In the latest installment in our series of the Global Roadmap webinars, CSC focuses on the United Kingdom as a place to establish a global business or investment structure. What are the critical factors that make the U.K. a preferred jurisdiction?
The United Kingdom (U.K.) remains one of the world’s leading business jurisdictions, with London in particular widely seen as a primary legal, financial, corporate, and cultural global hub.
London itself regularly either tops or comes second in various key rankings and metrics. For instance, it was recently named the world’s second-most significant financial center in the Z/Yen Global Financial Centres index[1]; second in the latest Oxford Economics Global Cities Index[2]; and first in the Brand Finance Global City Index[3]. For 2024, it was named as an Alpha++ city—along with New York City—by the Globalization and World Cities Research Network[4].
What does the Innovator Founder visa say about U.K. competitiveness?
Since leaving the European Union, the U.K. has been free to establish its own tax, financial, and legal regulations, and appears committed to building integrated international trade networks and a competitive business environment.
Investors in the U.K. can benefit from a range of programs to help businesses of all shapes and sizes establish a presence, invest, and grow. The U.K. government’s Business Impact Target and Cutting Red Tape review programs, for instance, have been established to cut restrictions for businesses of all types and sizes with a view to maximizing their success. Another relatively recent development is the Innovator Founder Visa, aimed at encouraging people to come to the U.K. Eligible for three years and renewable, to qualify, one must show that a business idea is new, innovative, viable, and scalable. It’s highly competitive on the global stage in comparison to other advanced economies.
Which investment structure is best for you?
There are many options in terms of investment structures and legal entities, and investors and other stakeholders need to carefully consider the right structure for their business or investment. In the U.K., these include:
- Private limited company
- Public limited company
- Two types of partnership—limited liability partnership (LLP), and the limited partnership (LP)
- Branch office (an overseas or a U.K. representation of your overseas entity)
- An orphan structure, which is more commonly associated with capital markets deals
Private limited companies make up about 95% of all companies registered with the U.K.’s Companies House. These require at least one personal director being appointed and at least one shareholder. When incorporated with Companies House, such entities are also registered with His Majesty’s Revenue and Customs (HMRC), the tax authority in the U.K., meaning they automatically receive a tax ID.
For public limited companies, these need to issue at least 50,000 shares, and at least a quarter of those shares will need to be paid up.
An LLP needs at least two members, with each member paying tax on their share of the profits instead of the LLP. Such a structure requires an agreement to determine how the LLP will be managed. Likewise, a partnership, which can work for two or more members, needs a formal agreement describing the agreed-upon split of earnings, losses, liabilities, and ownership. A nominated partner administers tax returns and finances.
What is a typical fund structure in the U.K.?
In a typical U.K. fund structure—say, for a private equity, a real estate, or infrastructure fund—capital would be pooled within a Fund LP, with LPs positioned at the top. The Fund LP would receive instructions from the general partner (GP), typically an operating company within the fund structure that houses the deal and investment teams.
Underneath the GP would sit the special purpose vehicle (SPV) holding companies, such as TopCo, MidCo, and BidCo structures. These might be established in different jurisdictions, for example, the TopCo might be in Jersey, but the MidCo and BidCo in the U.K. This would usually be dictated by the tax advisor in the interest of making the most tax-efficient holding structure for the fund to acquire the underlying portfolio companies that underpin the fund.
How does jurisdiction affect funds?
Indeed, one important consideration when thinking about a fund is where it’s going to be ultimately domiciled. Fund managers based in different jurisdictions typically have preferred offshore jurisdictions to domicile a fund vehicle. In the U.K., investors have a range of localized options, including the Channel Islands and Luxembourg.
Does the U.K. have substance requirements?
To operate in the U.K., companies must demonstrate adequate substance. This refers to a company’s operations and economic activity within the country. The U.K. is interposed for tax efficiency, with rules around tax substance ensuring that a company chooses to pay its corporate income tax in the U.K. This is because it will be more efficient than paying corporation tax in a jurisdiction where, for instance, an underlying asset is located.
For those who need to create tax substance in the U.K., it comes down to having “mind and management” of the company in the country. This typically means having U.K. resident directors. It’s also important to run a cycle of board meetings in the U.K., just to ensure that decisions are taking place in board meetings held in the U.K., with everybody present in the jurisdiction.
Which companies are exempt from audits?
All U.K. companies require an annual audit unless they qualify for an audit exemption. To determine certain exemptions, a company’s size needs to be established first. For a company to be categorized as small, it must meet any two of the following criteria:
- Annual turnover must be not more than £10.2 million
- The balance sheet total must be not more than £5.1 million
- The average number of employees must not be more than 50
If the company is categorized as small, owners can file a set of accounts without a profit and loss account and without a director’s report, with fewer disclosure requirements in the notes.
Hear what the experts have to say
The U.K. continues to represent a compelling, highly-evolved, and competitive jurisdiction for investors and businesses seeking to expand their European and global footprints. However, navigating the legal, tax, and regulatory landscape remains challenging, and careful consideration of corporate structures, substance requirements, and local regulations is absolutely vital.
CSC’s recent webinar, “Navigating the Complexities of Global Business Expansion—United Kingdom,” was presented by our team of in market experts Rupert Gerald, director, CSC Revenue, Growth and Strategy, U.K., and Wenda Adriaanse, head of CSC Corporate and Legal Solutions, U.K., moderated by Helena Ledic, CSC associate general counsel and senior director.
To watch the webinar, please visit this link.
[1] The Global Financial Centres Index – Long Finance
[2] https://www.oxfordeconomics.com/resource/the-top-10-cities-in-the-world-as-ranked-by-oxford-economics-new-global-cities-index/
[3] https://brandfinance.com/insights/new-perceptions-study-london-perceived-as-worlds-top-city-once-again-in-the-second-edition-of-the-brand-finance-global-city-index
[4] https://gawc.lboro.ac.U.K./gawc-worlds/the-world-according-to-gawc/world-cities-2024/
