f&l - uk - setting up a representative office
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An overseas company may establish a “Representative Office” in the UK. This is not a recognised form of business and, as such, cannot carry out business activities in the UK.
A Representative Office is known as a
non-taxable UK establishment.
When is a Representative Office appropriate?
A Representative Office is often used in the initial stages of establishing an overseas company in the UK, providing the overseas company with a physical presence in the UK marketplace without the commitments and administrative requirements that apply to a registered company or branch office. The perceived benefit to an overseas company is that it does not need to register for or pay corporation tax. It will usually also not register for VAT.
The functions of a non-taxable UK establishment are strictly limited and are usually preparatory or auxiliary in nature.
How do I register?
There is one form to be submitted to Companies House when applying to register a UK establishment. An application has to be made to HM Revenue & Customs (HMRC) to seek clearance from the requirement to register for Corporation Tax. If HMRC agrees, it is likely to be in relation to very limited activities and for a limited period of time. A Representative Office is not legally defined or regulated. It is important to ensure that the activities of the office are limited to preparatory and representative functions only. This means, for instance, that the representative in the UK may not conclude any sales or perform any after sales services, nor have the authority to conclude contracts. The financial statements of the overseas parent must be filed at Companies House annually and are then made publicly available. It is usually the case that, after a period of time, the overseas company will convert the Representative Office to a taxable UK establishment (e.g. a Limited Company), thereby incurring additional costs at that stage. In certain circumstances, businesses entering the UK market can set up a Representative Office with reduced tax exposures and lower running costs than a taxable UK establishment or subsidiary. There are restrictions on both the type of business and how it is conducted and as such, regular monitoring of the situation is imperative to ensure compliance with the rules.
However, for smaller expansions where cost is a limiting factor, a Representative Office can present an attractive way of entering the UK and some European markets.
What other considerations are there?
Whilst not exhaustive, the following is a list of likely considerations during the set up process:
Employment Contracts are required for all employees
Employers’ Liability Insurance is compulsory for all employers in the UK
Registration with Companies House is the same procedure as that of an ordinary UK Establishment (branch)
An application to operate as a non-taxable UK establishment must be made to HMRC (setting out details of the operation and activities performed in the UK)
Immigration strategies will need careful consideration should you wish to operate a Representative Office
Do I need to review the UK operation?
Once approval has been granted by HMRC, it is essential to monitor the UK operation to ensure that any relevant changes are notified to them. If the UK operation no longer satisfies the non-taxable UK establishment requirements, HMRC are likely to deem the UK activities to be those of a taxable UK establishment. Failure to monitor this may lead to interest and penalties effective from the date the changes took place. We generally recommend reviews are performed annually with additional reviews conducted each time a new hire is recruited.
Next Steps
If you think a non-taxable UK establishment may be the right way for you to initiate your globalisation strategy, please contact either our London or San Francisco office for a more detailed discussion and a chance to explore some of the additional tax, legal and commercial implications. Updated February 2016. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Melissa Christopher: Partner, Tax Advisory London Office +44 (0)20 7430 5894 / [email protected]
UK: Setting up a Representative Office
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