The potential advantages of a UK subsidiary are:
- The corporate status is sometimes thought to add to the credibility or commercial respectability of the business.
- Incorporation of a UK subsidiary normally provides limited liability.
- A company enjoys legal continuity – it can own property, sue and be sued.
- Effective ownership or part ownership of the business may be readily transferred, subject to the provisions of the Articles of Association. Whilst such transfers may well be covered by inheritance tax business property relief, the capital gains tax position needs careful review.
Other potential advantages of setting up a UK subsidiary are:
- Growing UK businesses can re-invest profits after a corporation tax charge of 20% (if profits are below £300,000), compared with 40% income tax for higher-rate tax paying sole traders and partners together with a 1% class 4 National Insurance charge on profits over £43,875.
- Accumulated funds could be withdrawn on a sale of shares with the benefit of capital gains tax (CGT) entrepreneurs’ relief which reduces the capital gains tax to an effective rate of 10% on the first £2,000,000 of capital gain. Thereafter any gain is chargeable at a flat rate of 18%.
Setting up a UK subsidiary does come with various reporting requirements, and can be very beneficial for establishing your overseas company in the UK and Europe. However, appropriate advice should be taken prior to setting up the subsidiary as there may be other forms of entity that are more opportune for your objectives.
We have been setting up many subsidiaries, and advising our clients of the potential risks and benefits. Please get in touch if you are looking to setup your company in the UK and leveraging that, as a launchpad for your European operation.