UK Company Formation as a Non Resident
UK is one of the easiest places to set up a business if you are a non resident in UK. The process is simple and online and UK company formation by a non resident person can be done online without having the need to talk to someone.
However as a non resident it is advisable that you form a company in consultation with an experienced accounting firm, the one who specialises in helping non resident entrepreneurs with UK company formation.
There are number of challenges that you may face once you have formed your UK company, for example, opening a bank account, which bank to choose, should you register for VAT, when you need to pay your taxes and most importantly how you can extract profits from your business while minimising your tax bill.
Company Set up
UK Company formation for non residents is quite straightforward. You do not have to reside in UK to set up a UK Company. You will, however, need to provide your ID documents including a photo ID and proof of home address in your home country which can be a utility bill or personal bank statement no more than 3 months old.
UK Company formation for non resident can take up to 2 days to be formed from the time you place your order. Your company will need a registered office address which all company formation agents can provide for an annual fee. You may also need to consider if you need to take up mail forwarding services as registered office address fee normally covers mail received from Companies House and UK Tax office. Any other post received could be returned to the sender if you have not taken up mail forwarding service.
Opening a Bank Account
UK offers a wide variety of choices when it comes to opening a UK Business Bank Account. As a non resident Director of a UK company, it can be challenging and sometimes frustrating to get a bank account opened as most banks ask for UK residence address for the Director(s). Knowing the right accountants and business advisors can make all the difference here. An established accounting firm who has the right contacts in the banks to make the introduction can make it easier to get the bank account opened quickly and allow you to have a named bank manager allocated to you who can resolve most of your banking needs without the need to call their call centers.
There are a number of online service providers in the UK, who are registered with the Financial Conduct Authority and do not have a full banking license. Such organisation can open a “bank account” for you and use another bank to route your transactions. This arrangement can work in the short term and for smaller value transactions. If you intend to have multi currency accounts, or need to make large value payments then you will find yourself struggling to run your business as a non resident Director of a UK company.
Therefore it is important that you choose the right bank that can fulfil your business needs in the long term and provides the right level of service and support to help grow your business.
Non Resident Director(s)
For US citizens setting up a UK company as a non resident poses a few more challenges. The US taxation laws tax US citizens on all their worldly income and therefore banks are under obligation to report transactions to US authorities if required. That does not mean that US citizens cannot do business in the UK, it just means that right process needs to be followed to ensure you do not trip up at a later stage when profits need to be reported to UK and US tax authorities.
If you are setting up a subsidiary of a US business in the UK, you may be better off using local Director(s) to help set up a business bank account before you add US Directors to the UK company board. If you do not intend to appoint any UK local Director and all Director(s) will be non resident, then it is advisable to speak to accountancy firms like Premier UK Business LLP who specialises in helping non resident Directors with UK company formation to make sure your bank account application does not get rejected.
VAT Registration
VAT registration may be required from the outset, specially if you intend to import goods to UK or sell services in the EU via the UK company. Unless you have a genuine office address in the UK, you may find that your VAT registration application may not get approved. The UK VAT office may ask for proof for intentions to trade, which can be difficult to provide if you have just set up a company and have not started trading yet. Choosing the right accountancy firm can make sure that they will take you through these hurdles without causing unnecessary delays to start off your business in the UK.
Business Establishment
A number of US companies wishing to explore UK market are sometimes incorrectly advised that if they employ or use freelance sales people then they do not need to set up a UK company or register their operations with tax office in the UK. This is not the case, once you have employed someone directly or indirectly to sell or service your products you may be considered to have a business establishment in the UK and it needs to be registered with the UK tax authorities. The fines for non compliance are steep and can go back to several years if that turns out to be the case.
Being a non resident or not knowing UK laws is not an acceptable excuse when it comes to dealing with HMRC (UK tax authorities). Even if the UK establishment is not selling directly to customers in UK or Europe, it could still deemed to be carrying on a business in the UK and HMRC can attribute revenue generated by the US company via this establishment to the UK entity and raise tax assessments. Any arrangement of recharging UK establishment costs to the US parent company on a cost plus basis needs to be agreed with HMRC to ensure there are no surprises at a later date.
Iit is extremely important that you take the right advice from the outset to ensure as a non resident person or entity you chose the right solution and comply with UK and US tax legislation.
Profit Extraction
If you set up a UK subsidiary of a foreign company it is important that the relationship between these companies is defined from the outset and is set up on a commercial basis. Tax office will look into any transactions between the UK subsidiary and the foreign parent company to see on what basis the parent company is charging the UK subsidiary for the supply of goods and services. Although transfer pricing legislation applies to much larger entities, similar principals can be used by HMRC to review relationship between UK and foreign group companies to ensure the transactions are being carried out on purely commercial basis.
It is important therefore to seek right tax advice from the outset and structure transactions in a way that avoids detailed scrutiny from HMRC.
UK subsidiary will be required to pay UK Corporation Tax on its profits in the UK and remaining profits can then be submitted to the US parent company free of tax.
If non UK resident Directors are paid any salary or fee from the company, it is not taxed in the UK as long as these Director(s) are not UK tax resident.
Conclusion
Setting up a UK company for non UK resident Directors is simple but there are challenges that may lie ahead. Finding a right business advisor can make the difference between your business getting off the ground or you getting frustrated and shelving the idea of expansion into UK / Europe.
