By Nafeesa Hussain, Corporate Solicitor at WSP Solicitors
Recent reports reveal that 37% of family business owners are now considering relocating their companies overseas, and other SMEs are following suit.
According to Rathbones one in eight small and medium size business owners are actively planning a move, while the wealth manager and investment firm also says the number having exited the UK already has hit 6,000 over the last two years alone.
The current tax burden is cited as a key driver behind this shift, with Ireland emerging as the most popular destination (26%), followed by Dubai (21%) and the United States (18%). However, businesses are also feeling the shock of higher employment costs and tighter legislation.
It’s easy to see why relocation is an attractive proposition, from potentially lower corporation tax to more favourable regulatory environments and access to new markets just a few of the benefits; however, the reality of a move is often far more complex.
From legal structuring and tax residency rules to employment law, intellectual property and cultural differences, moving a business abroad requires careful planning to avoid costly mistakes.
So, if you’re thinking of moving your business overseas, here’s some essentials that you need to know.
Can I move the registration?
Under UK law you cannot simply transfer the country of registration of a limited company. If you wish to relocate fully, the usual approach is to dissolve the existing UK entity and incorporate a new company in your chosen jurisdiction.
Another option is to incorporate a new company overseas while retaining the UK company, operating both entities within the same corporate group. In many cases, the overseas company can trade under the same brand or name.
Whether you are dissolving the existing UK entity and incorporating a new company or opening a new business while retaining the UK company, you also need to be aware of director residency rules and local law requirements for operating a business in your chosen location.
Other legal areas to consider
Intellectual Property & Contracts – When relocating overseas, intellectual property (IP) and contracts do not automatically transfer to a new company. If you dissolve a UK entity and incorporate abroad, any trademarks, patents or registered designs must be assigned under a written agreement and, where applicable, re-recorded with the relevant authority.
Contracts should also be considered. Agreements with customers, suppliers, landlords and lenders cannot simply be moved to the new entity, it is important these are reviewed before restructuring your business.
Regulatory & Licensing Issues – Regulatory requirements vary significantly by sector and jurisdiction, and in some sectors, you cannot legally trade without first obtaining formal approval from a regulator. Even if your business is fully compliant in the UK, that status does not automatically carry over. You may need to apply for fresh approvals, satisfy new capital requirements, appoint locally resident directors or demonstrate compliance with local standards before you can begin trading.
Banking & Financial Infrastructure – Establishing a new overseas company will usually require opening local bank accounts in that jurisdiction, however it’s important to note that this does not by itself change a company’s tax residency.
Businesses should also plan for payment processing, payroll, currency management and accounting systems to ensure continuity and prevent disruption during the transition.
Be aware of the tax implications
Tax is often one of the drivers behind a decision to relocate, but from a legal perspective the key point is understanding where a business will be regarded as resident for tax purposes. This is not determined solely by where a company is incorporated, but by where its central management and control is exercised in practice.
If strategic decisions continue to be made in the UK, there is a risk that the business could still be treated as UK tax resident, even if a new overseas entity is established. It is also important to consider whether a double taxation agreement (DTA) exists between the two relevant countries, the UK has DTAs with many countries which you can find here. DTAs are designed to prevent the same profits from being taxed twice, so proper planning and utilisation of these agreements is essential.
Relocation can also have wider tax consequences that need to be factored into the overall legal planning. The transfer or disposal of business assets, including intellectual property, may trigger Capital Gains Tax, and VAT obligations can continue where a business maintains UK trading activity. However, if you are relocating the business and selling goods and services abroad you may need to register and account for VAT in the new country. VAT regimes vary significantly between countries so understanding these rules in advance is essential to ensure ongoing compliance and to avoid unexpected penalties.
Employment and HR
Relocating a business does not automatically require all employees to move. Many businesses keep a UK entity or branch employing UK-based staff, or employ UK staff to support overseas operations (e.g. sales, admin, management), even where the main trading company is abroad.
If hiring employees in the new jurisdiction it’s important to research the local employment rules on contracts as well as social security contributions (e.g., similar to the UK’s National Insurance Contributions), pension obligations and other statutory benefits, such as holidays entitlements, and other care leave.
In rare circumstances where they may move new local employment contracts may be required for overseas operations. If employees are not relocating, redundancy liabilities may occur, including notice pay and statutory redundancy payments.
For some business owners, relocating a business overseas can offer new and attractive opportunities that can support long-term growth. However, the process involves navigating a complex web of rules and regulations.
The most successful relocations are those approached strategically. Business owners should consider commercial objectives, review the legal and governance implications, and the tax impact in both locations and before any formal steps are taken.