Subsidiary versus permanent establishment
Subsidiary versus permanent establishment

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Subsidiary versus permanent establishment
  • Comparison table
  • Financing a UK subsidiary
  • Equity
  • Debt
  • Gifts or capital contributions
  • Financing a UK permanent establishment

Subsidiary versus permanent establishment

A non-UK resident company doing business in the UK has a choice as to whether to form a subsidiary company in the UK, or to operate through a permanent establishment (PE), most likely a branch. This Practice Note looks at the main UK tax issues to be taken into account when making this decision, although tax will only be one of a number of areas that will need to be considered.

For the meaning of a PE, see Practice Note: What is a UK permanent establishment?, and for the rules on taxing PEs, see Practice Note: How is a UK permanent establishment taxed?

It is possible for a non-resident company to trade in the UK without forming a PE, although this would be unusual and is outside the scope of this Practice Note.

The following table compares some of the key UK tax-related characteristics of a subsidiary and a PE. In addition to the UK issues described in the table, it will be essential to consider the non-UK resident company's tax position in its home state. The final sections of this Practice Note compare the UK tax issues involved in financing a UK subsidiary with those involved in financing a UK PE.

For an analysis of the UK tax issues that a non-UK resident company should consider when contemplating the purchase of a UK business,

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