UK taxation of foreign permanent establishments

FORTHCOMING CHANGE: On 21 May 2026, the government published a policy paper containing plans to make the foreign branch exemption mandatory for UK-resident companies that conduct part of their business through foreign PEs and on 13 July 2026 draft legislation for the measure was published. For accounting periods beginning on or after 1 January 2027, companies will be required to calculate their total taxable profits on the basis that a foreign branch exemption election has been made. The draft legislation also includes (i) restrictions on the future use of carried-forward losses attributable to foreign PEs from periods before the new regime takes effect and (ii) a targeted anti-avoidance rule (effective from 13 July 2026) to counteract tax advantages arising from arrangements designed to accelerate losses or circumvent the commencement or operation of, or exploit shortcomings in, the new regime.

The basic rule of the scope of UK corporation tax is that a UK resident company is chargeable to corporation tax on all its profits (comprising income and chargeable gains), including those that arise in permanent establishments outside the UK.

The scope and...