1 Private company limited by GUIDE TO FORMING A UK COMPANY The formation of a company in the UK is straightforward. No permission is required to establish a business presence, although there is some regulation of the use of business and trading names. All companies registered in the UK are required to register with Companies House and have to submit accounts and annual returns. Overseas companies establishing a branch or place of business in the UK must register and file annual accounts. Companies operating in the financial, defence, oil exploration and other regulated areas may require licences or authorisation to conduct business. TYPES OF BUSINESS VEHICLE UK (English) law provides for the formation of four different types of company. For almost all business purposes the form used is the company limited by shares, either as a private limited company (Ltd) or as a public limited company (PLC). Private company limited by shares ( Ltd ) - members liability is limited to the amount unpaid on shares they hold. Such a company can be formed off-the-shelf within 24 hours. guarantee - members, liability is limited to the amount they have agreed to contribute to the company s assets if it is wound up. Private unlimited company - there is no limit to the members liability. Public limited company ( PLC ) - the company s shares are offered for sale to the general public and members liability is limited to the amount unpaid on shares held by them. Only a PLC may offer its shares for public subscription. Most foreign companies set up a private limited company. No consents are needed, no local shareholders or directors are required and no minimum capital rules apply. Certain documents (e.g. Memorandum and Articles) must be filed with Companies House in order to form the company. Since 2000 a new form of corporation, a limited liability partnership (LLP), has become available. This combines the benefits of the limited liability of a private company limited by shares with the tax transparency of a partnership. It is particularly useful for joint ventures and is widely used in the financial services industry. 1
The Company s Act 2006, which will be implemented gradually until it is all in force in 2009, aims to make it easier to set up and grow a business, increase shareholder confidence and engagement and improve the UK s position as one of the most attractive places in the world to set up and run a business. Alternative Business Models for Foreign Investors In addition, investors can also establish a business presence in the UK through the setting up of a branch or place of business of the overseas company, partnership; or joint venture. Overseas companies can either register as a branch or as a place of business. A branch is part of an overseas limited company organised to conduct business through local representatives in the UK. A place of business is for companies who cannot register as a branch because they are from within the UK, they are not limited companies or their activities in the UK are not sufficient to define it as a branch (for example if the activity is simply a representative office). REAL ESTATE PICTURE The UK has one of the most dynamic and transparent property markets in Europe, with relatively stable rents and, over the last few years, flexible and shorter lease arrangements. There are no restrictions on overseas companies buying or renting property in the UK. (In terms of planning regulations, these are administered at a local government level). For companies looking for office accommodation in the UK, there are four basic options - serviced offices, rented offices, buying an office or constructing your own. Serviced Offices The serviced office sector is one of the fastest growing areas in the UK property market. Leases can be negotiated on a monthly basis and companies can usually move into a new location in the same week. The key advantage of serviced offices is that all costs are rolled into one monthly payment, which reduces administration, and leases can be as short as one month. Leases For companies moving into the UK, the key issue lies in whether to rent premises (known as leasehold ) or to buy outright (known as freehold ). It is difficult to generalise, but freehold tends to be more common for industrial premises, while leasehold is more prevalent for offices. Commercial leases typically run for 15 years, with reviews every five years, however, shorter terms are becoming more common. It may be possible to negotiate break clauses at set points throughout your lease, where the occupier can serve notice on the landlord to