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Overseas Companies in the UK
Subsidiary or Permanent Establishment
Our specialist tax accountants help overseas companies set up subsidiaries or permanent establishments in the UK. We handle registration, tax compliance, and HMRC negotiations, ensuring favourable outcomes while reducing stress and simplifying your UK expansion
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Setting Up an Overseas Company in the UK
Setting up an overseas company in the UK involves registering either a subsidiary or a permanent establishment, depending on business needs. A subsidiary is treated as a separate legal entity, while a permanent establishment operates as part of the parent company. Both require compliance with Companies House and HMRC rules. This process enables foreign businesses to trade, employ staff, and expand into the UK market effectively.
UK Subsidiary Company Formation
UK Subsidiary Company Formation is a process that allows overseas businesses, referred to as foreign entities, to establish a legal presence in the UK through a limited company. This structure enables international firms to trade, hire staff, and comply with UK regulations in a manner that is both efficient and cost-effective. Setting up a UK subsidiary benefits overseas companies by protecting the parent business while providing access to the UK market opportunities.
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What is an Overseas Company in the UK?
An overseas company in the UK is simply a business that’s incorporated outside the UK but wants to operate here, either by trading, hiring staff, or owning property. There are two main ways to establish a presence: by setting up a UK subsidiary company or registering a permanent establishment (branch).
A subsidiary is like a child company. A subsidiary is a separate limited company in the UK that is owned by a parent company but operates independently. This structure means the parent company’s financial responsibility is limited to its investment in the subsidiary. For example, a US tech company might set up “Tech Solutions UK Ltd” to sell software in the UK. The UK company follows UK laws, files its own financial statements, and pays corporation tax on its profits made in the UK.
A permanent establishment, on the other hand, is not a separate company. It’s an extension of the overseas parent. The parent company remains fully liable for UK debts and obligations. Only the UK-attributable profits are taxed here, but the reporting rules can be complex.
Both models have advantages. A subsidiary adds credibility to your brand and offers limited liability, as well as flexibility in contracts. A permanent establishment is less expensive to set up and easier to manage, especially for smaller operations. The best choice depends on your business strategy, size, and tax situation.
At Tax Accountant, we help overseas companies decide the best route, handle registration with Companies House, and take care of all tax compliance. Whether you want limited liability protection or a streamlined UK presence, our experts make the process smooth, compliant, and tax-efficient.
What is the Difference Between a UK Subsidiary and a Permanent Establishment?
When a foreign company wants to operate in the UK, the two most common options are setting up a subsidiary or establishing a permanent establishment (PE). While both allow overseas firms to trade in the UK, they are legally and tax-wise very different.
A subsidiary is a UK limited company owned by the foreign parent. It has its own legal identity, meaning it can enter into contracts, hire employees, and own assets independently. Importantly, the liability of the parent company is limited to its investment in the subsidiary. A US firm, for example, might form “ABC UK Ltd” to trade locally. This subsidiary would file its own accounts with Companies House and pay UK corporation tax (25%) on its profits.
A permanent establishment (branch) is not a separate company. Instead, it’s treated as an extension of the parent business. If the overseas company has a fixed place of business or staff in the UK carrying out core activities, it may be considered a PE. Only the UK-attributable profits are taxed here, but the parent remains fully liable for debts. This route is often simpler but riskier.
Choosing between the two depends on your long-term goals. Subsidiaries provide brand presence, credibility with UK clients, and limited liability. Permanent establishments suit smaller businesses testing the UK market.
How Do Overseas Companies Register a Subsidiary in the UK?
Registering a UK subsidiary is often the preferred option for overseas companies because it creates a separate legal entity that’s recognised locally. The process is relatively straightforward, but attention to detail is crucial to avoid compliance issues.
The first step is choosing a company name that isn’t already taken and complies with UK naming rules. Next, the company must be registered with Companies House. This involves submitting the Memorandum and Articles of Association, a statement of capital, details of shareholders, and information about directors. Interestingly, directors do not need to be UK residents, which makes it easier for overseas firms to maintain control. However, you will need a UK-registered office address, which can be provided through professional services.
Once incorporated, the new subsidiary—let’s say “Global Tech UK Ltd”—is treated as a normal UK company. It will need to file annual accounts, pay corporation tax on profits, and comply with UK company law. If turnover exceeds £90,000, VAT registration is mandatory. Hiring staff also requires registering for PAYE and National Insurance contributions.
The benefit of a subsidiary is that it builds local trust. Clients and suppliers often prefer dealing with a UK-based company, and liability is ring-fenced within that entity. However, compliance is stricter than operating as a branch.
How Are Overseas Companies Taxed in the UK?
The UK tax system treats overseas companies differently depending on whether they operate as a subsidiary, a branch (permanent establishment), or simply own UK assets. Understanding these rules is vital to avoiding unexpected tax bills.
Subsidiary Companies: A subsidiary is treated as a standard UK company. It must pay corporation tax (currently 25%) on all profits generated in the UK. It also needs to file annual tax returns and statutory accounts.
Permanent Establishments: A PE is taxed only on the profits attributable to UK activities. For example, if a US consultancy earns £1m globally but only £200k is linked to UK operations, only the £200k is taxable in the UK. However, calculating this allocation can be complex, especially when expenses are shared.
Property Ownership: If an overseas company owns UK property, it may be liable for Capital Gains Tax (CGT) when selling, even if the parent is abroad. For residential property, additional taxes like the Annual Tax on Enveloped Dwellings (ATED) may apply.
VAT: Overseas companies selling goods or services in the UK may need to register for VAT once they cross the £90,000 threshold. Some businesses, like digital services providers, must register even without a physical presence.
