Exemption from UK tax for foreign branches: Are you missing out on a valuable tax relief?

UK resident companies with an overseas permanent establishment – or 'branch' – may be able to make an election to exempt the profits of the branch from UK tax. The exemption will apply to profits regarded as attributable to the branch, although profits derived from investment business are excluded.

The exemption does not apply to profits which have been 'diverted' from the UK. Moreover, a 'small' company, as defined, cannot make an election in respect of a branch in the territory with which the UK does not have a full double tax treaty. Chargeable gains of a closed company, as defined, are not covered by the exemption.

A formal election must be made in order to claim the exemption. The election will apply from the start of the first accounting period following the making of the election. Once made it is permanent and cannot be withdrawn and it will apply to all future permanent establishments of the company, in all locations. Therefore, if a company sets up new overseas branches which are initially loss making, it might be beneficial to delay making the election, and specific advice should be sought.   

For further details see our factsheet.


Michael Simms
Sue Bill

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