Key facts
- A non-UK company with a UK permanent establishment (PE) is liable to Corporation Tax on the PE’s profits.
- Since April 2020, non-UK companies receiving UK property income pay Corporation Tax (previously Income Tax).
- Non-UK companies must register for Corporation Tax within 3 months of becoming liable.
- Double tax treaties may provide relief or exempt certain income from UK tax.
- The choice between operating as a branch or subsidiary has significant tax implications.
When Do Non-UK Companies Pay Corporation Tax?
A company incorporated outside the UK is generally only liable to UK Corporation Tax if it has a taxable presence in the UK. The main situations are:[1]
- UK permanent establishment — the company carries on a trade in the UK through a fixed place of business (office, factory, branch, etc.)
- UK property income — since 6 April 2020, non-UK companies with UK rental income are charged Corporation Tax instead of Income Tax
- UK-source trade — even without a PE, some UK-source trading income may be taxable (subject to treaty relief)
- Central management and control — if a non-UK company is actually managed and controlled from the UK, HMRC may treat it as UK-resident and tax its worldwide profits
Permanent Establishment (PE)
The concept of a permanent establishment is central to taxing non-UK companies. A PE typically exists where the company has:[4]
| Type of PE | Examples |
|---|---|
| Fixed place of business | Office, branch, factory, workshop, warehouse, building site (if lasting 12+ months) |
| Dependent agent | A person in the UK who habitually exercises authority to conclude contracts on behalf of the company |
If a PE exists, the non-UK company is liable to Corporation Tax on the profits attributable to the PE — not on the company’s worldwide profits. Profits are calculated as if the PE were a separate entity dealing at arm’s length with the rest of the company.[1]
Treaty protection: The UK has double tax treaties with over 130 countries. Many treaties narrow the definition of PE (for example, requiring a higher threshold of activity than UK domestic law). Always check the relevant treaty before concluding that a PE exists.[1]
UK Property Income
Since 6 April 2020, non-UK companies that receive income from UK property are charged Corporation Tax on that income, rather than Income Tax under the Non-Resident Landlord Scheme.[3]
Key points:
- The non-UK company must register for Corporation Tax with HMRC
- Corporation Tax is charged at the standard rates (25% main rate / 19% small profits rate)
- The company must file a CT600 return for each accounting period
- Capital gains on UK property disposals by non-UK companies are also within the Corporation Tax regime
Registration Requirements
A non-UK company that becomes liable to UK Corporation Tax must register within 3 months of the date it first comes within the charge.[2]
Registration is done online using HMRC’s Corporation Tax registration service. The company will need:
- Details of the company (name, country of incorporation, registered address)
- The date it started trading in the UK or receiving UK income
- The accounting period end date it intends to use
- A UK correspondence address
Failure to register on time can result in penalties. Once registered, the company files a CT600 for each accounting period, which can be done online with HMRC-recognised software.
Branch vs Subsidiary
An overseas company entering the UK market must decide whether to operate through a UK branch (PE) or set up a UK subsidiary (a separate UK-incorporated company). The tax implications differ significantly:[1]
| Feature | UK Branch (PE) | UK Subsidiary |
|---|---|---|
| Legal entity | Part of the overseas company | Separate UK company |
| Taxed on | Profits attributable to the PE | Worldwide profits (as a UK-resident company) |
| Losses | May be usable in the overseas company (depends on overseas law) | Remain in the UK subsidiary; group relief possible with other UK companies |
| Profit extraction | No withholding tax on branch remittances | Dividends to overseas parent may attract withholding tax (subject to treaties) |
| Transfer pricing | Applies between PE and head office | Applies between subsidiary and overseas parent |
| Filing obligations | CT600 return for branch profits | Full UK company compliance (CT600, Companies House accounts, etc.) |
Tip: The choice between branch and subsidiary depends on the specific circumstances — including the home country’s tax rules, treaty provisions, and commercial factors. Take professional advice before committing to a structure.
Frequently Asked Questions
Do non-UK companies pay Corporation Tax?
A non-UK company pays UK Corporation Tax if it trades through a UK permanent establishment, receives UK property income, or is centrally managed and controlled from the UK.
What is a permanent establishment for Corporation Tax?
A permanent establishment is a fixed place of business in the UK — such as an office, branch, or factory — or a dependent agent who habitually concludes contracts on the company’s behalf. The non-UK company is taxed on profits attributable to the PE.
How long does a non-UK company have to register for Corporation Tax?
A non-UK company must register for Corporation Tax within 3 months of the date it first becomes liable — for example, when it starts trading through a UK PE or first receives UK property income.
Should a foreign company use a UK branch or a subsidiary?
A UK branch (PE) is taxed only on profits attributable to it, while a UK subsidiary is a separate company taxed on its worldwide profits. The choice depends on the home country’s tax rules, treaty provisions, and commercial factors.
Further Reading
- Registering for Corporation Tax — the registration process for all companies
- Transfer Pricing — arm’s length pricing for connected-party transactions
- Non-Trading Income — property income and investment income rules
- The CT600 Tax Return — filing requirements for all companies within the CT charge
- Payment Deadlines — when Corporation Tax must be paid
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