Ultimate Guide to Starting a Subsidiary Company in UK

Setting up a subsidiary company in the UK enables businesses to tap into a large consumer market, benefit from a stable legal system, and access a skilled workforce. Businesses expand there for growth opportunities, innovation, and global market reach.

This guide will walk you through the essential steps and requirements for successfully opening a subsidiary in the UK, helping you navigate the process with ease.

Types of Subsidiaries in the UK

In the UK, subsidiaries can take several forms, each offering different levels of control and liability. The following are the types of subsidiaries in the UK:

• Wholly-Owned Subsidiary
• Partially-Owned Subsidiary
• Joint Venture
• Operational Subsidiary
• Strategic Subsidiary

Step-by-Step Process to Setting Up a Subsidiary Company in the UK

Following is a step-by-step procedure for setting up a subsidiary in the UK:

1. Choose the Business Structure: Decide on the type of subsidiary that aligns with your goals, typically a private limited company (Ltd). This structure offers limited liability and operational flexibility.
2. Select a Location: Choose a region based on factors like tax laws, proximity to markets, and industry needs. London is often preferred for its infrastructure and international market access.
3. Register the Business: Submit required documents, including Articles of Association, to Companies House. Provide a registered office address for official communications.
4. Obtain a Company Number: Receive your unique company number upon registration, which is vital for tax filings, hiring employees, and opening bank accounts.
5. Open a Business Bank Account: Set up a UK business bank account using your company number and registration proof to manage finances efficiently.
6. Comply with Local Laws: Adhere to UK regulations, such as employment laws, VAT registration (if turnover exceeds £85,000), and obtaining necessary permits.
7. Maintain Ongoing Compliance: File annual financial statements, tax returns, and confirmation statements with HMRC (HM Revenue & Customs) and Companies House. Regularly update compliance procedures as laws evolve.

Key Benefits of Establishing a Subsidiary in the UK

Establishing a subsidiary in the UK offers several key advantages that make it an attractive option for businesses looking to expand:

• Market Access: The UK provides access to a large and diverse consumer market, with strong connections to Europe and other international markets.
• Tax Benefits: Setting up a subsidiary company in the UK can offer tax advantages, including allowances for business expenses and potential incentives for research and development.
• Legal Protections: Subsidiaries in the UK enjoy limited liability, ensuring the parent company’s financial risks are separate from those of the subsidiary.
• Local Presence: A subsidiary helps build a stronger local presence, enhancing relationships with customers, suppliers, and regulatory bodies, which can foster trust and credibility.
• Operational Flexibility: A subsidiary allows the parent company to operate more independently in the UK while maintaining control, making it easier to adapt to market conditions.

Now that you’ve seen the benefits of establishing a subsidiary in the UK, let’s explore the key documents you’ll need to register and set up your subsidiary efficiently.

Essential Documents Required for Registering a Subsidiary in the UK

When registering a subsidiary in the UK, several essential documents are required for legal and operational purposes:

1. Certificate of Incorporation: This is the legal document issued by Companies House that officially creates the subsidiary. It includes the company’s name, registered address, and business type.
2. Articles of Association: These outline the subsidiary’s internal management rules, including the roles and responsibilities of directors and shareholders. It’s a required document for all UK companies.
3. Employer Identification Number (EIN): While the UK uses a Company Registration Number (CRN) instead of an EIN, this is needed for tax reporting, opening business bank accounts, and hiring employees.
4. Registered Office Address: A physical address in the UK is required for the company’s official communication and legal notices.
5. Parent Company’s Certificate of Good Standing: If the parent company is foreign, it may need to provide a certificate proving its legal status in its home country.
6. Proof of Business Address: A document confirming the subsidiary’s operating address in the UK is often necessary to verify the business’s physical presence.
7. Foreign Qualification (if applicable): Foreign companies may need to register as a foreign entity with Companies House if they intend to operate outside of the original registration location.

Once you’ve gathered the necessary documents, understanding the available legal structures for subsidiaries in the UK is key to moving forward with the registration process.

