When accessing and utilizing an international workforce to its maximum potential, sometimes obstacles get in the way. Certain nations may have regulatory standards that don’t permit international workers to reside or work within the country in an accessible manner. Other regions may only permit certain individuals access to remote work via specific visa formats.
In this report, we will look into how non-resident entities can help businesses based in the United Kingdom (UK) tap into the vast potential of the global workforce.
What is a Non-Resident Entity?
As the desire for international workers among businesses continues to skyrocket, employers are utilizing new ways to secure skilled employees from all over the world. One of the key ways to accomplish this goal is to set up an Employer of Record (EOR) to operate as the legal entity between you and your staff.
Legal entities or ‘non-resident’ entities are registered organizations that operate within a national jurisdiction. However, these institutions do not have any formal operations or primary business activities in that specific location. Instead, they conduct administrative duties, human resource operations, and other business practices — such as payroll and onboarding — in another country or jurisdiction.
Non-resident entities are often utilized for regulatory compliance alongside an international workforce. Administrative authorities and regional governments typically identify non-resident entities based on the location of their main business activities and primary registration.
Key signifiers and perks of a non-resident entity include:
Taxation Standards
Non-resident entities are likely subject to different tax regulations and rates compared to businesses operating within standard residential compliance. The standards surrounding taxation and income tax depending on the source of income and the presence — or lack — of a tax treaty between the country where the non-resident entity operates and the country where it is legally registered.
If you are an overseas company, you should be aware of the UK's self-assessment tax return conducted by HM Revenue so you can determine if you can claim tax relief.
Legal Structures
Non-resident entities can take various legal forms, such as corporations, limited liability companies (LLCs), limited companies (LCs), and sole proprietorships. However, it is important to remember that the form non-resident entities take depends on the laws of the country where they are registered.
Business Activities
Non-resident entities can engage in various business activities, including international trade, cross-border payments and investments, and offshore financial and administrative services. These activities are often subject to specific regulations and reporting requirements. Keeping this in mind, regional regulatory compliance is crucial for non-resident entities.
Tax Treaties
Some countries have tax treaties or agreements with other nations to prevent double taxation on business profits and provide guidance on taxing income earned by non-resident entities. These treaties can influence the tax treatment of non-resident entities.
Registration Requirement
Non-resident entities may be required to register with local authorities or maintain a registered office or agent in the country where they are registered, even if their primary operations are elsewhere.
Upon registration, companies should determine what information they will need to provide, which may include details such as a business bank account, national insurance number, proof of employer liability insurance and the name of at least one shareholder.
Compliance Obligations
Non-resident organizations are typically subject to compliance obligations, including filing tax returns, reporting financial information, and adhering to regulatory requirements in the countries where they operate and where they are registered.
It’s important to keep in mind that businesses that operate in tandem with non-resident entities should consider tax obligations and the regulatory standards that come with them. This includes legal obligations in both the country the entity operates in and the country where the entity is based. Employers of Record, who can function as legal entities, operate to the highest tax standards set by international policy and ensure compliance across the board when operating as non-resident extensions for businesses.
Non-Resident Tax in the UK
When it comes to operations in the United Kingdom, non-residents who operate as a separate legal entity are subject to detailed regulations related to taxation and compliance. Non-resident companies in the UK are still subject to standard UK tax standards, in this case, the general corporation tax, which is 25% as of 2023.
However, the silver lining is that since non-resident entities are liable to pay the same corporation tax as any other UK-based entity, they also have the same freedom when registering as a company. With this in mind, it is important to note that non-resident organizations looking to break ground and have a physical location for their business will have to have a UK-based bank account and address.
Now that we have the overview, here are some key considerations regarding non-resident entity standards in the UK.
Non-Resident Company Registration
Non-resident companies that conduct business or have a trading presence in the UK may be required to register with Companies House, the UK's registrar of companies. Registration provides transparency about the company's activities in the UK. It is a legal requirement if you want to start a business in the UK as a foreigner.
Taxation of Non-Resident Companies
Non-resident companies operating in the UK may be subject to UK taxation on their income generated from UK sources. The specific tax rules depend on the nature of the income and whether the UK has a double taxation agreement with the company's home country. Luckily, this information is widely available to the public on behalf of the UK government.
Corporation Tax
As previously mentioned, non-resident companies conducting trading activities in the UK are generally subject to UK Corporation Tax on their profits. In this case, the tax rate and rules may differ from those applicable to UK-resident companies.
Withholding Tax
Non-resident companies receiving certain types of income from UK sources, such as dividends or royalties, may be subject to withholding tax, which currently stands at 20%. Double taxation agreements can impact withholding tax rates.
VAT Registration
Non-resident entities engaged in taxable activities in the UK may be required to register for Value Added Tax (VAT) if their turnover exceeds the VAT registration threshold.
Real Estate Taxation
Non-resident entities owning UK real estate may be subject to taxation on rental income and capital gains tax when selling UK property. Special tax rules apply to such entities. Keeping this in mind, this only counts for physical non-resident enterprises.
Transfer Pricing Rules
Non-resident companies conducting intra-group transactions with UK subsidiaries or affiliates must adhere to transfer pricing regulations to ensure that transactions are conducted at arm's length.
Permanent Establishment (PE)
Non-resident entities with a permanent establishment in the UK may be subject to UK taxation on the income attributable to that PE. The definition of a PE can vary under international tax agreements.
