How Non-UK Companies Can Utilise the (S)EIS Scheme
SEIS stands for Seed Enterprise Investment Scheme and EIS stands for Enterprise Investment Scheme and both are tax relief schemes created by the UK Government to encourage investment from individuals into UK registered startups and early stage businesses.
The aim of the SEIS & EIS investment scheme is to support entrepreneurship and boost economic growth by making it easier for startups to access funding. It is common knowledge that the scheme is for companies with a UK presence; however that does not necessarily mean a company must be originally from the UK. In order to qualify, a business must have a permanent establishment in the UK. It is no longer a requirement for the company to be trading mainly in the UK. In this weeks newsletter, we explore how non-UK foreign entities can utilise the benefits of (S)EIS.
As mentioned for a company to qualify they do not need to incorporate in the UK however they must have a permanent establishment in the UK. There are two ways that a company can be deemed to have a permanent establishment:
Have a fixed place of business in the UK through which the company’s activities are wholly or partly carried out; or
Have an agent who is situated in the UK acting on behalf of the company and has the authority to enter into contracts on behalf of the company.
Please note that the company must maintain their UK permanent establishment for a three-year period from the date it commenced trading or from the date the S/EIS shares were issued. Below, we go on to give further detail on what constitutes a fixed place of business and an agent.
Fixed Place of Business
Having a fixed place of business is defined as the following:
A registered branch;
A building site (this could be established to run an installation project or for normal construction functions);
A mine, gas well or quarry;
A place of management; or
A workshop.
If a business can prove that a substantial part of their overall business has a fixed place of business in the UK then HMRC will conclude that the company has a permanent establishment in the UK. It will also depend on the nature of your business to determine what sort of premises or facilities are needed to be set up in order to meet the permanent establishment condition.
The business activities carried on in the UK cannot constitute of preparatory or auxiliary activities. for example storage, display or delivery of goods would not qualify but the definition given is quite grey. Whether activities are considered to be preparatory, or auxiliary will depend on the nature of the company’s business as a whole.
Qualifying agent
In order to have a qualifying agent in the UK the agent must;
Be based in the UK;
Have authority to enter into contracts on behalf of your company;
Frequently use that authority to enter your company into binding agreements; and
The contracts that the agent enters into on your company’s behalf must relate to the substantive business of your company and not merely to matters which would be considered preparatory or auxiliary.
Merely maintaining an employee in the UK will not in of itself be sufficient to guarantee permanent establishment status.
UK Subsidiaries
We receive many inquiries asking if a UK subsidiary of a foreign holding company constitutes a permanent establishment. The legislation is clear that overseas parent companies will not be regarded as having a permanent establishment in the UK merely by the virtue of having a UK subsidiary. UK subsidiaries are seen as a separate legal entities to the parent company and therefore do not qualify under the legislation.
Can (S)EIS Funds be Used in a Non-UK Subsidiary?
If (S)EIS funds have been raised into a non-UK parent company (by virtue of meeting one of the two criteria mentioned earlier) then as long as the parent company holds more than 90% in a foreign subsidiary then the funds can be transferred across provided the money is used for the qualifying business activity for which the S/EIS funds were raised. Note that the funds must be taken into the holding company first.
Summary
Being located overseas does not mark the end of the tunnel when you are seeking to raise investment pursuant to SEIS and EIS. The best way to navigate through the conditions listed above would be to set up a fixed place of business in the UK or to appoint a UK based agent that has the authority to enter your company into binding agreements. If you would like to discuss your particular circumstances further, please schedule a discovery call with our Head of Tax, Misha Patel.
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