Set up a subsidiary in the United Kingdom

Setting up a subsidiary in the UK and establishing a local presence has been a no-brainer for many French companies. The UK is France's number 1 trade surplus, with €11.6 billion in 2016. It is therefore a strategic partner in terms of the balance of trade. The country is also France's 5th best customer in the world, with exports worth €31.2 billion. That's why nearly 25,000 French companies sell their products to the UK every year, and more than 3,000 of them are already established there, across all business sectors. What's more, because the UK is highly centralised, many companies have decided to set up their subsidiaries in London. Si vous envisagez de créer une filiale en Grande-Bretagne, vous trouverez dans cet article tout ce qu’il faut savoir avant de vous lancer.

1. Why set up a subsidiary in the UK?

The United Kingdom boasts significant structural advantages: a dynamic market and a flexible, skilled workforce. The business culture and entrepreneurial spirit prevalent in the region encourage company formation in Great Britain.

French companies continue to establish subsidiaries in the UK for multiple reasons:

• • English is the language of business and the most spoken language globally. This undeniable advantage makes the UK a preferred choice for many international corporations.
  • London holds the position as the top financial hub in Europe and globally competes closely with New York. This is why many SMEs and large corporations decide to establish their subsidiaries in London.
  • The labor market is one of the most dynamic in Europe, with an unemployment rate of only 4.1% as of January 1, 2018.
  • A leading economy, ranked first in Europe for FDI destinations, and leader in having the simplest business environment in Europe; it saw a growth of 1.8% in 2017 and was the world's fifth-largest economy that year.
  • A European champion in terms of tax competitiveness with a corporate tax rate of 19% (reducing to 17% in 2020).
  • Among the best transportation infrastructures in Europe.
  • The largest French community in Europe (outside France), estimated at over 300,000 people. The presence of many French nationals in the UK is an asset for companies looking to recruit bilingual profiles.
  • The fastest high-speed internet access service in Europe. Additionally, the e-commerce market is the largest in Europe, where many consumer trends are set.
  • The country offers significant economic stability and a high transparency in the political system.
  • The social legislation is flexible. Indeed, paid leave is limited, there is no real labor code, and the legislation provides great ease of dismissal with a probationary period that extends over two years.
  • The ease of doing business. The UK is consistently placed at the top of rankings for the easiest countries in the world to do business, as seen in the latest Forbes ranking.

2. What are the legal forms of company?

The most common legal forms of company in the UK are as follows:

• The "Private limited company" or "Ltd", which requires a minimum of one partner and subscribed capital equivalent to £1. The company is managed by a board of directors consisting of at least one director and the liability of the partner is limited to the amount of his contribution.
• The "Public Limited Company" or "PLC" requires a minimum of one partner and a share capital of £50,000, a quarter of which is paid on incorporation. The company is also managed by a board of directors and the liability of the partners is limited to the amount of their contributions.
• The partnership is created by contract and is not a legal entity. The partners are jointly and severally liable for all their personal assets. Some companies are known as "Limited Partnerships". In this case, the limitation only concerns the duration or the object of the company.
• The "Private unlimited company", which does not require a minimum number of partners or capital. The liability of the partners is joint and several.
• The private limited company is the most popular legal entity for companies wishing to set up a subsidiary in the UK.
  

3. What are the administrative formalities?

It is now very quick and easy to set up a company in the UK. It now takes less than a week to obtain approval of the company's name, Certificate of Incorporation and Company Registration Number.

The steps involved in setting up a company are as follows:

• The choice of company name involves a preliminary check with the Companies Registry to ensure that the name chosen by your company is not already in use.
• The articles of association consist of a memorandum of association setting out the name, business and capital of your company, and its articles of association. These define the rules governing the company's administration and relations between shareholders (general meeting, voting rights, etc.).
• The legal documents signed by the partners are then filed with the Registrar of Companies, together with specific forms listing the contact details of the first directors and the legal secretary.
• Your company is also registered with the local Companies Registry. The registrar issues the certificate of incorporation confirming the legal personality of the company.

4. What is the tax system?

The tax system is advantageous for foreign companies that decide to set up a subsidiary in the UK. The maximum corporation tax band has been set at 23% (with a nominal 20%) and the UK's maximum personal tax band of 40% is one of the lowest in the European Union.

• Corporation tax : The rate is 19% for profits between £0 and £300,000. It then rises to 30% with a marginal allowance for small businesses with profits between £300,001 and £1,500,000. In 2020, the tax rate will fall again to 17%.
• Local corporation tax. This tax (Uniform Business Rate) is calculated on the basis of the rental value of buildings occupied by businesses.
• Value Added Tax (VAT). The reduced rate is 5% and the standard rate is 20%.
• Capital gains are taxed at the standard rate (18% or 28%).
• For individuals: income tax. This is zero for income up to £9440. The rate then rises to 20% for income between £9440 and £32010, then to 40% for income between £32,011 and £150,000. The rate rises to 50% for income in excess of £150,000.

5. What is the legal environment?

The UK offers one of the most flexible labour markets in Europe. The World Bank has ranked the UK as the second best place in Europe to hire employees, just after Denmark. If you take on an employee, you will need to comply with the UK's specific working conditions:

The legal working week is 40 hours.
The minimum wage is £7.38 per hour and the average wage is £26,500 per year.
You must register with the UK Department of Health and Social Security and pay employer and employee National Insurance contributions. The social security contributions paid by the employer are equal to 13.8% for weekly salaries in excess of £156. Those paid by the employee are equal to 12% for weekly salaries in excess of £155.01 and 2% for weekly salaries in excess of £815.

As far as accounting is concerned, there is no General Chart of Accounts in the UK. However, 3 sets of standards, in line with those issued by the International Accounting Standards Committee, have been published:

Statements of Standard Accounting Practice (SSAP)
Statements of Recommended Practice (SORPs) 
Financial Reporting Standards (FRS)

The members of the bodies of chartered accountants that make up the Consultative Committee of Accountancy Bodies are obliged to use these standards to prepare the accounts of their companies.

6. What about Brexit?

Will the divorce between the United Kingdom and the 27 member states change the situation with regard to the attractiveness of the UK to French companies?

"Despite the Brexit, the UK is buoyed by its tax competitiveness, with a 19% corporation tax rate that will fall to 17% on 1 April 2020," points out Emmanuel Bisi. What's more, "low social security contributions (13.8% compared with 40-60% in France) encourage recruitment and investment in human capital," adds the Managing Director of Expandys.

Brexit or not, the UK's business friendly environment is a fact, French and foreign companies are not going to stop trading with the UK and vice versa, for now, it's Business as Usual. "What's more, I have confidence in British pragmatism to find a good compromise between the two parties and opt for a soft Brexit," says Emmanuel Bisi, who has been working with the British for almost 20 years.

London remains one of the most attractive cities in Europe, according to a number of rankings, and the number of new subsidiaries has not fallen since the Brexit - quite the contrary.

Discuss your UK subsidiary creation project with our experts