surrender their lease. Ensure that you have the right to assign or sub-let your lease. However, even when you have assigned or sub-let, it is very likely you will still be liable for the rent until the end of the lease. Therefore it is essential that you check the financial strength of your sub-lessee. The vast majority of leases on commercial premises are let on Full Repairing and Insuring terms with the onus and cost of all upkeep, decoration and repairs on the tenant. The majority of leases over three years in length will have a provision to increase the rent in line with the market conditions at pre-determined points through the lease. The standard clause allows for upwards only rent review provision at five yearly intervals. This means that should the market rent rise, so will the rent payable. 2
Costs The basic rent on a conventional lease will range from 100-650 per square metre ( 10-65 per square foot), depending on location and facilities, and subject to upwards only rent reviews at the end of the fifth year. Business rates (local commercial taxes) typically range from 20-130 per square metre ( 2-15 per square foot). The level is set by the local government authority, based on the rental value of your office multiplied by a percentage set by national government. You may be able to reduce your liability by instructing a Chartered Surveyor to appeal your rates bill. Legal fees, including conveyancing fees, stamp duty, land tax, local authority searches and bank transfer fees are applicable. A solicitor is necessary to assist in the preparation of all lease documentation. The legislation changes frequently, therefore it is important to choose a solicitor experienced in the property field. Timescale Although it is possible to occupy a new building within two weeks it is prudent to allow three to four months from initialising the search to taking occupation. This covers searching locations and buildings, negotiation of lease terms and the drafting of documentation. CORPORATE AND PERSONAL TAXES CORPORATE TAXES - Corporate Residence A company is regarded as tax resident in the UK if it is incorporated in the UK or if its central control and management is exercised in the UK. A company incorporated in the UK can also be treated as not resident in the UK under an applicable double tax treaty. It is possible for a company to be dually resident. Rates of Corporation Tax Corporation tax is chargeable on a company s worldwide income and chargeable gains. The rates for the financial years ended 31 March 2008 and 31 March 2009 are as follows: Band of Taxable Profit % 2008 % 2009 0-300,000 20 21 300,001-1,500,000 32.5 29.75 over 1,500,000 30 28 Non-resident Companies Companies that are not resident in the UK are only assessable to corporation tax if they carry on a trade in the UK through a permanent establishment in the UK and on all profits wherever arising which are attributable to that permanent establishment. Transfer Pricing Transfer pricing rules apply to both international and domestic transactions. The basic rule requires the actual provision to be compared to an arm s length provision (which would have been made between independent enterprises) and, if the actual provision confers a potential UK tax advantage on one or both the affected persons, an adjustment (to bring the profits up to what they would have been if the arms length provisions had applied) is to be made to the taxable profits of the advantaged persons. 3
Group Taxation Trading losses eligible for relief from corporation tax incurred by a company (the surrendering company) may be surrendered to another company within its group (the claimant company) for the claimant company to set off against its own profits for corporation tax purposes. The companies are within the same group where one is the 75% subsidiary of the other or both are 75% subsidiaries of a third company and certain other conditions are met. The group relationship may be established by reference to non-uk resident companies. Inter-company Domestic Dividends Corporation tax is not normally chargeable on dividends and other distributions of a company resident in the UK, nor are such dividends or distributions taken into account in computing income for corporation tax. This rule also applies to dividends received by the UK permanent establishment of a non-uk resident company. Double Tax Treaties The UK has a large number of double tax treaties. Relief from double taxation can be by way of treaty, by unilateral relief or by deduction. PERSONAL TAXES Individual Tax Rates (for the tax years 2007-2008 and 2008-2009) 