Legal Structures Available for Subsidiaries in the UK

In the UK, subsidiaries can be set up under various legal structures, each offering different levels of control, liability, and tax implications. Here are the main types:

• Wholly-Owned Subsidiary: The parent company owns 100% of the subsidiary, giving it full control over the operations, decision-making, and profits. This structure is common for businesses looking to maintain complete control over their UK operations.
• Joint Venture: A joint venture is formed when two or more companies collaborate to share ownership and control of the subsidiary, usually for a specific business purpose or project. This structure is used to pool resources, share risks, and access new markets.
• Private Limited Company (Ltd): A private limited company is the most common structure for subsidiaries in the UK. The subsidiary is a separate legal entity from the parent company, offering limited liability protection. It’s owned by shareholders (which could include the parent company), and its shares are not publicly traded.
• Public Limited Company (PLC): This is a more complex structure, typically used by larger subsidiaries that wish to raise capital from the public by offering shares on the stock market. A PLC is required to have a minimum share capital and must comply with additional regulatory requirements.
• Limited Liability Partnership (LLP): An LLP is a hybrid between a partnership and a limited company. The parent company and other partners share ownership, but the liability is limited to their capital contributions. This structure is more commonly used for professional services, like law or accountancy firms.
• Branch Office: A branch office is not a separate legal entity but operates as an extension of the parent company. It is fully controlled by the parent company and is subject to UK laws. While simpler to set up, it does not offer the same level of liability protection as a subsidiary.

Whether you’re setting up a subsidiary company in the UK or figuring out how to create a subsidiary in the UK, Commenda ensures you navigate legal complexities, comply with local regulations, and make informed decisions to maximize your business potential. To know more, click here.

Let’s understand the taxation rules and incentives for the subsidiaries in the UK.

Taxation Rules and Incentives for Subsidiaries in the UK

When setting up a subsidiary company in the UK, understanding the tax rules and available incentives is crucial. Key points include:

• Corporate Tax Rates: UK subsidiaries are subject to a standard corporate tax rate, which is currently set at 19% (subject to change based on government policies). Additional taxes may apply depending on the business location.
• Transfer Pricing: Subsidiaries in the UK must comply with transfer pricing rules, ensuring transactions between the parent and subsidiary are conducted at arm’s length to prevent tax avoidance.
• Double Taxation: Subsidiary profits may be taxed both in the UK and the parent company’s home country. However, the UK has tax treaties with many countries to prevent double taxation, allowing credits for taxes paid abroad.
• Incentives and Tax Credits: The UK offers various tax incentives, including R&D tax credits and capital allowances, to encourage business investment and innovation. Specific regions may also offer additional incentives for foreign investment.
• Depreciation and Deductions: UK subsidiaries can depreciate assets over time, reducing taxable income, which can benefit businesses investing in property, equipment, or technology.
• International Tax Rules: Foreign subsidiaries must comply with the UK’s international tax rules, including rules for Controlled Foreign Companies (CFCs), to prevent tax avoidance through profit shifting.

Regulatory and Compliance Requirements

When setting up a subsidiary in the UK, register with Companies House, obtain a company number, and acquire necessary licenses. Submit annual reports and financial statements, adhere to UK tax laws, including Corporation Tax and VAT, and comply with employment and environmental regulations. Follow data privacy laws such as GDPR and ensure compliance with foreign investment regulations, particularly concerning national security.

Do You Need a Physical Address for a Subsidiary in the UK?

Yes, to form a subsidiary in the UK, the company must have a physical address, which serves as the registered office for legal correspondence and official documents. This address must be within the UK and is required for registration with Companies House.

Now that you understand the requirement for a physical address, let’s move on to the next important step: setting up the operations for your subsidiary in the UK.

Operational Setup for a Subsidiary in the UK

Setting up the operational framework for a subsidiary in the UK involves several key considerations, including staffing, office setup, and compliance with local regulations. 

Here are some key steps to follow:

1. Staffing Considerations
   • Hiring local talent
   • Adhere to UK employment laws and register for PAYE if hiring employees.
2. Appointing Directors
   • At least one director is required, responsible for ensuring compliance.
3. Office Setup
   • Registered office address
   • A UK address is necessary for official communications.
4. Infrastructure
   • Ensure adequate space and equipment for operations.

How Do You Open a Business Bank Account for a Subsidiary in the UK?

