Are you thinking about expanding your business operations into the UK as a subsidiary? You will need to consider what opening a subsidiary means for you in terms of tax, accessibility, legal implications, and how the UK regulatory system varies to other countries.

There is a lot to consider about your new venture and while some businesses opt for the branch route to mitigate compliance costs, others find the increased risk from lack of limited liability to be too great.

Unlike a branch, a subsidiary is a separate legal entity, which comes with several advantages and disadvantages, depending on your growth plans and what internal resources you have at your disposal. While a branch operates as an extension of the parent company, a subsidiary might have an entirely different business purpose and plan.

Benefits of setting up a subsidiary

An immediate advantage to having a subsidiary is the speed in which it can be incorporated, normally just a few days whereas branches can take weeks. A subsidiary entity will be required to file its own accounts on public record whereas a branch must file the overseas parent entity’s accounts.

If in the unlikely event a subsidiary becomes insolvent and needs to be liquidated the debts stay with the subsidiary unlike with a branch closure, where any remaining debts would affect the parent company, a subsidiary closure would protect the broader business' assets.

The UK generally allows dividend payments between companies to be free of tax.

Implications of setting up a subsidiary

While creating a subsidiary offers a wealth of tax benefits and limited liability, the costs of opening an overseas subsidiary compared to a branch can be higher as it may fall into the audit regime being part of an international group.

In relation to tax compliance, subsidiaries have more independence from the parent than a branch. This makes your business tax structure more complex and time-consuming when ensuring your subsidiary complies with UK tax laws and regulations.

A disadvantage of setting up a subsidiary is its separation from the parent company. While this means that negative repercussions can be distanced from the wider business, it also means that the parent company has limited control in decision-making and management. This can lead to the challenge of disagreements across the parent and subsidiaries as well as longer turnaround times for crucial decisions.

There are various benefits and implications when setting up a subsidiary in the UK, each with its own unique elements of risk and reward depending on your business priorities. Considering these implications and seeking relevant legal and financial advice is essential to help you navigate the intricacies of branching out into the UK market.

How can we help?

We tailor our services to suit your business, whether you're a fast-growing start-up, intergenerational family business, professional practice, or international group of companies. If you are looking to set up a business or expand into the UK and need to consider what regulatory requirements might apply to you, our specialist team can guide you through the process.