2007-08 Startin g rate: 10% Basic rate:22 % Higher rate: 40% per year 0-2,230 2,231-34,600 Over 34, 600 2008-09 Basic rate: 20%* Higher rate: 40%* per year 0-36,00 0 Over 36,000 * There will be a new 10% starting rate for savings income only, with a limit of 2320. If an individual's taxable nonsavings income is above this limit then the 10% savings rate will not be applicable. There are no changes to the 10% dividend ordinary rate or the 32.5% dividend upper rate. The personal allowance in 2008-2009 is currently 5435. There are a number of tax allowances available which are dependent on marital status, age, and for the blind. Capital Gains Tax This tax is charged on the disposals and deemed disposals of assets and can apply to individuals, trusts and companies. There are exemptions of 9,600 for individuals including personal representatives, and 4,800 for trusts for the tax year 2008-2009. The rate of tax for individuals is 18% and there may be an entrepreneurs relief available in certain circumstances. Inheritance Tax Inheritance tax is due on death and on certain lifetime gifts. It is charged at the rate of 40% on death for transfers in excess of 312,000 for the tax year 2008-2009. Inter spouse transfers are free of tax provided either both are domiciled or non-domiciled in the UK for inheritance tax purposes. Where the transferee spouse is non-domiciled but the transferor spouse is domiciled there is an exemption limit of 55,000. Certain lifetime transfers are tax free if the donor lives seven years. Other Taxes There are other taxes and reliefs applicable to individuals and companies which have not been included for the purposes of this guide. 4
LABOUR ENVIRONMENT Cost Effective and Flexible The UK offers foreign investors one of the most attractive labour environments within the European Union. Wage costs are highly competitive, because compulsory social costs on wage bills are amongst the lowest in Western Europe. Base salaries in the UK are paid in 12 monthly instalments, with very few employers providing a thirteenth-month payment, which is common throughout the rest of the EU. The European Union s key employment regulations are also interpreted and enforced less stringently in the UK than in most other EU countries. For example, on working hours the UK is, and intends to stay, one of the EU s least regulated countries. Entry into the UK There are fewer employment restrictions than many other countries in Europe. This enables foreign investors to use flexibility in their employment, management and termination of staff. National Insurance Contributions National insurance is a scheme where people in work make payments towards benefits. Employers, employees and the self-employed are required to make national insurance ( NI ) contributions. The class of NI you pay depends upon whether you are an employee, selfemployed or you are paying contributions voluntarily to make up gaps in your contribution record. The NI scheme is administered by the HM Revenue and Customs (HMRC). You usually only have to pay NI contributions if you are employed or self-employed in the UK, and you live here. However, there are situations in which you have to, or can choose to, pay NI contributions while you are working abroad. Labour Costs and Wages Wages in the UK are highly competitive within the EU For example, in 2000 only Spain and Ireland had lower hourly compensation costs. The Minimum Wage A minimum wage became law in June 1998. As at October 2007, the rates are 5.52 per hour for workers over 21 years and 4.60 for 18 21 year olds and 3.40 for 16-17 year olds. In October 2008 the minimum wage rises to 5.73, 4.77 and 3.53 respectively. This minimum wage allows wage costs to remain competitive whilst protecting individual employees, both of UK and international companies alike. Industrial Relations In addition to the low levels of disruption caused by labour disputes, the UK has flexible labour relations and the law allows for both employers and employees to address labour issues on a company by company basis. Working Hours Full time employees in the UK work the longest hours in the EU. The Working Time Regulations provide basic rights and protections for workers. They limit the average working week to 48 hours (though workers can opt out of this limit). Fringe Benefits Workers are entitled by law to 24 days annual paid leave. This will increase to 28 days from 1 October 2008. This minimum legal holiday requirement includes public holiday. Most companies grant paid holidays of 4-6 weeks. There are 8 recognised public holidays per year. 5