If you need to learn how to set up a parent company with subsidiaries in the UK, here’s how to create a bank account for your subsidiary:

• Choose a Bank: Research banks that offer corporate accounts suitable for your subsidiary’s needs in the UK.
• Gather Required Documents:
  • Company Registration Number from Companies House.
  • Articles of Association or other governing documents.
  • Proof of Business Address (e.g., lease agreement).
  • Proof of Identity for company officers or authorized signatories.
  • Parent Company’s Certificate of Good Standing (if applicable).
• Complete the Bank Application: Fill out the bank’s business account application forms.
• Deposit Initial Funds: Most banks require an initial deposit to activate the account.
• Sign Account Agreements: Ensure the appropriate individuals sign the necessary documents to authorize account management.

Is an Operating Agreement Necessary for a Subsidiary in the UK?

In the UK, an Operating Agreement is typically not required for a subsidiary structured as a Private Limited Company (Ltd) since the company is governed by its Articles of Association. However, if the subsidiary is structured as a partnership or Limited Liability Partnership (LLP), having an operating agreement is crucial. This document outlines the rules for management, decision-making, and the distribution of profits, and is important for:

• Defining the roles and responsibilities of partners or members.
• Establishing procedures for conflict resolution.
• Ensuring liability limitations for the parent company.

While not necessary for corporations (Ltd companies), having clear agreements in place is essential when setting up a parent company with subsidiaries in the UK to avoid disputes and ensure smooth operations.

With the operational and financial aspects of setting up a subsidiary in place, it’s important to understand the broader economic landscape of the UK to better align your business strategy.

Opening a Branch vs. a Subsidiary in the UK

The following table outlines the key differences when deciding between opening a branch or a subsidiary in the UK.

How can Commenda Help you Expand in the UK?

In conclusion, whether you choose to open a branch or establish a subsidiary in the UK, understanding the legal, operational, and financial considerations is crucial for a successful market entry. Both options offer distinct advantages and challenges, and the right choice depends on your business objectives and long-term strategy.

Commenda can support your business throughout the entire process, from selecting the appropriate structure to navigating regulatory requirements and setting up operations smoothly. Their expert guidance ensures you make informed decisions and comply with UK laws, streamlining your expansion into the UK market. Ready to simplify your process of setting up a subsidiary company in the UK? Schedule a free demo today.

FAQs

Q. How much does it cost to set up a subsidiary in the UK?

The cost to set up a subsidiary in the UK typically ranges from £1,000 to £5,000+ in the first year. This includes incorporation fees, legal fees, registered office services, accountant fees, and any required permits or licenses.

Q. How long does it take to register a subsidiary in the UK?

The registration process generally takes around 1 to 3 days if done online through Companies House. Paper registration may take longer, usually 7 to 10 days.

Q. Can a foreigner fully own a subsidiary in the UK?

Yes, a foreigner can fully own a subsidiary in the UK. There are no restrictions on foreign ownership, and it is a common structure for international businesses.

Q. What are the common challenges when opening a subsidiary in the UK?

Challenges include navigating UK tax laws, ensuring compliance with local regulations, managing VAT registration, understanding employment laws, and dealing with the complexities of setting up operations in a foreign market.

Q.  Do subsidiaries in the UK need a local director or representative?

Yes, a UK subsidiary is required to have at least one director who is a natural person, but the director does not have to be a UK resident. However, having a local representative can help with practical management and compliance.

Q. What are the annual compliance requirements for subsidiaries in the UK?

Subsidiaries must file annual financial statements with Companies House, submit a confirmation statement, comply with tax filings (Corporation Tax, VAT if applicable), and maintain accurate records. They must also comply with relevant sector-specific regulations.

Q. Can a subsidiary hire employees directly in the UK?

Yes, a subsidiary can hire employees directly in the UK. It must comply with UK employment laws, including payroll taxes, national insurance, employee benefits, and health and safety regulations.

Q. What happens if a subsidiary fails to meet compliance rules in the UK?

Failure to meet compliance rules in the UK can lead to penalties, fines, and potential legal action. Non-compliance may also result in reputational damage, difficulty in renewing business licenses, and possible disqualification from trading. In extreme cases, it can lead to the company being struck off from the register.