Why set up your company in the UK
The UK continues to be the number one destination for attracting foreign direct investment in Europe, and third globally after the US and China. There are no currency or exchange controls or restrictions on foreign investment. The UK also offers a world-class skills base, Europe’s strongest research and development environment, a proven long-term return on investment for international businesses and an excellent quality of life.
The UK recognises the key role that intellectual property (IP) rights have in entrepreneurship and innovation and offers businesses a well-developed regime for the protection and monetisation of IP rights, as well as incentivising their development.
The UK ranked second globally, behind only the US, in the 2021 US Chamber of Commerce Global Intellectual Property Index. The index considers factors that ensure businesses can obtain, exploit and enforce IP rights and the UK is praised for its sophisticated IP environment and effective enforcement.
IP rights fall principally into four main areas – copyright, trademarks, design rights and patents. They are at the heart of every business and are often its most valuable assets, particularly in an increasingly digital economy, because they protect intangible property such as brands, inventions and creative works.
Some industries in the UK are heavily regulated including, notably, the financial services sector. When establishing a business in the UK, it is essential to ensure that the company has obtained all requisite licences to trade.
When a company decides to set up operations in the UK, it will need premises in which to do business. The UK has a number of different options, depending on the business’s needs and its flexibility in respect of location and costs.
Sovereign can help you navigate through all of this. For more information on how we can help you set up your business in the UK please read on. If you would like to know more about the private client services we offer, including assistance in property purchases, setting up of trusts and moving to the UK please click here.
Setting up the right company in the UK
Incorporation provides many advantages for a business and its owners: protection from personal liability for business debts, improved access to financing for business activities, simple transfer of business ownership through the disposal of shares and increased potential for tax planning through access to corporation tax rates and international tax treaties.
Whilst the generic term ‘UK company’ is commonly used, for international clients the majority of such entities are incorporated in the combined jurisdiction of England and Wales. All references to UK companies refer to such entities. Companies in Scotland and Northern Ireland are subject to separate legal systems; details of incorporation in both are available on request.
A company can be incorporated in the UK with same-day formation. A company is tax resident in the UK if its business is managed and controlled in the UK. However, its operations are not subject to any geographical limitation, rather a UK company is free to trade and engage with third parties worldwide.
There is no restriction on the nationality or country of residence of the ultimate beneficial owner(s) of a UK company and corporate ownership is permitted. Private UK registered companies must have at least one company director (public companies require two). The 2006 Companies Act stipulates that at least one of the company directors must be a natural person, i.e. an individual.
Sovereign’s corporate services team offers company formation not just in the UK but on a global basis. While it may be relatively straightforward to set up or purchase a company, proper groundwork and execution are essential if you are to gain and sustain a competitive advantage and successfully manage growth. It is essential to receive advice on:
- The type of company best suited to your commercial purpose.
- Arranging the ownership of that company.
- Administering the company correctly.
- Managing its commercial arrangements.
Every case is different, and a high level of expertise is required to ensure that any advice is up-to-date, effective and fully compliant. Failure to structure and manage a company correctly could mean that intended objectives and benefits are not realised or could lead to unintended consequences and liabilities.
With over three decades of experience handling cross-border corporate and commercial matters, Sovereign’s corporate services include forming new corporate structures, reorganising existing structures and repatriating earnings. We also offer the necessary expertise in administering and managing companies, including company law, board procedures, director responsibilities and shareholder relations, and financial and corporate compliance requirements.
We further provide the administrative support to maximise opportunities and achieve long-term sustainability, from full back-office solutions to assistance with tax and regulatory compliance. This includes accountancy, human resources, pensions, insurance, trademark and intellectual property protection, obtaining local licences and permits, executive relocation and specialist tax advice.
A good reason to relocate to the UK is to take advantage of the UK company as a highly tax efficient investment holding structure for the receipt of foreign dividends. When setting up a UK holding company, Sovereign will consider individual client requirements and circumstances before proposing a solution, but the following considerations will generally apply.
The distribution exemption applies to dividends received by a UK holding company from a qualifying overseas company. The conditions are different depending on the size of the UK holding company but typically there will need to be a double tax agreement (DTA) between the UK and the country in which the company paying the dividend is resident. If the exemption applies, then there will be no UK tax imposed on the dividend.
Qualifying Asset Holding Company (QHAC)
The ‘qualifying asset holding companies’ (QAHCs) rules were brought into force on 1 April 2022 to introduce an alternative UK regime for holding companies, with beneficial tax treatment for qualifying entities and their investors. It was intended to enhance the UK’s competitiveness as a location for asset management and for investment funds.
The regime is designed for asset holding companies (AHCs) that meet certain criteria and are used in a range of collective and institutional investment structures to hold investment assets, and the investment funds, institutions, individuals and other entities that invest in those structures.