Retirement Age The normal retirement age is 65 for both men and women. A retirement age of less than 65 must be objectively justified or the employer risks claims of age discrimination. There is a specified procedure to be followed if an employer wishes an em7ployee to retire at 65, which procedure should commence 12 months before the proposed retirement date. Employment of Foreigners To work in the UK, nationals of other European Economic Area (EEA) countries need not obtain work permits, and must be allowed access to employment on equal terms with British nationals, except for government jobs. An EEA national who accepts employment automatically receives a residence permit issued by the Home Office. Non EEA nationals must have a work permit issued by the Home Office s Immigration and Nationality Directorate. The prospective employer must obtain it for a named overseas worker and for a specific job. Depending on the kind of permit being applied for, work permits can be issued for up to a maximum of 5 years. Companies wishing to employ foreign workers are advised to apply for permits in advance. The proposed salary must not be below the rate prevailing in the UK, and there must be no EEA resident available to fill the post. There are additional registration rules for workers from the New Member States, who are required to apply to register with the Home Office under the new Worker Registration Scheme as soon as they find work. Further Information on Employment Issues If you would like further information on employing people in the UK, we can provide a more detailed note upon request. HOW WE CAN HELP At Fasken Martineau Stringer Saul LLP, we have a wealth of experience in assisting overseas companies to do business with and from the UK. From company information and financing through to local employment regulation and real estate. Many of the lawyers have backgrounds in commerce and finance and have sat on ' your side of the table. All of them specialise in getting to know your business. The information given is believed to be correct as at 1 April 2008. If you would like to know how we can help your business in the UK, please contact: Roger Loosley (rloosley@fasken.co.uk) Or David Smith (dsmith@fasken.co.uk) 6
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CONTACT DETAILS It demonstrates a broad understanding of the marketplace and the issues involved. Chambers and Partners 2006 FASKEN MARTINEAU STRINGER SAUL LLP NORMAN ZIMAN, MANAGING PARTNER 17 Hanover Square London W1S 1HU Tel: +44 (0)20 7917 8500 Fax: +44 (0)20 7917 8555 DX 82984 Mayfair nziman@fasken.co.uk INTERNATIONAL OFFICES FASKEN MARTINEAU DUMOULIN LLP JOHANNESBURG AL GOURLEY, MANAGING PARTNER 13th Floor, The Forum Building 2 Maude Street, PostNet Suite 430 Private Bag X9924, Sandton, Johannesburg, 2146, South Africa Tel: (JHB) +27 (11) 685 0800 Tel: (LDN) +44 20 7917 8671 Fax: (JHB) +27 (11) 685 0818 agourley@fasken.co.uk CANADIAN OFFICES FASKEN MARTINEAU DUMOULIN LLP VANCOUVER WILLIAM WESTERINGH, MANAGING PARTNER Bentall 5 2900-550 Burrard Street Vancouver, BC V6C 0A3 Tel: +1 604 631 3131 Fax:+1 604 631 3232 wwesteringh@fasken.com CALGARY ALEX KOTKAS, PARTNER 3400 First Canadian Centre 350 7th Avenue SW Calgary, Alberta T2P 3N9 Tel: +1 403 261 5350 Fax:+1 403 261 5351 akotkas@fasken.com TORONTO KEVIN CLINTON Toronto Dominion Bank Tower Toronto-Dominion Centre Box 20, Suite 4200 66 Wellington Street West Toronto, ON M5K 1N6 Tel: +1 416 366 8381 Fax:+1 416 364 7813 wpalmer@fasken.com OTTAWA LAURENCE DUNBAR, SENIOR PARTNER 55 Metcalfe Street Suite 1300, Ottawa, ON K1P 6LG Tel: +1 613 236 3882 Fax:+1 613 230 6423 ldunbar@fasken.com MONTRÉAL RAYMOND CHRETIEN The Stock Exchange Tower P.O. Box 242 34th Floor, 800 Victoria Square Montréal, QC H4Z 1E9 Tel: +1 514 397 7400 Fax:+1 514 397 7600 cauger@fasken.com These notes are of general application and specific advice should be taken on particular situations. Fasken Martineau Stringer Saul LLP 2008. Fasken Martineau Stringer Saul LLP is a limited liability partnership which is registered in England and Wales. A list of the members, all of whom are Solicitors or Registered Foreign Lawyers, may be inspected at the registered office. Any reference to a "partner" shall, subject to the context, be interpreted as referring to a member of Fasken Martineau Stringer Saul LLP. Registered number: OC 309059. Registered Office: 17 Hanover Square, London W1S 1HU. Regulated by the Solicitors Regulation Authority. QUÉBEC CITY CLAUDE AUGER, MANAGING PARTNER 140 Grande Allé Est, Suite 800 Québec, QC G1R 5M8 Tel: +1 418 640 2000 Fax:+1 418 647 2455 cauger@fasken.co.uk 8