On March 23th 2018, Robert Wood Johnson,
Ambassador of the United States of America
to the United Kingdom of Great Britain and
Northern Ireland stated on Twitter that it is
“Great to see agreement between the UK and
EU27 on the Brexit implementation period”.
He continued to say that “This is a positive step
towards an orderly Brexit” and “in everyone’s
interests, including the USA”.
This statement was well received by the
transatlantic business community in Britain.
First, it was noted because until recently
leading US Government officials seems to
have been fairly cautious to publicly comment
on the status of the Brexit negotiations since
the referendum took place on June 23rd, 2016.
Second, the statement highlighted the
importance of the agreement made on March
19th, 2018, between the British and European
Brexit negotiators on a transitional period. With
the UK officially leaving the EU in March 2019,
transatlantic businesses had been calling early
on such a period so to minimise disruption and
allow for a fully negotiated framework to be
completed. It was clear from the beginning that
the time set aside for the withdrawal would not
be enough for businesses and people to adjust.
The transitional period agreed in March
2018, will still mean that the UK will no longer
be a EU Member State as of March 30th, 2019,
and no longer participate in the decision-making process of the EU. It will, however,
maintain all the advantages and benefits of
the Single Market, the Customs Unions, and
EU policies until December 31st, 2020, when
the transitional period ends.
Third, the Ambassador ’s statement
emphasised a commonly known fact and reality:
The UK is an extremely important economic
partner to the US. Available data shows that more
than 40,000 US firms export to the UK. 7,500 US
businesses are active in the UK. Those businesses
employ over a million people in the UK. No other
country receives more American foreign direct
investment (FDI) than the UK. Almost 200,000 US
citizens are residents in the UK; forming a vibrant
American community there.
This impressive commercial foot print
does not come as a surprise: The US and
the UK share a historic cultural and political
link and friendship; the UK is considered to
provide a business-friendly environment, with
a solid track record and leading institutions in
innovation and research. For many US firms,
the UK had been the first foreign market where
they established operations outside America.
In addition, through its membership of the
EU, the UK has offered access to a market even bigger than the UK, the European Single Market.
Indeed, the EU accounts for the highest share
of total exports from UK-based firms. Many
foreign businesses, particularly US businesses,
had come to the UK with the attraction to use
the country as a gateway to a much larger
market and consumer base. At the same time,
businesses in the UK had enjoyed the access
to talent from all over Europe. We know that
the UK’s departure from the EU will change the
UK’s current access to the EU market and talent.
It is in that context that American businesses
in particular, as the largest investor in the UK,
follow quite closely the developments in the Brexit
negotiations. It is in that context, among others,
that the Ambassador expressed that an orderly
Brexit is in everyone’s interest, including the
USA. It emphasises how an event like Brexit does
impact not only the UK and the EU; but it matters
to everyone who has a strong relationship with
this part of the world, particularly the US.
There is no doubt, the UK’s decision to leave
the EU continues to present transatlantic
businesses with a great challenge. It is a rupture
to existing political certainties and business
models. Leaving the EU, in whatever form
that may be, will come with an economic and
operational cost for businesses as they need
to re-visit if and how they can best service their
customers in the UK and the EU. It will also
come with a cost to people who now may have
to consider the new border between the UK and
the EU in their personal planning for the future.
Yet, while the final details of the UK’s departure
have yet to be agreed, there is also reason to be
optimistic: First, the UK economy has done better
than predicted since the 2016 referendum result.
The UK Government is now working actively to
build and implement a credible plan for a post-Brexit innovative, competitive and growing UK
economy, which, among others, will hopefully
include a smart and reasonable immigration
system for EU and non-EU workers.
Second, the Brexit talks, while no less
complex in nature, seem to be back on track
after much time had been lost on the way in
2017. With the transitional period agreed,
the danger of a ‘cliff edge scenario’, in which
the UK would have broken away from the EU
in March 2019 without any agreement, has
luckily been avoided.
Third, while sorting the future relationship
for the UK and the EU will remain the biggest
political and economic priority for the months
to come, there are promising signs that the
UK and US will also seek to further tighten
their economic relationship.
Since July 2017, both the US and the UK
Governments have convened regular talks
in form of a US-UK Trade and Investment
Working Group. The talks are meant to
explore tangible measures that help
businesses to trade across the Atlantic and
to lay the groundwork for a future bilateral
trade arrangement.
While generally high-level in nature, the
tangible outcome of these talks so far is
worth noting: On March 20th, 2018, both
Governments launched a Small Business
Dialogue that is meant to discuss ways to
deepen trade and investment for smaller and
medium-sized enterprises in particular, to
identify resources currently available from
both Governments to assist them, and to hear
from companies and relevant stakeholders
directly as to what the specific challenges and
opportunities are when trading bilaterally.
