The United States continues to be the UK’s largest source of foreign direct investment (FDI). Data from the Department for Business and Trade shows that in 2024–25, the US led all markets in new FDI projects in the UK, supporting the creation of more than 69,000 jobs nationwide. US businesses are clearly eager to invest. The real question is how they structure their operations once they arrive.

For US businesses entering the UK, one of the first and most important decisions is choosing the right legal structure. Should you operate through a UK branch of your US company, or set up a separate UK subsidiary? The wrong structure brings tax, regulatory, and operational headaches. The right one gives your UK business a platform for growth.

What is often less obvious at the outset is the practical and administrative complexity that can arise, as well as the potential opportunities that the right structure can unlock.

What is a UK branch?
A UK branch is not a separate legal entity. It is an extension of your US company, registered with Companies House as an “overseas company” under the Companies Act 2006.

The branch trades in the UK under the name of the US parent and the US parent retains full legal liability for its obligations.

In practical terms, there is no liability ringfencing.

From HMRC’s perspective, a UK branch creates a “permanent establishment,” meaning the branch’s UK profits are subject to UK corporation tax. For the 2025–26 tax year, the main corporation tax rate is 25% on profits above £250,000, while a small profits rate of 19% applies to profits of £50,000 or less. Companies with profits between these thresholds benefit from marginal relief. However, because a branch is not a separate entity, its worldwide activities remain within the scope of US federal income tax.

The US–UK double taxation treaty mitigates double taxation but the interaction between the two systems is rarely straightforward and requires deliberate planning from day one.

While a branch can appear simpler in theory, there are additional administrative requirements that are often underestimated in practice. In particular, the overseas parent must also be registered with Companies House, with ongoing obligations to keep director details, addresses and filings up to date. Where there are changes at group level, this can create additional compliance complexity that needs to be actively managed.

What is a UK subsidiary?
A UK subsidiary is a separate legal entity, incorporated and registered at Companies House as a UK Limited company.

It has its own legal personality, with independent directors, bank accounts, and tax obligations.

While the US parent company holds the subsidiary’s shares, the subsidiary operates independently and pays corporation tax on its UK profits. Dividends paid to the US parent may be subject to withholding tax, though the US–UK tax treaty typically reduces this to zero when the US parent owns at least 80% of the subsidiary’s voting power.

This structure provides a clear separation between US and UK operations, limits the US parent’s liability to its equity investment, and is generally preferred by UK banks, customers, and commercial partners over a branch structure.

Key differences in practice
Tax reporting and compliance
A UK branch must file accounts with Companies House that reflect the worldwide operations of the US parent, not just the UK activities.

This means placing financial information about the entire US group on the UK public register, something many US businesses underestimate until late in the process.

A UK subsidiary files standalone accounts covering only its UK operations. The US parent’s financials remain private. For many privately owned US businesses, this factor alone drives the decision.

From a US tax perspective, a subsidiary’s profits are not automatically included in the US parent’s tax return. They only become taxable in the US when dividends are distributed (subject to certain anti-deferral rules such as Subpart F and GILTI). A branch’s profits, by contrast, flow directly into the US parent’s taxable income.

This timing difference can materially affect cashflow and group tax planning.

In addition, branch compliance is not fully digitised. Certain filings must still be submitted in paper form rather than online, which can increase both administrative burden and cost. For example, filing branch accounts requires a paper submission and attracts a higher filing fee than standard UK company filings, which can come as a surprise to US businesses used to fully digital systems.

Transfer pricing
Both structures trigger UK transfer pricing obligations where transactions occur between the UK operation and the US parent. HMRC expects all inter-company transactions to be conducted at arm’s length, and from 1 January 2025, the UK has introduced new transfer pricing documentation requirements that align more closely with the OECD framework. Transfer pricing is no longer an after thought, it is an area of increasing scrutiny.

