Accounting and Tax Implications on Overseas companies registered in the UK

The interconnected global economy makes establishing business structures across borders a reality. However, overseas companies registered in the UK must navigate a specific tax landscape set by HMRC (Her Majesty’s Revenue and Customs). Understanding these implications is essential for ensuring compliance and avoiding penalties.

This comprehensive guide explores the who, what, and why of UK taxation for overseas companies.

Who Needs to Consider UK Tax Implications?

Overseas Companies with a UK Establishment: An overseas company with a UK branch or place of business is considered to have a UK establishment.
Non-resident Companies with a UK Permanent Establishment (PE): A non-resident company with a substantial physical presence or activities in the UK, like a branch or office, might be considered to have a UK permanent establishment.

Understanding the Tax Implications: A Breakdown

The tax implications for overseas companies in the UK vary based on several factors, including the nature of their business activities and the type of income they generate. Here’s a closer look at some key areas:

Company Accounts: Most overseas companies with a UK establishment must file accounts with Companies House. The specific requirements depend on whether the company prepares accounts under its parent law.

Accounts prepared under parent law: If the company prepares accounts following its parent law, they must be delivered to Companies House within 3 months of the date required for disclosure under parent law. These accounts must be accompanied by a form (OS AA01) outlining details like the legislation under which the accounts were prepared and audited.

Accounts not prepared under parent law: Companies not required to prepare accounts under parent law must still prepare, sign, and deliver accounts to Companies House. Companies House will allocate an accounting reference date (ARD) upon registration. A form (AA01) can be used to change the ARD if needed.

Corporation Tax:

Profits from a UK permanent establishment: Non-resident companies with a UK permanent establishment may be liable to Corporation Tax on a portion of their global profits attributable to the UK PE.
Trading in or developing UK land: Since July 2016, disposals of UK land by non-resident companies involved in UK land development or dealing are subject to Corporation Tax.
UK rental income: As of April 2020, rental income earned by overseas companies from UK property is subject to Corporation Tax.

Other Taxes:

Stamp Duty Land Tax (SDLT): This applies to overseas companies purchasing residential property in England and Northern Ireland above a specific threshold. An additional surcharge has been in place since April 2021.

Annual Tax on Enveloped Dwellings (ATED): Companies owning UK residential property exceeding a certain value may be subject to ATED.

Capital Gains Tax (CGT) Gains made by overseas companies on disposals of:

UK residential property held as an investment (since April 2015)
UK non-residential property held as an investment or from rights in companies deriving at least 75% of their value from UK property (since April 2019)

Inheritance Tax (IHT): Trusts holding UK residential property, directly or indirectly, may be liable to Inheritance Tax. The settlor’s (the person who creates the trust) domicile and the situation of the settled property (assets placed in the trust) also play a role in determining IHT implications.

Central Management and Control (CM&C): If a non-UK incorporated company’s central management and control is exercised in the UK, it might be considered a UK tax resident liable to Corporation Tax on worldwide profits.

Additional Considerations

Non-resident Trustees: Non-resident trustees may be liable to Capital Gains Tax on disposals of specific UK assets and Inheritance Tax on UK residential property held in trust.

Transfer of Assets Abroad (ToAA): Individuals who transfer assets abroad to avoid UK tax might be liable to Income Tax under ToAA provisions.

iXBRL Filing for Overseas Companies: Ensuring Seamless Compliance

It’s essential to emphasize that overseas companies operating within the UK are required to furnish the relevant accounts as specified by a notice to deliver a return in iXBRL format. Similarly, a company not based in the UK but engaged in business within the country through a permanent establishment, branch, or agency must supply any trading and profit and loss account, along with any balance sheet of the UK establishment, branch, or agency, mandated as part of its return in iXBRL format. In other circumstances, accounts can be submitted in either iXBRL or PDF formats.

DataTracks, a global regulatory reporting solutions provider, assists companies in efficiently preparing and filing iXBRL accounts, ensuring a seamless and error-free digital filing process.