The UK provides an elective exemption from UK corporation tax for the profits of an overseas permanent establishment (PE) of a UK company (other than certain insurance companies). The term ‘foreign permanent establishment’ is used in UK tax law to refer to those overseas operations of a company which were previously described as a ‘branch’.

The Government has announced that the exemption is to be made mandatory for UK-resident companies. The changes will apply to most companies for accounting periods beginning on or after 1 January 2027. For UK-resident companies with foreign PEs that carry on activities in connection with the exploration or exploitation of oil and gas, the measure will commence from 1 September 2026. This will be achieved by deeming the accounting periods of such companies to end on 31 August 2026, with the new regime applying from the following day.

Transitional rules will be amended such that losses and other amounts arising in years before exemption takes effect will not be available to relieve UK profits of the company or the wider