As a strong trading partner to the US, the UK offers a perfect platform for US Start-Ups to make their first move into overseas markets. Whilst the UK generally takes a light-touch approach to overseas traders and recognises the benefits of increased competition, it is important for any US entity intending to do business in the UK to consider in advance the manner in which it will conduct its operations. If it decides not to incorporate a separate entity in the UK through which to carry on its business, it may still be subject to certain legal and taxation requirements in the UK.
Trading in the UK – The following options are available:
- Incorporate a subsidiary. A US entity can choose to incorporate a UK company as its wholly owned subsidiary. This will create a new legal entity which will also be required to file annual returns to the UK Companies Registrar and prepare and file annual accounts.
- Create a UK establishment. Even if a subsidiary is not formed, it may still be the case that, through its actions, the US entity has created a ‘permanent establishment’ in the UK. This will mean that it must follow UK statutory requirements including formal registration, delivery of returns and satisfying accounting obligations. Further information on this is set out below.
- Enter into a partnership agreement. Entering into a partnership agreement would not create a separate legal entity; contracts must be entered into or assets must be owned by partners directly (on behalf of the partnership). Under UK law, unincorporated partnerships are not required to make public filings of financial statements or any other information.
- Appoint an agent, distributor or franchisee.
Creating a UK establishment – A US entity carrying on business in the UK will need to satisfy certain registration and other legal requirements if it has some degree of physical presence in the UK (such as a place of business or branch) through which it carries on business. By way of example, the simple export of goods to the UK, where customers in the UK have been sourced through independent sales representatives or independent distributors, will not generally result in a “presence” of a US entity for tax or company law purposes. However, the establishment of a fixed or permanent base from which to conduct business in the UK (including engaging a dependent agent with authority to conclude contracts) will constitute a taxable presence or so-called “permanent establishment”.
If an overseas entity has a “permanent establishment”, it will be required to comply with certain registration requirements under the Companies Act 2006 (the “2006 Act”) and may be subject to UK tax in connection with the profits of such permanent establishment. It will also be required to file at UK Companies House certain financial statements and other general information, including its constitutional documents. Such filed documents will be a matter of public record.
Expansion into the UK (and the rest of the EU) brings many opportunities, but it is important to consider how deep a foot-print you intend to make. Whether or not an overseas entity has established a permanent establishment is a question of fact and not choice, so care needs to be taken that, where this occurs, UK tax and legal obligations are complied with.