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.
If incorporating a new company is preferable, a UK limited company is a separate legal entity with its own limited liabilities. This is much more substantial than a UK establishment and offers greater assurance for customers and suppliers that come into contact with the business. It also offers more flexibility of ownership than an establishment.
A limited company is a separate entity with its own independent legal identity. The company will be owned by its shareholders and many international companies use this route to create a UK subsidiary. It will have a distinct board of directors and be able to enter into contracts in its own right. A UK company offers limited liability, which serves to protect both directors and shareholders.
A limited company will be liable for UK corporation tax on its profits and there are a number of filing requirements that are maintained on public record at Companies House. These include annual accounts, confirmation statements and maintaining up-to-date records for ‘persons with significant control’ over the company.
A UK company can also be used to engage in international trade. As part of a wider international structure, a UK limited company offers considerable advantages in respect of perception and economic substance because the use of entities from ‘no or low tax‘ jurisdictions can often be viewed negatively or lead to the loss of treaty benefits.