Very broadly, EIS/SEIS are approved UK tax advantaged schemes, which give investors a tax break for investing in early stage companies. Please see details in our article on SEIS/EIS investment here. These schemes have encouraged angels to invest around £1.5bn annually.
It is a common misconception that only UK companies can qualify for SEIS and EIS.
A foreign company can still qualify for SEIS/EIS; they of course must meet the criteria set out by HMRC in order to qualify.
The normal SEIS/EIS requirements still apply, such as maximum employees, the age of the company and the types of trade; however, foreign companies must also meet at least one of the additional requirements below:
1. A UK Permanent Establishment – this is broadly defined, and is as discussed in our recent blog here. It means that an element of their work is carried out at a fixed place of business in the UK (place of management, branch, office, factory, workshop, quarry, building site, etc).
However, the work carried out MUST be in relation to the business as a whole, and not be preparatory or auxiliary in character.
The UK permanent address must be maintained throughout the ‘relevant period’ which is three years from the date trade commences or three years from the issuing of the shares.
OR
2. An ‘Agent acting on behalf’ of the company. An agent must be UK based to qualify, and have authority to act on the company’s behalf, such as entering into contracts on a frequent basis. This also requires that the agent is not independent of the company.
Therefore, an employee in the UK does not suffice unless they have authority to enter into contracts on behalf of the company.
If possible, it is advisable to do both of the above, i.e. to have a fixed place of business and have a representative in the UK who has the authority to enter into contracts on behalf of the overseas company.
It is important to note that it must be a UK branch of an overseas company, and not a UK subsidiary company of an overseas parent company.
There is also another option – if a UK company has an overseas subsidiary, it can pass the money raised by EIS/SEIS down to the subsidiary (being the foreign company).
In order to qualify, the subsidiary must be a 90%+ subsidiary and be qualifying for SEIS and/or EIS purposes. Therefore, a UK company which has a 90%+ owned foreign subsidiary could pass the money raised in the UK down to the foreign company subsidiary.
This is generally a less preferred option, as it is likely to require some restructuring.
Please note that as this is not widely known, if an overseas company would like to raise funds from UK investors, potential investors are more likely to want to see advance assurance as proof of qualification for the scheme.
