Entrepreneurs consider the UK one of the most attractive places for business as it is one of the world’s greatest economies and ranks higher for ease of doing business. The economic indicators, i.e., High GDP, High Consumer Purchasing Power, and Strong Currency, inspire people across the globe to invest in the UK.
If you are a non-UK resident and want to know how to set up a business in the UK as a foreigner, then this blog is perfectly crafted for you. It might seem very hectic to start a business in the UK as a non-resident, but we have made it easy for you. This blog offers you detailed information on all the ins and outs of starting a business in the UK as a foreigner.
Business Options For A Non-Resident Of The UK
The first thing you do before starting a business in the UK as a non-resident is to understand the different business structures in the UK. The one you choose will have notable implications on your taxes, administrative workload and your personal liability.
Sole Trader
A sole trader business is the simplest and easiest to manage. You are the sole owner and run the business by yourself. You are entitled to unlimited liability. It means you are personally responsible for all the liabilities and legal obligations of the company. You can easily register with HMRC as a self-employed sole trader.
Limited Company
This form of business structure is more organised and has increased legal requirements. It is owned by shareholders (stockholders) and managed by directors.
Partnership Companies
A partnership is an agreement between two or more individuals who share the investment to run a business. Business partners share the costs, risks, duties, profit, loss, and liabilities. A partnership can be a general, limited, or unlimited liability partnership.
Off-Shore Enterprise
Offshore enterprises are businesses that are registered and incorporated outside one’s country of residence. Entrepreneurs choose to have offshore companies for many advantages, including privacy, wealth protection, reduced taxes, and, most importantly, protection against lawsuits.
Social Organisation
You can set up a social enterprise or charity in the UK, provided that profits are not distributed among trustees but used for charitable purposes. It can be used to relieve poverty, contribute to education and health, or be generally in the best interest of the public. Setting up a charity requires you to have at least three trustees and to select the structure for the charity.
Legal Requirements For Starting A Company As a Non-UK Resident:
If you have decided to form a limited company in the UK, this section provides a step-by-step process and guides you through the registration process, including paperwork requirements and legal documentation.
Company Registration In the UK for Non-Residents
You start by registering your company with a unique name with Companies House. The company name should not be the same or similar to the existing company name. You can hire an accountant or an agent to register your company with the Companies House, or you can do it yourself through online submission or the Companies House application form. However, an agent is considered a better option and can do your job quickly. You must also register with Her Majesty’s Revenue and Customs for tax returns.
UK-Based Business Address
The next step is to register a genuine physical address in the UK for your business. HMRC and Companies House will use this registered office address for legal correspondence and mail. For example, a company registered in London should provide an address in London.
Director Registration
It is legally required to register a director when you register a company in the UK for non-residents. It can be the same person as a shareholder. A minimum of one director is a must, but it need not necessarily be a UK resident.
Shareholder Details
You must register at least one shareholder with all their contacts and addresses for company registration.
Formation Documents
When it comes to company registration, the authority requires consent from all the parties or shareholders of the business.
- A memorandum of association needs to be submitted to Companies House. It is a legally binding document that serves as an agreement for the formation of the company by the shareholders and directors.
- Articles of association are a document that sets out the rules set by shareholders and directors to run the company. Moreover, it includes the rights and powers of shareholders and directors over the business.
- A share certificate serves as proof of the investment by a shareholder. It includes certificate number, company details, shareholder details, number of shares, and amount paid for shares.
- The certificate of incorporation is provided by Companies House when you successfully register your company with it. This certificate for UK company incorporation by non-residents includes the company’s name, incorporation date, whether it is limited by shares or guarantee, whether it is a public or private limited company, and its office address.
Tax Registration
You are required to register with HMRC to pay corporation tax each year. A company needs to file its returns with HMRC in a timely manner. When a company is registered, you get a unique tax reference (UTR) number and use it for tax matters.
Bank Account
Although it is not necessary to have a bank account to run a limited company in the UK, it is still suggested to open one. You receive payments through that account and have a clear history of business transactions. Moreover, a dedicated account for business also helps you to have a separate record of business cash flow.
Visa Criteria
You are not required to have a working visa unless you live and work in the UK. The following are the different visa options available.
Innovator Visa
Entrepreneurs executing an innovative business idea in the UK need an Innovator visa. The idea must be a feasible one, different from anything else in the market, and must be endorsed by an approved body or institution. A very strict condition for obtaining this visa is that you must have access to investment funds of £50,000, along with proof of the source.
The immigration office requires you to have £1,270 in your personal account for the last 28 days to support yourself before you apply or switch to it. Another requirement is that you must be able to speak English at level B2 on the Common European Framework of Reference for Languages (CEFR) scale.
