When an overseas company intends to conduct business in the UK, it needs to select a type of business entity based on industry regulations or shareholder preferences. There are many options, this guidance gives an overview on the most common two options. One is to establish a subsidiary, which is a UK limited liability company. The other is to set up a branch or representative office, which is collectively referred to Permanent Establishment (PE) in the UK.

1. What is a permanent establishment?
   
   An overseas company constitutes a UK permanent establishment if:
   
   

   (1)	The overseas company has a permanent place of business in the UK and conducts all or part of its business activities through that place; or
   (2)	An intermediary agency continues to conduct business in the UK on behalf of the overseas company and is binding on the overseas company.

   
   Based on the above conditions, in common cases, if an overseas company opens an office in the UK, or hires sales staff working in the UK, it is a permanent establishment in the UK.
   
   
2. Choose between a subsidiary or a PE
   
   

   (1)	Business Vision If you would like to present that you have UK business, then setting up a subsidiary would be a better option, people are more likely to think of a subsidiary as a UK local business than an establishment, because it is seen as more stable and sustainable.
   (2)	Legal Liability A permanent establishment is not a separate legal entity from the overseas company, but an extension of the overseas company whose operations are governed by UK law. Therefore, a permanent establishment does not have the same limited liability as a subsidiary. If, due to the nature of the business, it is necessary to divide and limit liability in the UK, then establishing a subsidiary would be a better option.
   (3)	Financial Statement Disclosures If your company is conservative to financial information disclosures in your home country, a subsidiary is a better option. This is because businesses are only required to submit UK subsidiary's financial statements UK Companies House, while permanent establishments must submit the parent company's financial information to Companies House and all information is open to the public.
   (4)	Offset Losses If the UK permanent establishment incurs a loss, this loss can be used to offset the profits of the overseas parent company, subject to conditions. It should be noted that such deductions may not be available under the tax laws of the United Kingdom or the location of the headquarters. Generally, the losses of subsidiaries cannot be used to offset the profits of the parent company, but are carried forward to subsequent years to offset their future profits under certain conditions.

   
   
3. How to establish a subsidiary or a PE?
   
   

   (1)

   Subsidiary If a subsidiary is established in the form of a UK limited liability company, the whole procedure is relatively simple. Generally speaking, after submitting an application on the official website of Companies House, a limited liability company is established within 1-2 days. A form must be submitted when registering a subsidiary, on which at least one individual must declare their consent to serve as a director of the company. Although the law does not require a company to formally appoint a company secretary, the company is still required to perform some company secretary duties, which are often outsourced to service agencies. A UK limited liability company can have one director, but usually has two directors to facilitate the normal operation of the company. Directors can be non-UK tax residents and there is no minimum registered capital required by law. Typically, a company is formed with a minimum amount of capital (e.g. £1 per share, with 1,000 shares in total). Based on business development, the paid-in capital can be increased upon or after the company is established. The company name cannot be the same as another UK company name. Therefore, once the group decides to establish a subsidiary in the UK, it is advised to submit an application for registration as soon as possible.

   (2)

   Permanent Establishment Registering a permanent establishment takes longer, as it requires the headquarters of the overseas company to complete a form containing information on the shareholders, directors and the UK address where the business intends to operate. At the same time, certified copies of the company's memorandum and articles of association, as well as the company's entire set of accounts, must be translated. The entire process can take up to three weeks.

   
   
4. What are the accounting reporting responsibilities?
   
   

   (1)

   Subsidiary Under UK company law, subsidiaries are required to prepare and file company accounts every year, which are then made available for public. There are different types of accounts a company can choose to file, based on the type and size of the company. Typically, companies are required to file their accounts within nine months of the end of the financial year. A company has the option to specify fiscal year end date, in order to align the subsidiary's fiscal year with the parent company's. A UK company financial statement must be audited if the entire group (i.e. on a consolidated basis) meets at least two of the following indicators: a. Total revenue in excess of £10,200,000 b. Total assets in excess of £5,100,000 c. 50+ employees

   (2)

   Permanent Establishment If the laws of the overseas company require the company to disclose audited accounts, then the same applies to UK Permanent Establishment. Even if the overseas company does not need to prepare accounts, UK Permanent Establishment needs to submit to Companies House. Accounts submitted to Companies House are public information and are available online. If overseas companies would not like to disclose financial information, they may prefer establishing a subsidiary in the UK. On the other hand, there is also an option to set up a new company at the location of the headquartered company and then establish a permanent establishment in the UK under the name of the new company. In this way, when the accounts of the overseas company are filed in UK, only information relating to the activities of the permanent establishment is disclosed.