If an overseas company is carrying on business in the UK via the establishment of a fixed or permanent base – ‘permanent establishment’ (PE) – but does not wish to set up a separate legal entity, it is required to register the UK establishment (branch) with the UK’s registrar of companies (Companies House).
Legally, a UK branch is considered the same entity as the parent company. It does not therefore have an independent legal personality and all profits and losses of the UK branch are incorporated with those of the overseas parent. Any debts and liabilities of the UK establishment will also be attributed to its parent company. A UK establishment is required to file annual accounts that are publicly available.
Limited Liability Partnership (LLP)
A Limited Liability Partnership (LLP) is a legal entity that combines the organisational flexibility and tax status of a partnership, while also providing limited liability for its members. This limited liability is possible because an LLP has a legal ‘personality’ that is separate from its members. Each partner’s liability is, in general, limited to his or her agreed contribution to the partnership.
LLPs are ‘tax transparent’, which means that each member – rather than the partnership itself – is assessed to tax on their share of the LLP’s income or gains. Any non-UK source profits or gains made by an LLP will not be subject to UK tax, except in so far as its members are UK resident individuals or companies. There are exceptions to the general rule that LLPs are tax transparent, but these do not apply if the LLP is engaged in a trading business.
Why incorporate with Sovereign?
With over three decades of experience in the corporate services field, Sovereign UK’s services include forming new corporate structures, reorganising corporate structures and repatriating earnings. We also provide the necessary expertise in administering and managing companies, including company law, board procedures, director responsibilities and shareholder relations, and financial and corporate compliance requirements.
Following incorporation, Sovereign can provide on-going domiciliary services of the highest quality to maintain your company’s good standing in the UK. This includes the provision of registered office facilities and (if required) nominee shareholder services, together with making annual filings to Companies House. A company secretary is not obligatory for private companies under UK law but company secretarial services can be provided where required.
Re-mailing and virtual office services are available for all companies established by Sovereign. Registered office facilities are provided as part of the domiciliary service from our dedicated corporate services centre in the Wirral, near Liverpool. A central London registered office is also available, if required, subject to an annual premium of £500.
Sovereign further provides directors for many of the companies that we incorporate in order to ensure that their affairs can be properly managed and controlled from their place of incorporation. This service is often combined with our other company management and / or our domiciliation services.
Our directors are required to meet their directors’ duties, which require them to exercise independent judgment. It is a condition of any appointment that the director(s) are able to exercise their independent judgement and are fully involved in any decision. Under certain circumstances Sovereign can provide corporate and personal directors that are based offshore.
Sovereign is well-placed to assist corporate clients, particularly those from outside the UK, in creating ‘economic substance’ in the UK. These services can include office provision, introduction to property sourcing specialists, estate agents, chambers of commerce, government agencies and other third-party providers.
Post Brexit Re-structuring
The UK and European Union agreed a new Trade and Cooperation Agreement (TCA) just before the expiry of the Brexit transition period and the UK’s formal exit from the EU. As of 1 January 2021, the UK became a third country from an EU perspective and the EU principles of free movement of goods, capital, workers and provision of services no longer apply.
Under the TCA, there are no tariffs or quotas on trade in goods if rules of origin are met. However, UK service suppliers lost their automatic right to offer services across the EU and no longer benefit from the ‘country-of-origin’ approach or ‘passporting’ concept, which enabled automatic access to the entire EU single market. They are now required to comply with the host-country rules of each member state.
Overseas businesses operating in the UK or looking to establish in the UK after Brexit will need to consider the extent to which the provisions of the TCA apply to their businesses and the extent to which it mitigates the impact of the loss of EU rights. It is also vital to review the flow of funds around the group in respect of dividends, interest and royalties.
UK companies with branches in European Economic Area (EEA) member states – the 27 EU member states plus Iceland, Liechtenstein and Norway – are now subject to the rules applicable to branches of third country companies. These will vary depending on the member state and sector in which the business is operating. Restrictions may be more burdensome for branches or representative offices, as opposed to subsidiaries that have their own legal identity and are incorporated in the EU member state concerned.
Subsidiary companies incorporated in an EU member state will continue to be covered by all relevant EU law. If your group structure includes branches, places of business or central administration in an EU member state, there could be other compelling commercial reasons for setting up a local incorporated company in that state as follows:
- Providing credibility in respect of customers, banks, service providers and partners.
- Providing ability to hire staff in the EU.
- Protecting EU domain name and trademark registrations.
- Preserving EU market access.
- Avoiding exposure to additional tariffs or restrictions on cross-border operations.
- Mitigating changes to supply chain.
- Providing ability to open and operate EU bank accounts.
- Greater ease to transact with EU-based suppliers.
- Providing access to EU treaty and trade freedoms.
- Providing access to beneficial tax regimes available in certain EU member states.
- Providing access to EU VAT system.
