What is a Subsidiary Company?
A subsidiary company is a separate legal entity that is owned in part or in whole by another company, known as the parent or holding company. The parent company has control over a subsidiary to the extent that it owns shares of the subsidiary, but the subsidiary’s financial results, assets, and liabilities will remain separate and distinct from the parent company. Unlike a branch office, a subsidiary is incorporated in the country where it will conduct business. It is therefore distinct from the parent company and other affiliates, regardless of what type of entity it is, and so it has its own legal identity.
The Benefits of Creating a Subsidiary Company in the UK
The UK is an attractive place for businesses to set up a subsidiary due to its stable political system and economy. Additionally, the UK has a business-friendly tax structure that can be advantageous for foreign companies and provides many incentives for businesses that wish to establish a presence there. A holding company based in the UK can also benefit from the country’s open trade relationships and its close proximity to continental Europe.
Steps to Open a Subsidiary Company in the UK
The most important step in opening a subsidiary in the UK is to be aware of the governing laws and regulations that must be followed. The first step is to register the company with Companies House, which is the official registrar of companies in the UK. The company’s constitution must also be set out in a memorandum, containing details about company name, registered address, and capital owned. Once signed by the board of directors and shareholders, the registration documents must be sent to Companies House, at which point the parent company has registered its subsidiary.
The next step is to appoint the subsidiary’s directors and ensure they meet the legal requirements of the Companies Act 2006. A director can be a natural person or an individual representing an organization. However, any directors that are not individuals must be authorized vessels of the parent company.
The parent company also needs to register the subsidiary’s company accounts. The company accounts must be prepared in accordance with UK generally accepted accounting practices (GAAP) and must be filed with the Registrar of Companies. The subsidiary must also register with HMRC and obtain the appropriate tax codes. The parent company will then need to open a bank account in the subsidiary’s name.
Ongoing Requirements of a Subsidiary in the UK
Now that the subsidiary is incorporated and operational, there are certain ongoing requirements that must be met. First and foremost, the company must comply with all applicable laws and regulations in the UK. The company must also keep accurate records of its finances and must prepare annual accounts to be filed with Companies House. The company must also file annual returns with HMRC and may be liable for specific taxes. Finally, the company must adhere to any corporate governance rules in the UK such as the Companies Act 2006.
Registration with the European Union
It is likely that a subsidiary based in the UK will also need to register with the European Union. This is necessary if the company wishes to trade with other EU countries. Before registering with the EU, the company needs to get a European VAT number and must register with the relevant authority in the EU country in which it will be based.
Advantages of Establishing a Subsidiary in the UK
Establishing a subsidiary in the UK can offer many advantages to the parent company. Setting up a subsidiary in the UK will provide the parent company with an increased presence in the European market, allowing it to expand its reach and boost its profits. Furthermore, it will provide the parent company with access to a large, skilled workforce in the UK, which can make it easier to grow the business. Finally, the UK’s comprehensive legal system, reliable infrastructure, and open trade relationships will help ensure the subsidiary is operating in a secure and robust business environment.
Considering the Full Costs of Establishing a Subsidiary in the UK
It is important for a parent company to consider the full cost of establishing a subsidiary in the UK. Although the taxes and wages in the UK are generally lower than other parts of Europe, the business costs of setting up a subsidiary can be high. These costs include registration fees with Companies House, fees for preparing documentation, fees for registering with HMRC, fees for registering with the European Union (if applicable), and so on. It is therefore important for a parent company to factor these costs into its decision-making process before setting up a subsidiary in the UK.
Minimizing Tax Liabilities for a Subsidiary in the UK
The parent company must also consider the potential tax liabilities when setting up a subsidiary in the UK. By understanding the country’s tax laws and regulations, the parent company can ensure that it is taking the necessary steps to minimize its tax liabilities. For example, by using the Double Taxation Agreements that the UK has with other countries, the company can avoid paying tax twice on profits generated in the UK. Additionally, the company can choose to register its subsidiary as an enterprise of a particular kind, such as a limited liability partnership, which may result in a lower rate of taxation.
The parent company must also be aware of the various regulatory rules and regulations that it must comply with when setting up a subsidiary in the UK. These laws and regulations include immigration laws, the Data Protection Act 1998, the Competition and Markets Authority, the Employment Rights Act 1996, and the Health and Safety at Work Act 1974. It is important for the parent company to do exhaustive research and understand all the applicable laws and regulations to ensure it is in compliance.
Keeping Up to Date with Changes in the Law
When setting up a subsidiary in the UK, it is also important to stay up to date with any changes in the law. This is especially important when it comes to tax laws, as they are constantly changing. The parent company should ensure that it is in compliance with all current regulations and be aware of the potential impact on its subsidiary.
Getting Professional Advice Before Committing to a Subsidiary
Although the process of setting up a subsidiary in the UK is relatively straightforward, it is still a complex process and one which should only be undertaken with expert advice. A professional lawyer can provide invaluable advice on the legal and tax aspects of setting up a subsidiary in the UK. Furthermore, an accountant can help in developing strategies to minimize the business’s tax liabilities and ensure the subsidiary is in full compliance with the law.