Reporting and Compliance
Non-resident entities operating in the UK must comply with various reporting and compliance obligations, including filing annual financial statements, tax returns, and other relevant documents.
While all of the taxation mentioned above standards differ greatly depending on how you plan to operate as a non-UK resident, compliance is one crucial aspect to keep in mind. Suppose you are unsure of how to stay compliant with the structure of UK tax laws. In that case, a third-party service like an EOR can ensure regulatory compliance and operate as a legal entity for those looking to start a business in the UK as a foreigner.
Steps for Registering as a Non-Resident Entity
Now that we’ve looked into how to create a company in the UK, it’s time to break down the steps you should take before, during, and after registering as a non-resident. Registering as a non-resident entity in the UK involves several steps, particularly if your entity intends to physically conduct business or hold financial interests within the United Kingdom.
Here are some steps one could follow when registering as a non-resident entity when starting a business in the UK as a foreigner. These steps will not only help your chances, but also, secure your business presence in the UK.
Determine the Business Structure
Before registering, decide on the legal structure of your entity. You can choose from options such as a limited company (LLC), partnership, branch office, or other suitable frameworks for business operations.
Choose a Company Name
Select a unique and available name for your entity. You can check the availability of company names on the Companies House website.
Appoint a Representative
In many cases, non-resident entities must appoint a UK-based representative or agent who can act on behalf of the entity and receive official communications. If your business is not physically based in the UK, you can work through an Employer of Record.
Register with the UK Companies House
If you are setting up a limited company or limited liability partnership (LLP), you must register with Companies House, the UK's registrar. You can complete the registration process online or by mail.
Requirements for Registration
When registering with the UK Companies, you must provide a few choice details about your business entity. These can include the company name, registered office address (if the entity in question has a physical address), information about directors or partners, and the nature of your business structure.
Obtain a UK Bank Account
Open a UK bank account for your entity. This is essential for conducting financial transactions and complying with tax and regulatory requirements.
Register for Local Taxes
Depending on your business activities, you may need to register for Value Added Tax (VAT) if your output exceeds the VAT registration threshold. You can register for VAT with HM Revenue & Customs (HMRC).
Comply with Reporting Requirements
Non-resident entities must usually file annual financial reports and tax returns with both the HMRC and Companies House. You must comply with these reporting obligations, or have a third-party service facilitate these duties on behalf of your business.
Acquire Licenses and Permit
Depending on your industry and the nature of your business, you may need specific licenses or permits to operate legally in England. Research and obtain the necessary approvals.
Research Taxation Rules
Anyone looking to start a business in the UK as a foreigner should know the UK's tax regulations and how they relate to your entity. Seek professional advice on your tax obligations, including Corporation Tax and other applicable taxes. EORs are experts in international tax compliance and can provide you with the right kind of guidance.
Data Protection Laws
If your entity processes personal data, ensure that you comply with the UK's data protection laws, which include Europe’s General Data Protection Regulation (GDPR).
Retain a Registered Office
Maintain a registered office address in the UK where official communications and legal documents can be sent. This address must be a physical location — not a P.O. box — if you plan on setting up a brick-and-mortar business.
Seek Professional Guidance
Considering the intricacy of legal and regulatory requirements, seeking guidance from legal and financial professionals who specialize in international business and UK company law is advisable. This can come in the form of an Employer of Record. This third-party organization can function as a legal extension of your enterprise and supply you with updated regulatory reports on developments in the UK.
When it comes to the registration of a business entity in the UK, those operating as non-UK residents need to jump through a few extra hoops to ensure their business's interests can operate without interruption.
It’s crucial, however, that any individual looking to start a business in the UK as a foreigner complies with the standards of registration laws and regulations. If non-compliance occurs, penalties towards non-residents can be severe.
National Insurance
Non-resident entities operating in the UK may have specific National Insurance obligations depending on the details of their business operations. These duties can vary based on variables like the detailed activities of the business, its legal structure, and the physical presence of employees and employers.
Here are some key points to consider when engaging in National Insurance registry operations in the UK.
Employees and Directors
If your non-resident entity has employees who work in the UK, there is a chance that you may have insurance responsibilities. These duties can include registering your entity as an employer and deducting National Insurance contributions from the salaries of employees based in the UK.
Self-Employed Individuals
Non-resident self-employed individuals who work in the UK may also have insurance obligations. Depending on their income and business structure, they may be required to pay Class 2 and Class 4 National Insurance contributions.
Voluntary Contributions
Certain non-UK residents who have a history of insurance contributions may choose to make voluntary contributions to maintain their entitlement to certain benefits.
Exceptions and Treaties
As previously mentioned, registering with National Insurance UK has double taxation agreements with many countries that may impact non-residents. These agreements can help prevent double taxation and influence your specific obligations.
Legal Structure
The legal structure of your non-resident entity can impact your insurance obligations, as different rules may apply based on your entity's structure.
VAT Registration
While not directly related to National Insurance, non-resident entities that are VAT-registered in the UK should ensure compliance with VAT obligations and related reporting.
How Borderless Can Help
As an International Employer of Record, Borderless can help any foreign individual or entity looking to set up business relationships in the United Kingdom. How so? By operating as an extension of your business by setting up shop in the UK as your legal entity.
For details about how Borderless can help your business thrive within regulatory systems within the UK, contact us today. We not only offer expert advice on the scope of current market trends in the UK but also offer detailed reports on British commerce.
Most importantly, reports on costs that surround setting up legal entities in the UK.
Contact us today to learn more and secure your business operations in the United Kingdom.
