Structure and Tax Strategy

You must register your subsidiary with the UK’s Registrar of Companies at Companies House before trading. The process is straightforward, and Companies House provides clear guidance on what’s required. In return for limited liability protection, you’ll need to file certain information regularly, including annual accounts, confirmation statements and details of officers, shareholders and anyone with significant influence or control. You might need to produce group accounts if this is the first subsidiary you have set up. It’s important to note that most information you file with Companies House will be public.

Generally, if your company is incorporated in the UK or managed and controlled from the UK, it’s considered to be a UK tax resident. This means the company will pay UK corporation tax on its worldwide profits, and it will typically distribute its profits as dividends. But you’ll need to make sure the company has enough distributable reserves. Profit distributions (such as dividends) are not deductible when calculating the company’s taxable profits. If it incurs trading losses, it can usually offset them against current-year profits or carry them forward.

Companies operating in the UK are subject to corporation tax on the profits they make. The tax rate is currently 25% for companies with profits exceeding £50,000. For smaller companies with profits under £50,000, the corporation tax rate is 19%. Marginal relief is available for companies with profits between £50,000 and £250,000.

UK subsidiaries may be entitled to tax relief on certain interest payments (and other funding costs) that are paid on any debt-funding like loans from an overseas parent company. But specific tax rules, such as transfer pricing, limit what the company can deduct from its profits for things like finance costs, royalties and service fees paid to its overseas parent or other group companies.

The UK doesn’t withhold tax on dividends paid to overseas parents, but withholding can apply to interest and royalties (subject to specific exemptions and any relevant double tax treaty). The UK also doesn’t charge capital duty when you set up a subsidiary. However, stamp taxes may apply if you transfer UK land, shares or securities to your company.

You must notify the UK tax authority, His Majesty’s Revenue & Customs (HMRC), that your company is chargeable to corporation tax and file corporation tax returns.

Tax returns must be submitted to HMRC annually (within 12 months after the end of the relevant accounting period). Usually, your company will pay any corporation tax due 9 months and 1 day after your company's accounting period ends.

Your company will also be responsible for withholding tax and employee National Insurance Contributions (NICs) on salaries paid to UK-based staff (and non-resident staff who perform duties in the UK) and accounting for employer NICs.

If your company makes or intends to make VATable supplies of goods and services and those supplies exceed the registration threshold (currently £90,000), the company will need to register for VAT.

Setting up a subsidiary is a popular choice for overseas companies looking to establish themselves in the UK. It offers limited liability protection and a clear structure for your UK operations. However, third parties may request a parent company guarantee before doing business with your UK subsidiary.

Your company will need to set up a fixed place of business in the UK. It must also register the establishment with the UK’s Registrar of Companies at Companies House within one month of setting up. This is not an expensive process, but if you are registering a UK establishment for the first time, translations of your parent company’s constitutional documents or latest accounts may be required. Once set up, there are ongoing filing obligations, such as updating financial documents and officeholder details. Most information filed at Companies House is generally made public. For more information, see this guidance from Companies House.

An overseas company trading in the UK through a UK permanent establishment is subject to corporation tax on the profits attributed to the permanent establishment. Trading losses of a UK permanent establishment can generally be set against current year profits or carried forward.

Your overseas company will have a UK permanent establishment if it has a fixed place of business through which it wholly or partly carries out its business or uses an agent in the UK to carry out its business in circumstances where that agent has the authority to act on your company’s behalf.

If your overseas company has a UK permanent establishment, it will be subject to the same corporation tax rates as UK subsidiaries. See Section 1 above for more details.

The UK’s extensive double tax treaty network and the application of treaty relief typically mean your overseas company won’t usually be taxed twice on the same profits.

Even if your overseas company is not trading in the UK through a permanent establishment, some of its activities may still be subject to UK tax. For example, if your company receives income from UK property, this income will be subject to corporation tax.

If your overseas company is trading in the UK through a permanent establishment and is subject to UK corporation tax, you must inform HMRC, provide other details and file corporation tax returns.

You must submit the company’s tax return with HMRC annually, no later than 12 months after the end of the relevant accounting period. Any corporation tax should typically be paid within 9 months and 1 day after the end of the accounting period.

Overseas companies trading through UK permanent establishments have the same tax return rules as UK subsidiaries. Please refer to Section 1 above for further information.

Additionally, if your overseas company employs personnel in the UK, it must manage UK PAYE (Pay As You Earn) obligations. This includes withholding UK income tax and employee NICs and accounting for employer NICs. These requirements may also apply to overseas companies without a permanent establishment but with a "sufficient tax presence" in the UK.

If your overseas company has a UK business or fixed establishment, it must register for UK VAT if its VATable supplies exceed the UK VAT registration threshold. Even if your company doesn’t have a fixed establishment in the UK, VAT registration is required if it makes any VATable supplies in the UK. As UK establishments are not separate entities, there is no UK VAT on supplies to your overseas company.

Setting up a permanent establishment brings unique benefits. It allows direct engagement with UK customers and suppliers while keeping strong ties with your parent company. Without the need to create a separate legal entity, you can enjoy operational flexibility and simpler profit repatriation. Double tax treaties and business-friendly regulations make the UK an attractive market for overseas companies.