IN135 - Use of a UK Company for Commercial Activities within EU Member States

When establishing a business in a European Union (EU) member state, it is not necessary for the business to be incorporated in a particular member state.

Why Consider Establishing a Company in another EU Member State rather than in your own Member State?

Following a ruling in the European Court of Justice in 2003, a business wishing to operate in an EU member state may nominate to incorporate a company in the member state of their choice.

This provides businesses with an opportunity to select the EU corporate regime that best meets their commercial objectives.

UK Companies – Advantages to Consider

UK companies are subject to less onerous rules and regulations than companies from most other EU states. In particular they have the following advantages:

• No minimum paid up share capital requirements.


• No capital duty payable on the issue of share capital.


• Only one director is required.


• No requirement for employee representatives on the board of directors.


• There are no residency requirements for the company secretary, directors or shareholders.


• An audit exemption applies to many companies (see below).

Double Taxation Agreements and Non-UK Resident Companies

UK companies are tax resident in the UK unless they are deemed to be tax resident in another country by virtue of a tie-breaker clause in a double tax agreement between the two relevant countries. If a company is deemed to be non-UK resident, the company will not suffer taxation in both the UK and the country in which it is managed and controlled.

For a tie-breaker clause to come into effect the company must be classified as resident in the country with which the UK has the double tax agreement, under the domestic law of that treaty country. The company's head office or place of effective management must be in that country. In these circumstances it is possible for a UK registered company to operate a branch in another EU member state.

It is important that the company and not just the branch are managed in that EU member state and that there is a tie-breaker clause in the treaty with regard to residence. The company will then be treated as non-UK resident and not liable to UK corporation tax. The company will therefore be taxable under the domestic law of the other EU member state.

It is important to establish non-residence in the UK at the outset. If the UK company is initially resident in the UK, it will have to pay UK tax on the increase in value of its assets when it becomes non-resident and must give notice to the Inland Revenue of its intention to cease to be UK resident.

In order to ensure that there is no management or control in the UK from the outset, all of the appointed directors of the company should be based outside the UK. In this way no management and control would be exercised in the UK.

Obligations of Non-UK Resident Companies

• The company will need to submit annual returns and financial statements to Companies House in the UK. These accounts need to be prepared in accordance with the generally accepted accounting practices in the UK.


• An annual return fee of £15 needs to be paid.


• The UK company must maintain a registered office in the UK.


• The company's tax position needs to be agreed with the Inland Revenue. Once non-UK resident status is agreed, returns only need to be made every three years.


• A UK company is required to have its accounts audited unless it qualifies for exemption. To qualify for audit exemption, the company must have a turnover of not more than £5.6M and must have a balance sheet total of not more than £2.8M. If the company is part of a group, it will only qualify for the audit exemption if the sum of the company turnovers and balance sheet totals for all the companies in the group, including non-UK companies, do not exceed the limits. Regulated companies and companies which are subsidiaries of public companies do not qualify for the audit exemption.

How can Dixcart Assist in Establishing a Non-UK Resident Company?

Dixcart can organise the incorporation of a UK company and undertake the formalities necessary in dealing with the Inland Revenue to establish the non-UK tax resident status of the company. Dixcart can also provide a registered office, company secretarial expertise and complete taxation and audit services.

If it would also be beneficial for the company to have UK contact details Dixcart can provide virtual office facilities. This Dixcart virtual office facility not only provides a UK address, fax and email but also a UK telephone number with call handling services. Details of these virtual office services can be found at www.dixcartvirtualoffices.com

Summary

A UK company can offer a number of advantages to businesses in other EU member states. This is due to the low capital requirement, lack of capital duty on the issuing of new share capital and the absence of residence requirements for directors, secretaries and shareholders.

Additional Information

If you require any additional information about the use of a UK company for commercial activities, please contact Laurence Binge in the UK office or your usual Dixcart contact.