Differences Between a UK Subsidiary and Branch
For those organisations that have decided to set up a UK presence, a subsidiary is a popular option with many benefits. Below we explain what a subsidiary is, and why you may (or may not) choose to incorporate a UK Subsidiary rather than set up a UK Branch.
We find the vast majority of clients choose to incorporate a subsidiary unless there are specific tax or corporate drivers in favour of a branch. We look at the key reasons for this further below.
What is a UK Subsidiary Company?
A UK subsidiary is simply a UK company that is owned by a non-UK company. The UK company is part of the same group as its parent, but it has separate legal personality, can enter into contracts, has limited liability and operates as a stand alone entity. Normally it is subject to UK taxes and laws in the same way that any other UK company is.
What is a UK Branch?
A UK branch is created when a non-UK company sets up a physical place of business in the UK. Technically, this is known as a UK establishment but it is often referred to as a branch. It is a way for a foreign company to do business in the UK without setting up a legal entity. The UK establishment will be subject to UK taxes and can do business in the UK, but it does not have a separate legal personality. Therefore, any assets and liabilities of the UK establishment are assets and liabilities of the foreign company.
UK Branch vs Subsidiary: Key Differences
Incorporation
Subsidiaries are incorporated in the UK. Branches are not – they are only registered in the UK as an overseas entity.
Incorporating a subsidiary can be done very quickly (even on the same day) but registering a branch is a longer and more complicated process that often takes a number of weeks.
Ownership
Subsidiaries are owned by the parent company, although you can also have local partners with an ownership interest.
UK Branches are not owned per se, as they are simply part of the parent company.
Liability
Any liability is ring fenced in a subsidiary and does not impact the parent company unless it provided a guarantee or similar.
Any liability incurred by a UK branch will be owed by the parent company as well.
Commercial implications
A UK branch can enter into all types of commercial contracts, including financing arrangements. However, branches are a lot less common and practically branches often find it harder to enter into commercial agreements.
Financial Reporting
The general position is that subsidiaries file accounts on a standalone basis. Unless there is a requirement to consolidate the group accounts, the accounts will just relate to the subsidiary.
A UK branch files the accounts of the foreign company with Companies House in the UK, together with a trading statement in respect of the UK establishment.
Audit
Branches do not require statutory audits. All UK incorporated companies require a statutory audit unless it, together with the group to which it belongs, is “small”. To be small, the group must meet two out of three criteria on a consolidated basis: turnover less than £10.2m, Balance Sheet total of less than £5.1m, or an average of 50 or fewer employees.
Tax
For Branches, corporation tax is charged on UK profits only. UK subsidiaries pay tax on their worldwide profits (subject to credits for taxes suffered overseas). Branches may also offset losses incurred in the UK with profits generated in their parent company’s tax return. Branches often find it harder to register for VAT.
Liquidation
Closing a subsidiary can take anything from 2-3 months (for a simple striking off) to a number of years for a full liquidation.
Closing a UK branch is much quicker and simpler.
Cost
The cost will vary from client to client but, as a general rule, we find that the setup and ongoing costs related to a subsidiary are lower than for a branch.
As a general rule, setting up a subsidiary is quicker, cheaper and makes it easier to do business in the UK. For some clients, there are specific tax or regulatory requirements that favour a branch over a subsidiary but in the vast majority of cases we would recommend a subsidiary.
How to setup a subsidiary?
We’ve produced a guide here of the things to consider when setting up a UK subsidiary. It is also available as a downloadable checklist.
How Elemental can help
| Setting up a UK Subsidiary or Branch | How we can help |
|---|---|
| Subsidiary or Branch Formation | |
| Annual Statutory Compliance | |
| Subsidiary Directors and Conflicts of Interest | |
| Legal Requirements | |
| Accounting | |
| Corporation Tax | |
| VAT (Sales Tax) | |
| Hiring Employees | |
| Payroll | |
| Tax Planning |
We have been working with Elemental CoSec for the past 5 years, and we’ve had a fantastic experience. Nick and his team are highly professional and responsive, and they are a key partner to our business in the UK. We highly recommend working with them.”
Alfredo Apéstegui
Manager & Chief Legal Officer, Mesoamerica (working with Ontaria Teachers’ Pension Plan).
Read our guides for clients
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Get in touch with us today to understand more about the difference between a UK Subsidiary and Branch, or to request a proposal.