Start-up Visa
A Startup Visa has similar requirements to an Innovator Visa; your idea must be innovative and unique in the market. However, it does not have the minimum investment funds. You must keep a minimum balance of £1,270 in your account for the last 28 days before application. Moreover, you need to achieve level B2 on the Common European Framework of Reference for Languages (CEFR) scale.
Not only this, but you need to be endorsed by an authorised higher education authority or business institution. It must be in your knowledge that you will be required to switch this visa after two years and can not extend it.
Global Talent Visa
People who are highly skilled or have considerable expertise in one of the following fields can apply for a global talent visa.
- Academia or research
- Digital technology
- Arts and Culture
It must be endorsed by the relevant body to prove that you are an expert or leader in any of the above fields. You can live up to five years on this visa.
Benefits of Starting A Business in the UK as a Non-Resident
The UK is indeed an attractive location for International Trade and Investment as it offers a very friendly business environment and policies. Moreover, you would find it more beneficial when it comes to taxation in overseas trade.
- If non-UK residents own a UK limited liability partnership, they can receive non-UK trading income directly into the UK LLP without tax charges by making it certain that they are non-UK residents.
- If a UK company acts as an agent for an offshore company, with the right tax planning, the foreign trading income can be entirely tax-free. The income received in the UK by the UK agent Company can be paid in full to the offshore company without any tax application. For this arrangement, a UK company charges for its services as an agent and pays taxes on this income.
Dividend Exemption
The UK companies receiving income from their foreign subsidiaries can be exempt from 19% corporation tax. Tax exemptions are so wide that almost all kinds of dividends from subsidiaries to UK companies are tax-free. Importantly, small companies in the UK can enjoy full tax relief on their dividends from companies or residents of the country that are party to the double taxation agreement. A small company in the UK is defined as a company that has two of the following characteristics.
- A setup having 50 or fewer employees
- £10.2 million worth of business turnover or less
- A balance sheet with £5.1 million or less
While medium or large companies can get full tax exemption on their dividends from abroad if;
- The payment is received from a company that the UK recipient company controls.
- Dividends are paid in respect of ordinary shares.
- If the dividend is of non-redeemable capital
- Most portfolio dividends
- If the dividends are from transactions not designed to reduce tax
UK Holding Companies
UK companies can also be used for the efficient handling of overseas tax. Entrepreneurs use UK companies as holding companies for tax benefits. Holding companies provide financial assistance and loans to the overseas subsidiaries, which makes the entrepreneurs and shareholders consider the tax treatment of the interest received in the UK on the loan.
Let’s take an example of a three-company arrangement. If a UK company borrows funds from a non-UK company to support its subsidiary, then the UK company can deduct the interest paid to the off-shore donor company for tax purposes from the interest received from the overseas subsidiary company on the loan provided to it. So, the UK company is charged tax only on the amount left after the tax deduction.
Capital Gains
Here is an interesting example of how a non-UK resident as a beneficial owner of assets that are used by a UK company can help it to avoid taxes legally. If a UK company holds an asset whose beneficial owner is a third party, a non-UK resident, and the UK company disposes of the asset, the gain on the sale will not be subject to capital gains tax.
Moreover, a UK company that is a holding company of a trading group is not liable for capital gains tax on the disposal of its foreign subsidiary. It qualifies for this exemption if the conditions for the substantial shareholder exemption criteria are met. The criteria are that it must have owned at least 10% of the ordinary shares and held them for the last 12 months.
FAQs
Can a non-UK resident form a UK limited company?
Yes, you can register and run a limited company even if you and the proposed directors and secretary of the company are not residents of the United Kingdom. But Companies House requires you to provide a UK office address at the time of registration.
Does a UK company need a UK resident director?
No, there is no such requirement of having a UK resident director for setting up a UK company. But you must provide a UK-registered office address for quick correspondence between the authorities, i.e., Companies House, Her Majesty’s Revenue and Customs.
Can I have a company in the UK and live abroad?
Yes. A shareholder, director, and secretary can live anywhere in the world. It is not compulsory to be a UK resident to run a company in the UK.
Conclusion
When looking to set up a business in any foreign country, the UK seems quite an attractive spot for entrepreneurs. It provides not only a stable legal environment but also a favourable political and economic system. The tax treaty network of the UK, with more than 130 countries, makes it more desirable for all non-UK residents. Taxes are an important consideration when choosing a location for a holding company in an international structure. The UK offers the vast benefits of reduced taxes due to the tax treaty network and other exemptions for being a non-UK resident.
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