Ultimate Guide to Setting Up Subsidiaries Abroad for UK Companies
Introduction
For UK businesses aiming to expand their global footprint, establishing subsidiaries overseas is a well-trodden path toward unlocking new markets, improving operational efficiency, and mitigating domestic risk. Yet international expansion is far from straightforward. It brings a web of legal, tax, employment and regulatory complexities that must be managed from the outset. Without careful planning and local insight, businesses risk delays, enforcement action, and reputational harm.
Corporate Structure and Legal Establishment
Choosing the right legal structure is a critical first step. Businesses must assess whether to form a wholly owned subsidiary, a joint venture with a local partner, or a branch office. Each option comes with legal and operational consequences. For example, while a wholly owned entity allows for greater control and limits liability, it also brings heightened compliance burdens and reporting obligations. In contrast, branch offices may be easier to establish but do not offer the same legal separation, exposing the UK parent company to greater risk. Joint ventures, often attractive for their local market knowledge, demand a high degree of governance coordination and contractual clarity.
Incorporation requirements differ significantly across jurisdictions. Many countries impose minimum capital rules, director residency mandates, or restrictions on foreign shareholdings. Certain sectors may require pre-approval from local regulators before a company can begin operations. Documentation will often need to be translated, notarised, or submitted via local representatives, and delays are not uncommon. Local legal advice is essential to manage these processes efficiently and lawfully.
Taxation
Tax structuring is a central part of any international set-up. Corporate tax rates vary widely and will be a factor when choosing a location. The UK has a broad network of double taxation treaties, which can help reduce or eliminate tax being paid twice on the same income. Transfer pricing is a particularly sensitive area; intercompany transactions must reflect market-based pricing, and tax authorities—both in the UK and abroad—closely scrutinise these arrangements. Inappropriate pricing can lead to backdated tax adjustments, interest and penalties. Additionally, some jurisdictions impose withholding taxes on dividends, royalties or service payments sent back to the UK. Without proper planning, these can significantly reduce returns.
Employment
Hiring local staff brings a fresh layer of compliance risk. Labour laws in many countries are more protective than those in the UK, particularly around termination, severance, maternity leave and collective bargaining rights. Employment contracts often must be written in the local language and meet minimum legal thresholds. Businesses must also register for social security and contribute to local pension and healthcare systems. Redundancy processes are highly regulated in some countries, requiring formal consultation, notice periods, and compensation. Transferring existing UK employees to a foreign subsidiary can trigger visa requirements, registration processes, and additional employer responsibilities.
Regulatory Licensing and Sector-Specific Approvals
In regulated sectors such as banking, healthcare or telecoms, licences or permits may be mandatory before any trading can occur. Even outside these industries, companies may face sector-specific rules. For example, data-rich businesses may be subject to local data protection laws that mandate where and how personal data is stored and processed. Countries with strict data localisation regimes may prohibit certain data types from being transferred abroad, including to the UK. This can impose infrastructure and compliance costs that must be factored in from the beginning.
Data
Data protection obligations must also be re-assessed on a jurisdiction-by-jurisdiction basis. While UK companies remain subject to the UK GDPR, they must also comply with the host country’s data privacy laws, which may not align. Some countries impose formal registration of databases or require notification of data processing activities. Data breach reporting obligations and enforcement penalties vary, but many jurisdictions have adopted aggressive regulatory postures in response to rising cyber threats. Robust cybersecurity governance is no longer optional.
Anti-Bribery
Anti-bribery and corruption risks are another key consideration. The UK Bribery Act 2010 applies extraterritorially, meaning UK companies can be held liable for corrupt practices by employees, agents or subsidiaries overseas. Businesses must conduct due diligence on local partners, adopt clear anti-corruption policies, and ensure adequate procedures are in place. This includes staff training, whistleblower channels, and maintaining accurate records of gifts, hospitality and third-party payments. In higher-risk jurisdictions, ethical compliance is both a legal and commercial imperative.
Disputes
Dispute resolution planning should not be overlooked. Legal systems differ in terms of reliability, independence, and procedural efficiency. Contracts should specify a governing law and dispute resolution forum—ideally arbitration, where local court systems are slow or politicised. Arbitration clauses that refer disputes to neutral, internationally recognised venues (such as the LCIA or ICC) provide greater certainty and enforceability under the New York Convention. Enforcement of judgments can be difficult where no reciprocal agreement exists, so companies must plan for these issues during contract drafting, not after a dispute arises.
Currency Controls and Profit Repatriation
Repatriating profits from foreign subsidiaries can also be challenging. Some countries maintain currency controls that limit or delay the transfer of funds abroad. Approval may be needed from central banks or finance ministries to convert local currency into foreign exchange or to make international payments. In other cases, banks may impose restrictions on offshore accounts or require detailed justification for cross-border transfers. These restrictions, coupled with withholding taxes and currency conversion costs, can erode returns and affect group liquidity. Businesses should model these risks as part of their financial planning.
Intellectual Property
Intellectual property protection is jurisdiction-specific. UK trademarks, patents and copyrights do not automatically carry over to other countries. Companies must register their IP in each market they enter, or risk exposure to infringement or counterfeiting. In many jurisdictions, failure to register early allows third parties to acquire similar or identical rights. Contracts with employees, suppliers and partners must clearly allocate IP ownership, including whether licences are exclusive or non-exclusive, and should reflect local legal standards. A lapse in IP strategy can compromise competitive advantage.
Conclusion
Setting up subsidiaries abroad offers substantial commercial opportunities, but the process is legally and operationally intensive. UK companies must align legal, tax, compliance and HR strategies at both group and local level. That means seeking specialist advice across multiple disciplines and engaging with local counsel and regulatory authorities where needed. With proper preparation and governance, businesses can scale internationally while managing risk and maintaining full compliance.
We advise UK companies on every stage of international subsidiary establishment—from corporate structuring to regulatory filings, employment risk and IP protection. With the right legal framework in place, global expansion becomes not just viable, but sustainable.
This article is intended for information purposes only and provides a general overview of the relevant legal topic. It does not constitute legal advice and should not be relied upon as such. While we strive for accuracy, the law is subject to change, and we cannot guarantee that the information is current or applicable to specific circumstances. Costigan King accepts no liability for any reliance placed on this material. For further details concerning the subject of the article or for specific advice, please contact a member of our team.
Archie Berens
Corporate Specialist
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