Brexit: What happens to your branch in a no-deal scenario?

Branches in the UK

Many EU-based companies, including Danish companies, that conduct business and have a physical presence in the UK, have chosen to establish local UK branches rather than UK-based subsidiaries.

The reasons why an EU-based company may choose a branch rather than a subsidiary are many; however, one of the main reasons is, typically, that a branch is relatively easy (and cheap) to establish and to wind up again. Branches therefore serve as an easy initial access point to the UK market. Should the UK market prove to be a fruitful investment, the branch can later be converted into a subsidiary.

The risk involved in using a branch rather than a subsidiary (for example a limited liability company) is, however, that the foreign parent company is responsible for the debts and liabilities of the UK branch. Regardless, today we see many EU and Danish companies with local UK branches.

Branches after Brexit

Currently, EU-based parent companies operating UK branches are subject to less comprehensive filing requirements as opposed to non-EU-based parent companies (so-called "third country businesses"), which are subject to the Overseas Companies Regulations 2009, SI 2009/1801. 

If no deal is reached between the UK and the EU, then after the exit date the EU-based parent companies that operate UK branches will also be considered "third country businesses" and thereby be subject to further filing requirements. 

The additional filing requirements are, however, considered minimal.

Filing requirements for third country businesses 

EU-based parent companies will in most cases be required to send accounting documents to the UK Companies House. 

Whether or not an EU-based parent company is required to send accounting documents depends on whether the company is required to prepare and disclose its accounting documents under parent law (meaning the law of the country in which the parent company is incorporated). 

If an EU-based company is required by its parent law to prepare, arrange audit of and disclose accounts, then it will also be required to file those accounts (in English) with the UK Companies House. Such accounting documents include:

• The annual accounts,
• (any) annual report of the directors,
• (any) report of the auditors on the accounts, and
• (any) report of the auditors on the directors' report.

The accounting documents must be filed no later than 3 months from the date when the filings were due under the parent law and must be accompanied by form OS AA01.

EU-based companies with branches in the UK which are not required to prepared and disclose accounting documents under parent law, will instead have to comply with the provisions of Part 15 of the Companies Act 2006 (with modifications), which apply to third country businesses. These EU-based companies will therefore still have to prepare, sign and file accounts with the UK Companies House.

Conclusion

EU-based companies operating UK branches will not have to halt or wind up their branches, nor will they be required to establish a subsidiary, because of Brexit. EU-based parent companies should nevertheless be aware of the additional filing requirements and their deadlines post Brexit.

If you have any questions regarding your UK branch or subsidiary in terms of Brexit or in general, we would be happy to elaborate further via our Danish or London offices.  

For further reading, we recommend the following material published by the UK Companies House:

• Guide: Overseas companies registered in the UK 
• Article: Structuring your business if there's no Brexit deal

Please note that the above is the general regulation of branches and certain businesses may be subject to particular requirements. By example financial businesses (e.g. businesses covered by the Danish Financial Business Act) are subject to other regulatory requirements. If your branch is a financial business, we recommend contacting one of our specialists in financial regulation and asset management.