There are limited barriers to establishing a business in the UK, but there is a legal and regulatory framework which needs to be adhered to. There are also tax incentives which aim to attract inward investment, regional growth and Research and Development which Chinese businesses can take advantage of. Particular considerations when establishing a business here in the UK include:
A Climate for Innovation and Investment
The UK Government and European Commission provide a range of grants and incentives to encourage innovation. The UK excels in research, development and innovation, and the UK Government seeks to make the UK the best place in the world to run an innovative business or service. Generous UK incentives include R&D Expenditure Credits (RDEC) and Patent Box. RDEC has recently been extended to offer almost 10% ‘above the line’ credit for large companies (refunded for those without tax liabilities) and up to 33% for SMEs. The Patent Box regime enables companies to apply a lower rate of corporation tax (down to 10%) to profits earned after 1 April 2013 from its patented inventions and certain other innovations.
Getting the Right Business Structure in Place From the Start will be Key to Success
Taking the time to understand the short and long term business objectives at the outset will help to ensure the most efficient and effective investment structure is established. Factors to consider include:
- Legal entity type (e.g. branch, subsidiary, partnership, joint venture)
- Capital structure (e.g. equity, debt)
- Repatriation strategy (e.g. dividends, repayment of debt, intercompany charges)
- Tax implications (e.g. UK corporate tax, VAT, employment taxes, availability of tax incentives and grants)
- Securing and managing talent (e.g. local hires vs. expats, employment contracts, labour laws, immigration)
- Ongoing compliance obligations (e.g. from an accounting, tax, and legal perspective)
All businesses entering the UK must be registered with the Registrar of Companies. The registration application must be submitted with various documents including a memorandum of association and the articles of association.
Understanding Responsibilities as a UK Employer
Building a team in the UK will most likely result in a combination of employing expatriate employees from China, and locally hired employees in the UK. This brings with it a number of responsibilities and obligations:
- As an employer in the UK, companies are required to operate a strict payroll system for their local and expatriate employees.
- Both expatriate employees and the company must understand the differences in personal tax systems between the UK and China to ensure compliance.
- Businesses must adhere to immigration restrictions in the UK. The rules are subject to frequent changes and it is important to determine the correct rules applicable at the time to a particular individual or company.
- The UK and European business environment is contextualised by regulatory obligations, market drivers and stakeholder expectations regarding business responsibility. This extends beyond the financial management of companies and includes a range of social and environmental factors too.
Helping Chinese Companies to Succeed
Further information on the range of considerations pertinent to Chinese companies doing business in the UK can be found in the “Chinese Enterprises Investment Guide to the UK” produced by China’s National Development and Reform Commission with the support of the British Embassy in Beijing and Manchester-China Forum Founding Partner, Deloitte. Chinese Enterprises Investment Guide to the UK.
It is strongly recommended that businesses seek professional, legal and financial advice when planning and establishing their UK presence.
The Deloitte UK China Services Group has a long and successful history of supporting Chinese organisations to embark on landmark, and challenging, projects. Its market-leading ‘one-stop’ advisory service is uniquely designed for Chinese companies setting up for the first time in the UK or expanding existing operations. Deloitte’s expansive global network draws together the expertise from multi-disciplinary teams to assist Chinese companies in all aspects of European cross-border investment in the UK and Europe.