The EU’s right of establishment encompasses two important considerations, such as, starting your business in the UK and/or practicing your profession in the UK.
The established legal presence in the EU member state also allows it to provide services in another EU member state on a temporary basis. This is the mandatory requirement, which needs to be met when providing services within the EU.
The UK abruptly left the EU and the rules that applied during the two year transition period stopped applying in the last hours of 31 December 2020.
In the final hours, there was still some hope that an agreement perhaps may be reached with the EU and it will not entail the complete withdrawal from the EU legal regime.
The Advantages of the UK as a Jurisdiction
The UK is a popular destination for establishing a reputable business, which can operate worldwide. Operating an English company in the UK for the purposes of inter-European trade while the UK was a member of the EU meant undercutting significant restrictions in the EU single market where many aspects of doing business and operating a company still lacked harmonization.
A comment was frequently made that it was so much easier to facilitate international trade between Italy and Spain through an English company instead of setting up individual operations in these respective countries.
In fact, a number of tax incentives are present in the UK law to facilitate international trade through an English company based in the UK.
The UK is a common law jurisdiction, while the rest of Europe is based on civil law. Incorporating a company under civil law provisions, requires to pay a significant amount of capital upfront before the incorporation process can be started. This is not the case in the UK. Yes, you will need to have the initial capital to run and administer the English company in the UK, but it will not prevent you from incorporating a legal entity under the English law.
This incorporation requirement was particularly attractive to overseas individuals who wanted to run their business more simply. The concept of English non-resident companies was born. This meant that you could incorporate a company in the UK and run it as a non-resident company with a base possibly in your own home country or elsewhere.
Here we focus on establishing an English company that is run and is resident for legal and tax purposes in the UK.
Establishing Your Business in the UK
It is fairly easy to incorporate an English company provided the essential requirements are met.
Registered office address
An English company needs to have a registered office address. Technically, the registered office is the legal seat of the company. It is usually provided by accountants and lawyers based in the UK.
Registered office is significant as all important communication and documents are received from the Companies House and the HMRC (Her Majesty’s Revenue and Customs). It is important to keep an eye on these important communications. Therefore, it is usually very helpful when such letters are processed by the accountants and/or lawyers appointed as agents for the company.
Registered office is also important as this is also a service address for court documents to be served. Therefore, it is important to monitor important pieces of communication in order not to miss out on important letters and legal documents.
UK Resident Director
You need to have a local director for the company to be operational in the UK. The legal requirement is for the management and control of the company to be based in the UK.
The management and control depending on the size and the structure of the company is represented by a sole director or board of directors.
Management and control of the company establishes the legal and tax residence of the company. It is important to meet this requirement as UK authorities may question the legal and tax residence of the company and treat it as a non-resident one.
If you want your business to be fully operational in the UK, you have to ensure that the company’s legal and tax residence is based in the UK and the management and control of the company is based in the UK.
Overseas entrepreneurs are usually surprised to learn that they alone cannot be directors of English companies, in particular if they are not resident in the UK themselves.
Disregarding this mandatory requirement may also translate into the inability to open the bank account for the company, which clearly requires for the company directors to be resident and accountable for the actions of the company in the UK.
Shareholding of the Company
On the face of it, the legislation in the UK allows for the shareholders to be based overseas. However, if you are opening a bank account in the UK, the banks may require for part of the shareholders to be based in the UK. Sometimes, this requirement is as high as 50%. However, it is dependent on the bank’s policy.
Historically, it was possible to use an English company that would act as a nominee shareholder for overseas natural or legal persons. This arrangement would be fully recognised by main banks and their international client departments. This used to be a run of the mill arrangement. Unfortunately, this is no longer the case.
Therefore, if you are looking to open a bank account for your English company, the banks may require shareholders to be resident in the UK.
This requirement is more easily met if the overseas person applies for the Tier 1 Innovator visa requirement.
The position is a little bit more complex if this is a branch or a wholly owned subsidiary of an overseas company in the UK. The requirement under the Representative of Overseas Business visa is to establish a branch or subsidiary in the UK.
It must be highlighted that a branch does not have a legal status. Therefore, the UK banks will not open bank accounts for branches of overseas companies in the UK.
In the case of a wholly owned subsidiary, which is a separate legal entity of the overseas company, a UK bank should be chosen whose policy permits foreign shareholding.
It should be noted that it is perceived that the UK’s financial system is susceptible to money laundering concerns and therefore, various steps are taken to reduce the likelihood of the UK’s financial system to be exploited by overseas individuals for money laundering purposes.
The Effects of the EU Law in the UK Post-Brexit
The purpose of the EU law is to facilitate the free movement of workers, goods, services, capital and the right of establishment. The EU law is tasked with removing any barriers to trade and free movement where it hinders or discourages intra-EU activity.
However, the EU law always recognised the local legal requirements for incorporation of the legal entities and establishing a business in any of the EU member states.
Anti-money laundering requirements are based on the EU legislation and it is legitimate for local authorities to set its own set of legal requirements in order to discourage the illegal activity.
This is clearly present in the UK. Technically, it is possible to incorporate an English company with directors and shareholders based overseas. However, for the English authorities to recognise the operation legality of the company, the management and control of the company as exercised by the individual directors or a board of directors needs to be based in the UK.
Additional considerations are prevalent when opening a bank account for the legal entity in the UK.
Looking to operate an English company in the UK and not sure where to start, schedule a consultation with me.
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Saule Voluckyte, M.A.E.S, LL.B, FAIA
I have been working exclusively with UHNWI in Mayfair, London since January 2008. I built specialist knowledge and expertise required to serve ultra high net worth individuals investing, operating and relocating to the UK or Switzerland.
Within the industry, I am the single adviser who is able to traverse the different areas of expertise and bring a comprehensive approach across: global structuring, UK immigration, international taxation and FOREX to develop their global wealth strategy, while they build, grow and expand their wealth worldwide.
Previous experience as one of the senior advisors for the government, made me a go-to person when delicate and uncomfortable scenarios involving heads of state need to be handled with care and preserve privacy.