A company that is not resident in the UK can still fall within the UK corporation tax net in certain circumstances. Broadly, this tends to arise where there is a meaningful UK connection — most commonly through a permanent establishment (PE), or through activities involving UK land.
The detailed rules sit mainly within the Corporation Tax Act 2009 and the Corporation Tax Act 2010, but the core principles can be summarised simply.
Trading in the UK Through a Permanent Establishment
A non-UK company may be subject to UK corporation tax if it carries on a trade in the UK through a permanent establishment.
In general terms, a PE can arise where the company has:
- A fixed place of business in the UK (such as an office, branch, factory, or site), or
- A dependent agent in the UK who habitually concludes contracts on its behalf.
The focus is usually on where the substantive profit-generating activities take place and where contracts are effectively concluded.
Certain activities are less likely, in isolation, to create a PE. For example:
- Using a genuinely independent agent acting in the ordinary course of their own business.
- Carrying out activities that are merely preparatory or auxiliary (such as storage or information gathering).
There is also anti-fragmentation rules designed to prevent businesses from splitting connected UK activities between entities to argue that each activity is too minor to create a PE. HMRC may look at the overall picture rather than each activity in isolation.
Example
Assume a German company opens a small UK office that negotiates and concludes contracts with UK customers. Even if the head office remains abroad, that UK office is likely to constitute a permanent establishment. In that case, the company may be chargeable to UK corporation tax on the profits attributable to the UK activities.
By contrast, if the company simply appoints an independent UK distributor who acts for multiple clients and runs its own business, that alone may not create a UK PE.
How the UK Taxes a PE
Where a PE exists, the UK generally taxes the profits attributable to it. This typically includes:
- Trading profits arising from the UK activities,
- Income from assets used by the PE, and
- Certain gains on asset disposals connected to the PE.
For tax purposes, the PE is treated broadly as if it were a distinct and separate enterprise. Transactions between the head office and the UK PE are expected to reflect arm’s length pricing — meaning market value — to prevent artificial profit shifting.
Allowable business expenses are normally deductible when calculating the PE’s taxable profits, subject to specific restrictions. Certain intra-group payments (for example, royalties or interest) may be limited or disallowed, depending on the circumstances. Dividends from UK companies are generally not taxed in the hands of the PE.
In procedural terms, corporation tax self-assessment applies in much the same way as it does for UK-resident companies, and reliefs such as loss relief may be available where the relevant conditions are satisfied.
UK Land and Property Activities
UK property income (from 6 April 2020): Non-UK resident companies carrying on a UK property rental business are within the charge to UK corporation tax automatically, regardless of whether a permanent establishment (PE) exists.
UK land disposals (from 6 April 2019): Non-UK resident companies are chargeable to UK corporation tax on gains from disposals of UK land, including certain indirect disposals of shares in “property-rich” entities (broadly where 75%+ of gross asset value derives from UK land).
Treaty interaction: Where a double tax treaty applies, the treaty definition of PE and allocation rules may restrict or modify the UK’s taxing rights.
Registration/compliance: Corporation tax self-assessment and filing obligations apply once within charge.
A Final Note
Whether a non-UK company has a UK taxable presence depends heavily on the specific facts — particularly how and where business activities are carried on. The statutory framework provides structure, but the practical outcome often turns on detail. As such, any analysis should be approached with care and considering the company’s full commercial arrangements.
