Client Question: “We are a product distribution company based in Europe and we want to know the implications of storing products in the UK after Brexit?”
Ian Saunders: “There are two options available for a company incorporated outside the UK, you can either register under the UK permanent establishment regulations or you can incorporate a UK subsidiary to trade through.”
Under the UK’s Corporation Taxes Act 2010/s 1141 definition, a non-resident company has domestic law permanent establishment in the UK if:
- It as a fixed place of business here through which the business of the company is wholly or partly carried on, or
- An agent acting on behalf of the company has and habitually exercises there authority to do business on behalf of the company (As long as that agent is not of independent status acting in the ordinary cause of business)
If the activities in the UK are preparatory or auxiliary in character in relation to the business as a while, then there is no permanent establishment. Some examples of activities that are deemed auxiliary are:
- The use of facilities for the purpose of storage, display or delivery of goods & merchandise belonging to the company
- The maintenance of stock, goods or merchandise belonging to the company for the purpose of storage, display, delivery or processing by another person.
So on the face of it, the storage of products in a warehouse would not necessarily create a permanent place of business/establishment in the UK.
UK Permanent Establishment
If you decide or are advised independently to set up a permanent establishment, it would be your company that is registered and involves the completion and filing of particular administration forms. As well as these forms, the proposed branch is required to file a certified copy of its charter, statutes memorandum and articles of the company (or other instruments of the constitution if incorporated outside of the EU). These documents must both be certified by a notary and translated into English, if applicable.
Post incorporation, there is an obligation to file the accounts of the company annually (and not just the UK establishment) and any changes in officers, address, trade or business, share capital etc.
The registration of a permanent establishment would not create a separate legal entity and your company would be responsible for any debts of the UK establishment.
Although we are still awaiting an outcome for Brexit; if you deal with the registration after 31st January 2020 and there is no agreement between the EU and the UK, then the information required for completion for countries outside the EU will likely apply to all companies. Although, this is not certain at this current stage and our assumption until we gather more information.
Your company would then have to register with the UK tax authorities (HMRC) and pay corporation tax on all profits generated from the UK branch (and not the whole company). Corporation tax rates are currently 19%. If your UK establishment’s turnover exceeds £85,000 then you would also need to register for VAT.
Registering a UK Subsidiary
Another option that may be simpler is to register as a subsidiary in the UK. This can be done electronically and either Wilder Coe or the person incorporating for you, would simply need to supply general details for the persons who would be directors of the UK subsidiary and some details for the representative of the shareholder. There is also a requirement to notify the Persons of Significant Control for the shareholder. This is anyone owning or controlling more than 25% of the share capital or votes)
After incorporation, there are requirements to file accounts of subsidiary annually with Companies House and HMRC to confirm that no details have changed.
The incorporation of a subsidiary would create a separate legal entity and that entity alone would be responsible for its debts etc.
The rules regarding tax are very similar for a subsidiary to those detailed above for a UK permanent establishment. However, opening a bank account in the UK may be complicated if none of the Directors are UK residents. This is due to the current regulatory requirements for worldwide banks.
We have provided a general overview of the options available, however, due to individual businesses having specific requirements, we would advise having a consultation to establish the best practice for your circumstances. As Brexit has not yet been executed, we are unable to be certain how this may affect businesses in the UK and this advice can be subject to changes in legislation in the near future.