If you have significant business in the UK you may need to have a trading presence in the UK.
The structure can be a separate legal entity or a UK branch of the Irish office. It is likely that any business carried on in the UK will create a permanent establishment which is taxable in the UK and which needs to be registered there.
Where a branch of the Irish company is set up in the UK, and the UK leaves the EU, there is a bilateral income tax and corporation tax agreement in place, which ensures that the same income cannot be taxed twice by both countries. Instead, any branch profits that are taxed in the UK, will be allowed a credit in Ireland, effectively taxing the UK profits at the lower rate of Irish corporation tax. This is still a key benefit of a UK branch as opposed to a separate subsidiary or limited company in the UK, which would pay higher tax in the UK.
A UK branch cannot avail of reliefs and tax breaks in its own right in the UK, as it is not a separate legal entity. But a UK company or subsidiary with a physical presence in UK can avail of UK tax reliefs and it can be controlled by Irish shareholders and directors.
Directors of the UK and Irish company
There is nothing to prevent a person from being the director of an UK and Irish company at the same time. Local taxes will need to be operated on directors fees paid from each country. Some decisions will need to be taken regarding tax residence here or in UK.
Consideration could be given to setting up a holding company to hold finance and assets such as IP trademarks or brand names away from the main trading companies. This can protect the assets and cash reserves and secure their value as separate assets which can be sold in the future, or used in retirement.
Key differences between a UK Branch AND Subsidiary
- A branch office in generally used when an Irish company wishes to establish a place of business in another state and it is viewed as an extension of the Irish parent company.
- To incorporate a branch in UK, a set of legalised and authenticated corporate documents from the parent company are required. This would usually consist of an Apostilled copy of the company’s certificate of Incorporation and the Memorandum and Articles of Association. The branch office is also required to have a registered address in UK, and a person authorised to manage the business in the UK.
- The main difference between establishing a branch office and registering a subsidiary company would be the dependency on the parent company, the annual filing requirements and the taxation implications.
- If a subsidiary company is incorporated in the UK, it will be subject to UK corporation tax and strict companies office annual filing requirements.
- A branch has the appearance of permanency and establishes a company’s physical location in the UK where it can do business. As such it must be managed locally and have people in UK authorised to bind the foreign company in contract.
Pros of having a UK company
- Trading cash-pool of sterling which will hedge against fluctuating currency rates
- UK customers prefer to deal with a UK company with a local presence
- Any trade agreements negotiated for the UK will be available to the company to assist in trading with EU countries
- Customs issues importing and exporting via the UK are reduced because you have a company these which can operate directly with UK customs
- As UK directors, and citizens of the UK, one or both of you may be able to claim residence in the UK for tax purposes and only be taxed in Ireland on Irish sourced income and remittances into Ireland. This would allow one of you to build up personal saving and banking status in the UK for future business reasons. It may also allow you to avail of reliefs which are only available to UK residents.
- Double taxation for a UK branch of an Irish company is avoided by allowing a foreign tax credit for the corporation tax paid in the UK, in the tax return of the Irish company. Therefore corporation tax of a UK branch is effectively paid at the lower 12.50% of the Irish trading company.
- A UK branch can offset its losses against the Irish parent company, but a UK subsidiary cannot
- Repatriation of profits and intercompany payments is much easier in a branch/parent entity, than between two separate companies. Also payments from a UK limited company or UK subsidiary would be subject to transfer pricing rules, which means transfer have to be at market rates and records of this must be kept
- VAT registration in the UK is advantageous when the UK is not part of the EU, as you will not loose foreign UK VAT refunds, you can file UK VAT returns and reclaim VAT on costs there.
Cons of having a UK company
- Preparation of accounts for 2 entities and administrative costs
- Running 2 offices cross border and managing staff
- UK Branch accounts can be consolidated into the Irish parent company but UK subsidiary accounts must be separately prepared and separately reported for tax and companies office purposes. [Note that the subsidiary can be in the same group of companies as the Irish company for legal purposes if the same persons control the Irish and UK company, which allows intercompany payments to be made.]
- Losses in UK subsidiaries may not be transferred cross border to an EU parent after Brexit, so losses in the UK would be trapped there. A branch allows the UK losses to be transferred cross border.
- A group controlled subsidiary or limited company in UK may require its accounts to be audited annually