tax can arise. This may be avoided if assets that are likely to increase in value are owned either outside the company or within a self-administered pension scheme, or if a company is sold complete with its assets.
- Closure of a Ltd company takes a minimum of three months, due to the notice period required and associated filing – this is the minimum providing there are no objections to the strike off.