J C writes: We run an American company that supplies construction services and are thinking about expanding to the UK and Ireland. Given that profits will return to America, how should we structure the business?

Since the business is hiring staff and will probably be working on British construction sites, it is likely that, for tax purposes, your activities will be treated as trading in the UK, writes Jon Sutcliffe, partner at Kingston Smith LLP. If a company trades here, profits arising from its UK activities are taxed in the UK.

As a nonBritish company, you have the choice of operating in the UK as a permanent establishment (a branch), or setting up a separate subsidiary. Which is best will depend on commercial and tax factors.

If you set up a subsidiary, the UK company will be taxable on its worldwide income at up to 28%. If, on the other hand, you choose to operate as a permanent establishment of an overseas company, it will be taxable in the UK at up to 28% on the profits that can be attributed to the UK permanent establishment.

Of greater importance, though, is the total tax cost of earning and remitting profits to the American company from Britain.

This will depend on the nature of the American business and how it treats its global profits for American tax purposes. However, special rules apply if a multinational adjusts its prices to reduce profits earned here, and these rules apply to both UK companies and permanent establishments.

In other words, there is little difference between a UK company and UK permanent establishment for UK tax purposes. Similar considerations will apply to trading in Ireland. Cross-border tax planning, though, is a complex area and you should seek advice.

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