This initiative should be very welcome.
It builds on what is the largest and
most successful economic relationship
between two countries in the world. It is
an encouragement to companies who are
thinking about going abroad, that the UK and
the US are good places to do business, no
matter the political times of changes we are in.
Emanuel Adam is a Director at
BritishAmerican Business (BAB),
overseeing the organisations policy & trade
portfolio in the UK and the US.
BritishAmerican Business (BAB) is an
exclusive corporate network and the voice of
transatlantic business, dedicated to advancing
economic growth for companies with
operations in the US and the UK. They provide
their members with first class networking
opportunities to enable them to meet people
that will help their business, including
potential suppliers, customers, competitors
and relevant people from government. Visit www.babinc.org/membership-london.
The following is designed to provide general immigration and business law information for those independently relocating to or residing in the United Kingdom and does not constitute legal advice. As with all legal issues, seeking tailored advice from qualified counsel is advisable.
UK IMMIGRATION
OPTIONS
It goes without saying that if you intend to work in the UK or remain for any extended period of time, you will require a visa. The most straightforward path to obtaining a visa granting such privileges is through support from an employer, a college or university, or a family member. Yet in the absence of such opportunities, other options, although limited, may still be available. Entrepreneurs, individuals with exceptional talent, and those looking to invest substantial amounts in UK markets may be able to relocate to, or extend their stay in the UK, irrespective of sponsorship from a family member or employer.
Tier 1 (Entrepreneur)
If certain requirements are met, this visa may be available to those with access to £200,000 to invest into a UK business who can demonstrate they are able to support themselves while residing in the UK. Individuals with funding through select competitions, the UK government, and certain venture capital firms can qualify for a reduced funding requirement of £50,000.
The Tier 1 Entrepreneur visa can be held for three years and four months and allows holders to bring their spouse or partner and children. The visa can be extended for another two years, three in certain circumstances. After five years of presence in the country on this visa, it may be possible to apply for settlement in the UK, which grants the privilege to remain indefinitely.
Tier 1 (Graduate
Entrepreneur)
Similar to the standard visa for entrepreneurs, students in the UK are able to apply for visa privileges through a less costly option. Only £50,000 in funding is required for the business and the visa is available for one year, with a one-year extension period.
This visa on its own does not permit settlement in the UK but does provide a clear path for transition to the standard entrepreneur visa. One of the primary benefits of this option is that it can be pursued with only £50,000 in funding, as opposed to the £200,000 that would otherwise be required. Investments made to the business within the prior 24 months can satisfy the funding requirement, potentially eliminating any need for additional capital when changing visa types.
Given these relaxed funding standards, as you can expect, the application process can be highly competitive. A limited number of visas are issued each year and candidates must obtain a letter of endorsement from UK trade authorities or an institution of higher education in the UK attesting to the applicant’s entrepreneurial capabilities and the merit of their business opportunity.
Tier 1 (Investor)
This visa requires an investment of at least £2,000,000 into the UK rendering it an option only for those with substantial financial means. To be eligible, the investment must be made in UK government bonds or active and trading UK registered companies. The funds are largely prohibited from investment in the real estate industry.
It can be maintained for up to three years and four months and extended for another two years, with settlement available after five. The settlement timeline is reduced to three years with an investment of £5 million and two years with an investment of £10 million.
Tier 1 (Exceptional
Talent)
To qualify for this visa, you must have been endorsed as a recognised or emerging leader in the fields of science, medicine, digital technology, or the arts. As with the graduate entrepreneur visa, the application process is highly competitive and only a limited number of visas are granted each year under this category.
Before applying, an endorsement must be sought from the Home Office attesting to your status in your field of practice. If ultimately granted a visa under this category, you will be able to stay in the UK for up to five years and four months and can extend for another five years. As with other categories, settlement is available after five years.
Rigidity of visa guidelines go a long
way to ensuring that expats arrive in the United Kingdom with vetted business plans, verified talent, and financial means to handle the transition smoothly. The downside is that the financial thresholds and competitive nature of the application process may place most of these visas out of reach for many expats, forcing reliance on support from employers or family members to obtain UK visa status.
While the battle is uphill, the hard- working expat entrepreneur with a promising business idea and a bit of wind in their sails may very well be able to access UK market opportunities in a manner that ultimately leads to settlement and residency status. If this describes you, deciding how you will structure your business is the next step.
