Biggart Baillie Solicitors

• Branch or Agency

If the business is already operating in another geographical location, it is always possible to set up a branch in the UK.  The Companies Act requires that every overseas company establishing a place of business in the UK must deliver certain documents to Companies House which include copies of the latest accounts by the parent company.

• Limited Company

This is the most common business structure used in the UK, and is quite frequently formed as a subsidiary of an existing overseas company. 

Adopting this structure limits the liability of shareholders to any amount which remains unpaid on shares for which they have subscribed.  Shareholders do not incur any liability for the ongoing debts of the Company unless they have entered into any additional guarantee type documentation. 

Companies must be registered with Companies House and are required to file documentation with them on an annual basis.  All these documents are public and corporation tax requires to be paid on the profits of the Company.  If the shareholders are paid dividends, these are taxed as income.  Depending on the group structure available, tax planning will reduce the corporate tax payable.

• Limited Liability Partnerships ("LLPs")

LLPs are required to register with Companies House and file accounts. However, whilst this structure gives the advantage of limited liability, it also allows the participants in the business to organise themselves as a partnership meaning that the members are taxed individually on their share of the profits as income in the same way as a partner in a partnership. 

These are often used in real estate projects and for professional services businesses.

Agency or Distribution Contracts

As an alternative to setting up in business in the UK, many clients consider appointing agents or distributors.  These have the advantage of allowing access to local markets with limited costs. 

It is important however to understand that there is legislation operating throughout the EU that gives rights and protections to commercial agents.  In particular these rules can impact on

• the remuneration of agents including when commission is payable;
• minimum notice periods;
• entitlement to compensation on the expiry or termination of the Agreement;
• ability to restrict agent’s activities post-termination of the contract.

These Regulations do not apply to distributors in the UK however they do apply in certain other EU countries.  When appointing distributors it is also necessary to consider whether there are any competition/anti trust applicable.

Employees

It is possible to bring in overseas executives in certain circumstances.  Non-EC citizens need specific permission to work in the UK and employers are committing a criminal offence if a person requiring authorisation works without the necessary permission. 

Before arriving in the UK, work permits should be obtained and this requires formal application which may take some time to achieve.

Permit holders are usually required to receive their income in the UK and be liable to tax and national insurance contributions.

Employment law in the UK is a very complex area.  Employees should be given written employment contracts setting out basic details of their terms of employment. It is a legal requirement that these are supplied within 2 months of starting work. 

Once an employee has been hired there are rules about dismissal which apply in addition to the terms set out in the contracts so it is not possible to terminate employment contracts purely on the basis of the terms set out in these documents. 

There are numerous statutory rules and procedures which will require to be complied with and failure to follow the correct procedures in dismissal may give rise to claims for compensation against having been unfairly or constructively dismissed.  In addition, employees can make claims for discrimination of any kind eg. sexual, racial, religious or disability discrimination, so it is important to put in place the correct practices to protect the business against such claims.

There are also rules which govern the maximum numbers of hours employees can work, the minimum wages that they can be paid, the minimum amount of holidays to which they are entitled and the health and safety obligations of employers.  Claims on these grounds can be expensive and employee litigation is a growing issue.

Which Law Governs?

Clients frequently ask if they can use their own existing legal agreements for doing business in the UK.  The UK Courts will usually enforce agreements governed by another legal system if one of the parties to the contract is based in that country.

Whilst it may be more convenient for overseas companies to use their existing agreements for their UK clients, there are many circumstances in which this may not be appropriate.  Some contracting parties will insist on agreements being covered by UK law, especially if the business in question is to be performed in the UK. 

If you are contracting directly with UK consumers, then UK consumer protection laws will apply and it is likely that any existing contract would require to be amended to comply with that legislation.  UK consumer protection laws will apply to contracts with UK consumers regardless of what the terms of any contract may say and what choice of law has been selected.

ECommerce and Online Contracts

UK companies are required to have certain information displayed on their websites including their name, registered number and details of their registered office.  Websites are also required to be accessible by the disabled. 

Trading on line is regulated throughout the EU.  In the UK it is important to ensure that the standard terms and conditions on which you wish to trade meet the test of fairness under the Unfair Terms of Consumer Contracts Regulations 1999.  These Regulations apply to all UK consumer contracts and mean that the terms must be in plain English. 

It is important that these terms are properly incorporated into any contract with the consumer and in order to achieve this, they have to be brought to the attention of the Purchaser before the contract being made.  This is usually done by asking Purchasers to click an accept button prior to making any purchase.

The Distance Selling Regulations require that consumers are given specific information about what they are purchasing and the contractual framework applicable.  They give consumers a right to cancel any contract made online during a limited period.

The Privacy and Electronic Communications Regulations 2003 set out specific rules on communicating with consumers by email and text.  Basically, unless there is an existing business relationship with the person then specific consent is required prior to sending them electronic marketing material. 

Data

Throughout the EU, data protection is more heavily regulated than other areas of the world. 

In the UK, The Data Protection Act 1988 restricts use of personal data such as employee details or customer information.  Almost all businesses which use data relating to living individuals will need to register with the UK Information Commissioner giving details of how they intend to use such information.  It is a criminal offence to fail to register.

Individuals have rights under the DPA to obtain copies of the information held about them subject to certain exceptions and can prevent their data being used for direct marketing purposes. 

In order to comply with the DPA companies need to ensure that the data they hold is properly secured, therefore restricted access, technical protection for data and an understanding by employees using the data of the restrictions in the DPA will be required.  It is necessary to tell people when collecting the data how you intend to use that information and information should not be collected if it is not required for a specific purpose at that time.  The data held is required to be kept accurate and should not be held for any longer than necessary.  Clearly this requires data management policies to be put in place.

It is not permissible to transfer personal data to countries outside the EU unless the country to which the data is transferred also has an adequate level of protection for the individuals.  Most importantly, the US does not offer an adequate level of protection according to EU law and therefore UK subsidiaries of US companies are not able to transfer to their parent any customer or HR data.

However, there are some exceptions to this:-

• individuals can consent to the transfer of their data outside the EU.  Such consent has to be properly informed and freely given;
• the US has developed a safe harbour regime to allow US companies trading in the EU to comply with the data protection laws.  This regime requires the relevant company to apply to the Federal Trade Commission for registration;
• binding corporate rules.  It is possible for companies to set up their own data protection regime.  These rules can then be submitted for approval to EU data protection authorities.  This is likely to be suitable only for large multi-national companies given the costs and time involved.

If data is key to your business, it is important to address this issue as early as possible.

VAT

VAT is a turnover tax on the supply of goods and services (electronically or otherwise) throughout the EU. 

The standard rate of VAT in the UK is currently 15% although there are some services which are zero rated or exempt.  Non-EU businesses that electronically deliver services to EU consumers require to charge VAT at the rate applicable in the country in which the supply is being made. 

Businesses must therefore put in place procedures to ascertain where their customers are located, whether or not they are business or private customers, what the appropriate rate of VAT is in that country and register in the relevant countries for VAT.  This creates an additional administrative cost burden for business and so often overseas businesses will create a subsidiary or a branch within the EU to do their electronic trading.  This permits that business to charge VAT at the rate prevailing in its member state only as EU businesses do not have to charge VAT at the rate applicable where the supply is made but can charge it at the rate where they are established thus removing the need to pay VAT at several different levels.

If you require further information on any of these issues or indeed have any further questions relating to doing business in the UK, please contact Derek Ellery on dellery@biggartbaillie.co.uk or 0141 228 8000.