For branches, attributing profits to the UK permanent establishment can be technically complex, particularly where the branch relies on intellectual property, financing or strategic decision-making functions retained in the US.

The OECD’s Authorised Approach requires a detailed functional analysis to determine how profits should be allocated.

In practice, this often becomes one of the most contentious areas in an HMRC enquiry.

For subsidiaries, the transfer pricing analysis is more straightforward because the subsidiary is a separate entity entering into transactions with a related party. The documentation requirements are the same, but the analysis tends to be cleaner.

VAT registration
Both branches and subsidiaries must register for UK VAT if their taxable turnover exceeds the registration threshold (currently £90,000 for the 2025-26 tax year).
There is no fundamental difference in VAT treatment between the two structures.

However, non-UK businesses making taxable supplies in the UK have no registration threshold and must register from the first pound of taxable turnover, something that frequently catches overseas groups by surprise.

In practice, UK banks are more accustomed to working with UK limited companies than with branches of overseas entities. Opening a UK bank account for a branch can be slower and more document-intensive. Suppliers, landlords, and customers also tend to prefer dealing with a UK-incorporated entity, as it provides a familiar legal framework and clearer recourse.

This is another area where the perceived simplicity of a branch structure can diverge from the practical experience of operating it in the UK.

Employees and payroll
Both structures can employ staff in the UK and both trigger the same PAYE, National Insurance, and auto-enrolment pension obligations. The key difference is that a branch of a US company may create additional complications for US employees seconded to the UK, particularly around social security coordination under the US-UK Totalisation Agreement and the interaction of US and UK employment tax obligations.

Which structure is right for your business?
There is no universal answer.

However, where a US business is establishing a substantive UK presence, incorporation of a subsidiary is often the more robust long-term structure.

The subsidiary offers cleaner tax separation, limits liability exposure, simplifies banking relationships, and avoids the public disclosure of the US parent’s financials.

A branch structure can make sense in specific circumstances, for example where the UK operation is expected to generate losses in its early years that the US parent wants to offset against its US tax liability. In that scenario, a branch allows the losses to flow through directly. Once the UK operation becomes profitable, it may then make sense to convert the branch into a subsidiary, though this conversion itself has tax consequences that need careful planning.

The choice also interacts with other considerations such as R&D tax relief eligibility, intellectual property structuring, and the treatment of inter-company financing. These factors make early professional advice essential.

It is also worth noting that the choice of structure can have wider implications beyond immediate tax and legal considerations. The existence of a UK permanent establishment can, in some cases, open up access to UK tax-advantaged employee incentive schemes such as EMI, even where a US parent already operates an option plan. Similarly, a UK presence may create eligibility for Enterprise Investment Scheme (EIS) investment, which would not typically be available without a UK footprint.

Where the UK operation is undertaking qualifying R&D activity, there may also be potential to access UK R&D tax reliefs, creating further opportunities where the structure is aligned correctly from the outset.

Getting the structure right from day one
The UK recorded 1,375 FDI projects in 2024-25, with an estimated economic impact of over £6 billion. The UK remains a compelling destination for US businesses, but the commercial opportunity is only fully realised when the underlying structure is properly designed.

In our experience, many of the challenges do not arise from the initial decision between a branch and a subsidiary, but from the practical realities of managing compliance, reporting and structuring as the business grows. These factors are often underestimated at the outset but can have a material impact over time.

At Wilson Partners, we advise US businesses from the earliest stages of UK expansion, structuring entry, modelling tax exposure and establishing the compliance framework required to scale with confidence. Our inward investment team handles entity selection, company formation, tax registration, accounting, payroll, and the introductions to banking and legal partners that make the transition practical rather than theoretical.

If you are considering a UK presence, taking advice early can help you avoid common pitfalls and ensure your structure supports both your immediate objectives and longer-term plans.

If you would like to discuss how a branch or subsidiary structure would work in practice for your business, our inward investment team would be happy to help.