Do Overseas Companies Pay VAT in the UK?
Yes, overseas companies can be required to pay VAT in the UK, depending on their business activities. VAT, or Value Added Tax, applies to the sale of goods and services within the UK, and overseas businesses are not exempt if they meet certain conditions.
If your overseas company establishes a UK subsidiary, it is treated like any other UK business. Once its taxable turnover reaches £90,000, it must register for VAT and charge it on invoices. For example, if a German engineering company forms “ABC UK Ltd” and sells equipment in Britain, it must account for VAT on its sales.
Even without a subsidiary, a permanent establishment (branch) may trigger VAT registration. If your UK branch provides taxable goods or services, VAT rules apply just as they would for a UK company.
Interestingly, even without a UK base, foreign companies may need VAT registration. For instance, a US software firm selling digital services to UK customers must register under the VAT ” place of supply” rules. Similarly, e-commerce businesses shipping goods into the UK may need to account for VAT under HMRC’s import schemes.
What Reporting Obligations Do Overseas Companies Have in the UK?
Once an overseas company establishes a presence in the UK, it must follow strict reporting obligations, whether it’s through a subsidiary or a permanent establishment.
Subsidiaries: A UK subsidiary must file annual accounts with Companies House, typically within 9 months of its year-end. It also has to submit a corporation tax return to HMRC, including detailed profit and loss statements. If VAT-registered, quarterly VAT returns must be filed under Making Tax Digital. Hiring UK staff means PAYE and National Insurance filings must also be submitted monthly.
Permanent Establishments (PEs): A PE is required to file financial statements for its UK operations. These don’t need to be full group accounts but must show UK-specific revenue and expenses. A tax return must also be filed, attributing profits to UK activity.
Overseas Property Ownership: If an overseas company owns UK property, it must file returns when disposing of assets, sometimes within just 60 days.
Late or inaccurate filings can result in penalties, interest, and reputational damage. For foreign companies unfamiliar with the UK reporting culture, this can be overwhelming.
What Are the Tax Risks of Choosing the Wrong Structure?
Selecting the wrong UK structure—subsidiary versus permanent establishment—can create serious tax risks for overseas companies.
One common issue is double taxation. If a foreign company is incorrectly set up, profits may be taxed in both the UK and the parent’s home country. While tax treaties aim to prevent this, misclassification often leads to disputes and overpayment.
Another risk is unexpected VAT exposure. For instance, operating informally without registering as a subsidiary or PE could still trigger VAT obligations. Failure to register leads to penalties and interest on unpaid VAT.
Liability is another concern. A subsidiary protects the parent company with limited liability, while a permanent establishment exposes the entire business to UK debts. For example, if a PE is sued in the UK, the overseas parent is directly liable.
Additionally, overseas companies that own property but fail to account for Capital Gains Tax (CGT) face unexpected costs when selling. Some structures are also more efficient for offsetting expenses and accessing tax reliefs, while others limit those benefits.
What Are Common Mistakes Overseas Companies Make in the UK?
Expanding into the UK is exciting, but many overseas companies make avoidable mistakes. One frequent error is setting up the wrong structure. Businesses sometimes choose a permanent establishment for simplicity, only to later realise they need the limited liability protection of a subsidiary.
Another mistake is ignoring VAT obligations. Many foreign firms think VAT only applies once they establish a UK base, but digital sales or imports can create VAT liabilities long before that.
Employment law is another pitfall. Hiring UK staff without properly registering for PAYE and National Insurance exposes companies to fines. Similarly, failing to file accounts and tax returns on time is common among businesses unfamiliar with the UK compliance culture.
Overseas property ownership brings its own traps. Many firms don’t realise they owe CGT on disposals or ATED on high-value residential properties. These oversights can be costly.
Can Overseas Companies Own UK Property?
Yes, overseas companies can own UK property, whether commercial or residential, but the tax implications are often misunderstood.
When an overseas company buys UK property, it must pay Stamp Duty Land Tax (SDLT), with surcharges applying for non-resident buyers. For high-value residential property held in a company, the Annual Tax on Enveloped Dwellings (ATED) may also apply.
When selling property, overseas companies are liable for Capital Gains Tax (CGT) on any profit. This rule covers both residential and commercial properties, even if the parent company is based abroad. Disposals must usually be reported within 60 days, and penalties apply for late filing.
Rental income from UK property is also taxable. Overseas companies must file UK tax returns and may be subject to withholding tax if tenants pay rent directly. Many overseas investors set up a UK subsidiary to hold property. This structure can reduce risk and simplify compliance, though it also brings additional reporting requirements.
How Can a Tax Accountant Help Overseas Companies in the UK?
Expanding into a new country can feel overwhelming, especially with complex tax and legal rules. At Tax Accountant, we make the process smooth for overseas companies entering the UK.
We provide a complete service, starting with helping you choose between a UK subsidiary and a permanent establishment. We then handle registration with Companies House, HMRC, and VAT where required. Our team also takes care of accounting, payroll, and tax filings, ensuring you never miss a deadline.
We specialise in tax planning for overseas companies. That means reducing corporation tax, managing VAT efficiently, and advising on CGT for property disposals. We also apply double tax treaties to ensure you don’t pay tax twice on the same profits.
Beyond compliance, we act as your strategic partner. We advise on market entry strategies, cost-efficient structures, and long-term expansion planning. Whether you’re a US tech start-up, a Middle Eastern investor, or a European manufacturer, we have the expertise to guide you.
Our clients trust us because we combine deep technical knowledge with a practical, human approach. We explain complex rules in plain English and give actionable advice you can use immediately.