BUSINESS FORMATION
IN THE UK
When doing business in the United Kingdom, your activities can be structured in various ways. It will be important for Tier 1 Entrepreneur visa applicants to select a business structure that will balance tax and administrative efficiency against legal protections provided by more formal arrangements.
Of importance, the decision to form a UK business may not require expats to consider how such arrangements will be taxed by their country of nationality. Unfortunately, due to the worldwide tax and information reporting regime in place in the United States, American expats must actively consider cross border tax and reporting obligations that their businesses will encounter.
Notably, recent changes to the US tax system brought about by the Tax Cut and Jobs Act have created a dynamic environment where American business owners operating overseas will want to revisit any ongoing tax planning or compliance strategies. This legislation establishes a new tax on certain foreign income that can have a profoundly negative impact on individual shareholders of certain foreign corporations. Planning opportunities are available to minimise exposure to this new tax, but existing businesses should take action quickly as these rules are applicable to tax year 2018.
While there are numerous other UK business structures designed to achieve specific funding or operational goals, the information below covers the most common methods for operating UK business activities.
Sole Trader
Without question, operating as a sole trader provides the easiest option for setting up and managing the ongoing administration of your UK business affairs. Sole traders simply register their independent business activity with HMRC and are ready to begin business. Note, however, that many businesses selling products or engaging in other regulated activities will still maintain the responsibility to register for Value Added Tax (VAT) and any other relevant licenses that may be applicable to their business.
The notable drawback of operating as a sole trader is that no limited liability protection is provided. This means that you would remain personally responsible for debts and other liabilities of the business. Given this lack of protection, operating as a sole trader would be a risky option for most business owners.
Partnerships
A partnership in the UK is formed when a group of at least two individuals collectively engage in an activity with the goal of producing a profit. A nominated partner is tasked with registering the business with HMRC and each partner will need to register for self-assessment on their partnership income. Income tax is calculated at each partner’s individual tax rate based on their respective share of partnership income, as if they were sole traders.
A partnership agreement is not required but is recommended in all situations, irrespective of personal or family dynamics that may characterise the business relationship. As is the case with sole trader status, no limited liability protection is offered to owners of these traditional partnerships. Moreover, as partners could potentially be responsible for the business debt attributable to other partners, the risk of operating without limited liability here is even greater than it is for sole traders.
Those wishing to maintain certain tax and operating features of a partnership while ensuring limited liability from debts of the business may want to consider organising a Limited Liability Partnership (LLP). LLPs are required to register with the Companies House, must submit annual financial reports, and are regulated in a similar way to private limited companies described below.
Private Company
Limited By Shares
(LTD)
Private limited companies are widely popular among UK business owners and are available for both individual owners and group ownership structures. No minimum capital requirement is applicable and limited liability is offered to shareholders, protecting
their personal assets from debts of the business. This structure may be desirable for expats who do not want the risk of operating without limited liability, but accounting for tax attributes will need to be a crucial part of the decision.
Establishing a private limited company is relatively straightforward and requires that Articles of Association, along with several other documents, be filed upon formation. The business is not obligated to hold meetings, but financial statements must be submitted annually within nine months of the company’s financial year-end. Smaller companies may qualify for simplified reporting and all private limited companies are subject to annual corporate tax filing responsibilities.
Private limited companies are required to have at least one company director who must be a natural person, but it can be the sole shareholder of the company. Shares in a private limited company cannot be offered for sale to the general public and a transfer of shares can only occur through a private agreement of the shareholder.
Public Limited
Company (PLC)
Businesses that want the ability to offer shares of the company for sale to the public are required to organise a public limited company. This type of entity is characterised by significant organisation and administrative costs as well as strict formalities around meetings, voting, and other activities of the business enterprise.
Ultimately, while private limited companies will be the most common operating structure for expat entrepreneurs and business owners, the details of every business arrangement must be closely considered. Tax and immigration laws as well as the ongoing costs of compliance and administration should be factored into the broader decision-making surrounding the appropriate structure for the business.
If you are an American entrepreneur or investor contemplating a new business or a move to the United Kingdom, our firm can assist with developing an effective strategy and ensuring you maintain compliance on
both sides of the pond.
Expat Legal Services Group offers unique legal services for American expatriates and foreign nationals with financial interests in the United States. Our firm serves the expat community in the areas of international tax, immigration law, and cross border business and estate planning using a suite of modern technology solutions. Contact Expat Legal Services Group today at info@expatlegal.com or visit the website at www.expatlegal.com.
The choice of an attorney is an important decision and should not be based solely on advertising.
The following is designed to provide general immigration and business law information for those independently relocating to or residing in the United Kingdom and does not constitute legal advice. As with all legal issues, seeking tailored advice from qualified counsel is advisable.
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