Hamilton Pratt

What are the relative tax advantages of a representative office, a branch and a subsidiary?

Representative office: As explained above, if your UK activities bring you within the UK tax regime, you will by definition be operating more than a representative office. If you limit your operations to those of a representative office you will keep your relationship with the Inland Revenue as simple as possible. If your planned activities take your operations beyond the status of a representative office, you will need to decide whether to conduct your operations through a branch of your overseas company or to establish a separate UK subsidiary company.  Each has potential tax advantages.

Branch:  If your UK operations will initially be loss making, there may be some advantages in commencing your operations through a branch since, depending on the tax regime in your own country, this may enable start-up costs and trading losses to be set against profits for tax purposes in your own country. By contrast, losses of a subsidiary would be carried forward to set against future profits of the same trade.

Subsidiary:  If UK profits are unlikely to be substantial, the use of a subsidiary may result in a lower UK tax rate because the company may be entitled to the starting rate of corporation tax or the small companies rate.

The tax consequences of sending profits back to your home jurisdiction will be important if you choose to operate through a subsidiary.  No deductions or withholdings are made from dividend payments but dividends are paid out of profits that have already suffered UK tax.  Double tax relief may be available in your own country to take account of the underlying tax on the profits from which the dividends are paid.

See the section 'Profits:  Dealing with Tax Issues' for further details of the UK tax regime.