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 in the UK, but we have made it easy for you. This blog offers you detailed information on all ins and out of setting up a business in the UK as a foreigner.
Legal Requirements For Starting A Business As Non-UK Resident:
If you have decided to form a limited company in the UK, this part provides the step-by-step process and guides you through the registration process, paperwork requirements and legal documentation.
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 can do it yourself through online submission or the Companies House application form. But an agent is considered a better option and does your job quickly. You must also register with Her Majesty’s Revenue and Customs for tax returns.
UK-Based Business Address
The next thing you do is to register an authentic physical address of 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 of a place in London.
It is legally required that you register a director while registering your company. It can be the same person as a shareholder. A minimum of one director is a must but must not necessarily be a UK resident.
You must register at least one shareholder with all its contact and address for company registration.
When it comes to company registration, the authority requires some consent from all the parties or shareholders of the business.
- A memorandum of association needs to be submitted with 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 is a document having the rules set by shareholders and directors to run the company. Moreover, it includes the rights and power 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 has the name of the company, incorporation date, limited by shares or guarantee, public or private limited company, and office address.
You are required to register with HMRC to pay corporation tax each year. A company needs to file its returns with HMRC timely. When a company is registered, you get a unique tax reference (UTR) number and use it for tax matters.
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.
Business Options For A Non-Resident Of The UK
The next thing you do is to choose the type of business structure. The one you choose will have notable implications on your taxes, administrative workload, your personal liability in case the business fails, and your ability to raise finance. We have discussed the different types of business structures.
The 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 have unlimited liability. It means you are personally responsible for all the liabilities and legal obligations of the business. You can easily register with HMRC as a self-employed sole trader.
A sole trader pays income tax and national insurance by filling out a self-assessment form. It has comparatively fewer filing obligations than limited companies. However, if your profits are bringing you into a higher tax bracket, this business structure might not be tax efficient.
This form of business structure is more organised and has increased legal requirements. It is owned by shareholders (stockholders) and managed by directors. You can discover different types of limited companies.
Private Limited Company
A private limited company is privately owned by people and is a separate entity in its own right. Its shareholders have liability only limited to their investment and do not include their personal assets. A private limited company means that it is only owned by its members, and its shares are not publicly traded on the stock market.
Public Limited Company
A public limited company is also a separate legal entity and owned by its shareholders. Shareholders in the public limited company have limited liability, and their personal assets are not used to pay any debts if the company faces bankruptcy. In contrast to private limited companies, its shares are traded publicly on the stock market, and the general public can buy its shares.
An unlimited company is similar to a private limited company. Likewise, it is owned by shareholders and run by directors on behalf of the owners. You register and submit the essential documents with Companies House that include the memorandum and article of association. Moreover, you also have to report details of shareholders and directors and annual confirmation statements to Companies House.
The difference arises when it comes to solvency. This form of ownership bears unlimited liability. Risk is higher in this type of company; when the company fails, the personal assets of shareholders can be used to offset the creditors’ claims. The shareholders are jointly liable to pay for the debts in case of bankruptcy, meaning the liability is not distributed according to the percentage of ownership. You might get to pay more if other shareholders are unable to pay.
For its unlimited liability nature, it shares features with a sole trader business. It also does not require filing its accounts with Companies House. So the company information is not available online on the Companies House website for the public.
You can choose to trade in a partnership. Different forms of partnership are discussed below.
A partnership is an agreement between two or more individuals who share the investment to run a business. Partners in business share the costs, risks, duties, profit, loss, and liabilities. They are self-employed in partnership, and it is not incorporated as a company. The partners share loss and profit according to their agreed profit sharing ratio and pay taxes accordingly.
A limited partnership is a form of partnership where it has one general and one limited partner. Both have different kinds of responsibilities and liabilities. Each partner pays tax according to his or her profit share. It is registered with Companies House and HMRC. You need to register the limited liability business and yourself separately for Self Assessment. Partners also need to register for VAT if profits are more than the threshold.
A general partner in a limited partnership is responsible for any debt that a business is unable to pay. He or she is responsible for managing and controlling the business. In contrast, a limited partner acts as a sleeping partner. He is not involved in business management. The liability of a limited partner is only limited to his or her amount of investment.
Limited Liability Partnership (LLP)
It is a partnership between two or more partners with their liability only limited to the investment. It is registered with Companies House and HMRC, and it needs to report and file annual accounts with Companies House. Partners set out the responsibilities and profit share in the agreement. Members party to the partnership are individually required to submit a self-assessment tax return. They pay national insurance besides paying taxes according to their profit share.
Off-shore enterprises are businesses that are registered and incorporated outside one’s country of residence. Entrepreneurs choose to have off-shore companies for many advantages, including privacy, wealth protection, reduced taxes, and, most importantly, protection against lawsuits.
You can set up a social enterprise or charity in the UK on the condition that profits are not distributed among trustees but used for charitable purposes. It can be used to relieve poverty, contribute to education health, or be generally in the best interest of the public. A charity setup requires you to have at least three trustees and select the structure for the charity.
You are not required to have a working visa unless you live and work in the UK. Following are the different visa options available.
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 getting this visa is that you need to have access to the investment funds of £50,000 with its proof of 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 to level B2 on the Common European Framework of Reference for Languages (CEFR) scale.
Startup Visa has similar requirements to an innovator visa; your idea needs to be innovative and must be unique in the market. But it does not have the condition of 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
Using UK Companies for Overseas Trade
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 a UK limited liability partnership is owned by non-UK residents, 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 is an agent for an off-shore company, with the right tax planning, the foreign trading income can be totally tax-free. The income received in the UK by the UK agent Company can be paid in full to the off-shore company without any tax application. For this arrangement, a UK company charges for its services as an agent and pays taxes on this income.
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 reliefs on their dividends from the 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 lesser
- A balance sheet with £5.1 million or less
While the medium or large companies can get full tax exemption on their dividends from abroad if;
- The payment is received from a company that is controlled by the UK recipient company.
- 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 dealing 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 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.
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 substantial shareholder exemption criteria are met. The criteria are that it must have owned at least 10% of the ordinary shares and held it for the last 12 months.
Can I set up a company if I am not resident in the United Kingdom?
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.
When looking for setting 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 the international structure. The UK offers vast benefits of reduced taxes due to the tax treaty network and other exemptions for being a non-UK resident.