Setting up overseas ― branch or subsidiary

Produced by Tolley

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Setting up overseas ― branch or subsidiary
  • Tax issues from operating as an overseas branch
  • Establishing the profits or losses of the overseas branch
  • Double tax relief on the branch profits
  • Tax issues from operating as a subsidiary
  • Profits and losses
  • Transfer of capital assets
  • Company residence
  • Transfer pricing
  • Controlled foreign companies (CFCs)

Although a UK company can do a reasonable amount of business in another country without a taxable presence in that country, eventually the company may need to consider whether to establish a more formal presence in such a country, generally by way of a branch or subsidiary.

The decision will often usually depend on commercial factors, particularly where there are regulatory requirements which demand, for example, a particular level of capital which is more easily satisfied through a branch structure where the parent company capital is taken into account.

Where there is no particular commercial pressure for one legal form over another, tax issues may influence the decision by taking into account the local country’s tax position for branches and subsidiaries. For example, the parent company should consider:

  1. is there any difference in tax rates between a branch and a subsidiary?

  2. can profits be remitted back from the country to the UK in the same way? For example, the US has a branch profits withholding tax which is reduced to 5% in the UK / US tax treaty, but dividends paid from a US subsidiary to a UK parent company owning more than 80% of the share capital in the subsidiary for more than a year before the dividend is paid would not suffer any US withholding tax on the profits distributed by the subsidiary (see DT19867A)

  3. can start-up losses in the entity be easily relieved against group profits?

It is important to consider the classification of overseas entities. See the Entity classification guidance note.

This note focuses on the UK tax issues that can arise from operating overseas through a branch or a local subsidiary. However, in addition to the UK tax issues, the local overseas tax issues will also need to be considered as well as the interaction between the two. For a general introduction into the tax issues that can arise when a UK company decides to expand overseas, see the Introduction to setting up

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