| Permanent establishment (treaty) | a fixed place of business through which the business is carried on |
| Building site | usually a permanent establishment only after more than twelve months |
| Registering a branch | UK establishment at Companies House, £124 |
| Tax on the branch | corporation tax on the UK profit |
| At home | your country exempts or credits the UK-taxed branch profit under its treaty |
When a permanent establishment arises
UK treaties typically define a permanent establishment as a fixed place of business through which the business of an enterprise is wholly or partly carried on. They give typical examples too: a place of management, a branch, an office, a factory, a workshop.
Building sites and installation projects have a time limit: in the UK's treaties they usually become a permanent establishment only if they last more than twelve months; check your treaty for its period. A warehouse used solely for storing, displaying or delivering your own goods is not a permanent establishment on its own, nor are activities of a purely preparatory or auxiliary character. But careful: these exceptions do not apply if the warehouse forms a cohesive business with other activities of the same group in the UK.
The most common permanent establishment without an office is the agent. If you have someone in the UK who habitually concludes contracts in your company's name, you have a permanent establishment there, even without an office. An independent agent working for several firms in the ordinary course of their business, by contrast, does not create one. Your treaty's wording is in the GOV.UK collection; the principles are in the UK's tax treaties.
Branch or your own limited company
Both routes are possible. They differ in liability, administration and tax.
- Part of your company at home, no separate legal person
- Registered at Companies House as the UK establishment of an overseas company, £124
- All directors of the parent must verify their identity
- Corporation tax on the profit of the UK activity
- At home exempted or credited under your country's treaty with the UK
- A legal person of its own, contracts in its own name
- Incorporated at Companies House, £100 online
- Directors and persons with significant control verify their identity
- Corporation tax on its worldwide profit if UK resident
- Dividends to the parent without UK tax deducted
What the branch is taxed on in the UK
A foreign company with an office or branch in the UK pays corporation tax only on the profit of its UK activity. Which profit that is, the treaty decides: the branch is attributed what it would earn as a separate and independent enterprise, including in its dealings with head office. So services between head office and branch need traceable charges, as between unrelated firms; see transfer pricing.
The other side is your home country: it either exempts branch profits taxed in the UK or taxes them and credits the UK tax, depending on its treaty with the UK and its own law. We check the method for your case.
How high UK corporation tax is and which deadlines apply is in UK corporation tax.
The subsidiary: more distance, more clarity
A UK subsidiary is a company of its own. It concludes contracts in its own name, employs staff and is liable with its own assets. That your company at home controls the subsidiary does not, under the treaties, make the subsidiary a permanent establishment of the parent, or vice versa.
For tax the subsidiary is UK resident and pays tax there on its profit. If it pays dividends to the parent, the UK withholds no tax; how the parent's country treats the dividend depends on its participation exemption. The place of management still matters: if the subsidiary is in fact run from head office abroad, it may become taxable there, and then the advantage of the separate company is gone.
If you employ staff in the UK, you need UK payroll in both cases. A branch creates the tax presence HMRC requires for PAYE. The process is described in our UK Payroll product.
A decision aid
Not a formula, but a direction.
| Your situation | Rather a branch | Rather your own limited company |
|---|---|---|
| Market test with one salesperson | yes | possible |
| Own team, own customer contracts in the UK | rarely | yes |
| Public tenders, UK customers expect a UK company | no | yes |
| Liability to stay limited to the UK | no | yes |
| Start-up losses to count at home | check | check |
Our assessment; legal bases in the sources
Frequently asked questions
My employee works from home in England. Do I have a permanent establishment?
Not automatically. It depends on whether the home is a fixed place of business of your company and whether the employee habitually concludes contracts for you. For payroll, HMRC does not see an employee working from home as a presence of the employer on its own.
How do I register a branch?
At Companies House as the UK establishment of an overseas company. The fee is £124, and all directors of the parent must verify their identity for Companies House.
Does the branch need a VAT number?
If the branch makes taxable supplies in the UK, yes, and then the normal registration threshold applies to it as an established business. More in the UK VAT number.
Sources: GOV.UK: Corporation Tax; GOV.UK: Register a UK establishment of an overseas company (OS IN01); HMRC PAYE Manual PAYE81610