- Preventing loss of access to EU-funded programmes.
Corporate Insurance Services
Corporate Tax Regime
The UK is regarded as one of the most tax friendly jurisdictions for companies. The UK corporate tax rate of 19% is currently the lowest in the G7 group of the world’s largest developed economies and no withholding tax is charged on dividends paid by UK companies to individual and corporate shareholders, regardless of their country of residence and registration. Exemptions also exist for capital gains on the disposal of substantial shareholdings in active operating companies.
The UK has concluded Double Taxation Agreements (DTAs) with more than 140 countries, creating the world’s largest and most effective tax treaty networks. Coupled with its advantageous regime for non-UK domiciled individuals (‘non-doms’), the UK therefore has much to offer to foreign companies and individuals.
No distinction is made in the UK between domestic and foreign investment and, apart from certain government-owned or controlled agencies, a foreign-controlled business can engage in the same activities as one controlled in the UK.
A company is resident in the UK if it is either incorporated in the UK or centrally managed and controlled in the UK. UK resident companies are subject to corporation tax in the UK on their worldwide income profits and capital profits, regardless of the source. The rate of corporation tax for all companies is currently 19%, although this is expected to rise from 1 April 2023.
For tax purposes, trading profits are taxed on an accruals basis and calculated by deducting certain reliefs/allowances together with any expenses incurred wholly and exclusively for the purposes of the trade from the sum of all trading receipts. Capital gains are generally taxed on realisation.
Trading losses can be set off against other profits and gains, including capital gains, arising in the same or previous accounting period, or carried forward and set off against future profits arising in the same trade. Capital losses can only be set off against capital gains arising in the same or subsequent periods.
Companies that are not resident in the UK are subject to UK corporation tax if they carry on a trade through a permanent establishment in the UK. Corporation tax is payable on all a company’s income and gains, regardless of their source, although credit against UK tax will always be granted for foreign tax incurred by a company in respect of foreign income and / or gains.
The UK offers a number of tax incentives that can be offset from a business’s corporation tax liabilities. These include the Research & Development Expenditure Credit (RDEC) and the Patent Box. A RDEC at 13% of qualifying expenditure is available to larger companies. A separate regime for small or medium sized companies (SMEs) allows them to claim an additional deduction of 230% of qualifying R&D costs where certain conditions are met.
The Patent Box enables companies to apply a lower rate of corporation tax (10%) to profits earned from patented inventions and certain other innovations. This scheme is very attractive to businesses in a range of sectors including life sciences, manufacturing and electronics.
The UK’s appeal as a place to do business is underpinned by its common law system, which offers fairness and reliability, as well as an unrivalled infrastructure of professional support, specialist courts, arbitration and a high-calibre judiciary with an international reputation for rigour and independence. These factors inspire business confidence and underpin international trade and investment.
The common law system is clear, fair and based on precedent. When planning a transaction or having to deal with the situation that has gone wrong, businesses know where they stand and can predict outcomes with a high degree of certainty. International parties litigating in the UK can be confident that disputes will be decided only on intrinsic merits.
English common law, together with the legal system is, and has always been, flexible. It adapts to meet the challenges of an ever-changing commercial world. Currently the common law in England and Wales is leading the way in Fintech, Digital Ledger Technology and Artificial Intelligence.
UK court and arbitral procedures are practical and innovative. By adopting a UK jurisdiction or arbitration clause, businesses can be confident that disputes will be resolved speedily and efficiently. In arbitrations, the supervisory court will be run by a judge with extensive and relevant commercial experience.
Litigation and arbitration are cost-effective. Significant cost-benefit advantages can be achieved by adapting court procedures to meet the requirements of the case, such as reducing the scope of disclosure. Experienced judges are proactive in preventing unnecessary cost escalation by appropriate case management directions.
The UK is a global Arbitration and Alternative Dispute Resolution (ADR) centre. It is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 and London is one of the world’s leading venues for institutional and ad hoc arbitration. This is due to a highly qualified legal community, the presence of the London Court of International Arbitration and other leading arbitral bodies, a clear legislative framework and a pro-arbitration judiciary.
Parties who agree to resolve their disputes before the UK courts should be certain that UK judgments will be recognised and enforced abroad, whether under long-standing bilateral treaty arrangements, protocols or as a matter of comity.
Having left the EU, the UK has now acceded to the Hague Convention on Choice of Court Agreements, which generally requires other courts to dismiss proceedings to which a choice of court agreement applies. It has also applied to accede to the Lugano Convention 2007 as an independent member, but this will require the agreement of all signatories.
The UK is one of the leading financial, insurance and commercial centres in the world. This is underpinned by a strong regulatory framework and expertise in regulatory law. London is, and will remain, home to many of the world’s leading international law firms and there are few restrictions to access the UK for law firms headquartered abroad. In addition, the English language is the international language of business.