UK subsidiaries for Canadian companies

Canada sends 32 investment projects to the UK a year. The structural simplification for a Canadian parent is real: one corporate tax authority rather than federal plus provincial, one company registry, one set of employment rules across Great Britain, and no provincial sales tax layered on top of the federal one.

What to set up carefully

• VAT is not GST/HST, though it rhymes. It applies to services as well as goods at 20%, is reclaimed by registered businesses, and is reported quarterly. The registration threshold is £90,000 of taxable turnover in a rolling twelve months, and voluntary registration usually pays in year one because it recovers the VAT on set-up costs.
• The workplace pension is compulsory with a minimum 3% employer contribution, which has no direct Canadian equivalent.
• Employment is harder to end than in most Canadian provinces. There is no at-will employment and dismissal requires a fair reason and a process.
• The accounts are public. Every UK company files annual accounts anyone can read.

Money and people

Dividends to the Canadian parent leave the UK with no withholding tax. Interest and royalties carry 20% UK tax at source unless the UK–Canada treaty reduces the rate and the claim has been made in advance; that treaty reduces rather than removes it in most cases. The UK and Canada have a social security agreement, so an employee posted to the UK can normally stay in the Canadian system with a certificate rather than paying UK National Insurance.

Three things we set up differently for a Canadian parent

1. One layer, not two. There is no provincial equivalent to register in and no provincial tax to file. Companies House and HMRC between them cover the whole of Great Britain, with minor variations in Northern Ireland.
2. VAT is not GST/HST, despite the resemblance. It applies at 20% to services as well as goods, is reclaimed by registered businesses, and is filed quarterly through software linked to HMRC. Voluntary registration before the £90,000 threshold usually pays in year one because it recovers the VAT on set-up costs.
3. The pension is compulsory. Auto-enrolment with a minimum 3% employer contribution has no direct Canadian equivalent, and it applies from the first employee rather than at a headcount threshold.

What to plan for

Employment is harder to end than in most Canadian provinces: no at-will employment, a fair reason and a fair process required, and contractual notice of one to three months normal for senior hires. The company's accounts are published annually on a register anyone can read. And corporation tax is 25% for most subsidiaries of established groups, because the reduced band is divided across every company under common control worldwide.

Money and people

Dividends to the Canadian parent leave the UK with no withholding tax. Interest and royalties carry 20% at source unless the UK–Canada treaty reduces the rate and the claim is made in advance; that treaty reduces rather than removes it in most cases, so expect a real deduction and a corresponding credit at home. The UK and Canada have a social security agreement, so an employee posted here can normally stay in the Canadian system with a certificate of coverage.