Do foreign businesses qualify for SEIS/EIS?
There are common misconceptions that only UK companies can qualify for Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) government schemes. But the truth is, that foreign companies can also qualify for SEIS or EIS. However, they must meet certain criteria required by HMRC in order to qualify.
Foreign companies can benefit by expanding to the UK not only by increasing their market reach but also by being able to tap into UK private investment using the SEIS and EIS schemes. Both schemes allow qualifying companies to raise capital, which is critical when expanding into new markets.
The SEIS and EIS schemes allow companies’ investors to claim back Income Tax reliefs, use Capital Gains Tax reliefs and deferrals or apply for loss relief if things don’t go according to plan. SEIS, which is designed for very early-stage companies, offers investors 50% of Income Tax relief while EIS, which is targeting more mature companies, 30% Income Tax relief against the amount invested.
There are several requirements for the usual SEIS/EIS application that need to be met and you can read more about them here. In order to apply for one of the schemes, a foreign company must have a permanent establishment in the UK.
A foreign company must have a permanent establishment in the UK
In order to be eligible for SEIS or EIS schemes as a foreign business, HMRC requires you to have a permanent establishment in the UK. For a company to be considered to have a permanent establishment in the UK, either of the following criteria must apply:
- A company has a fixed place of business there through which the company’s business is wholly or partly carried on; or
- A company has an agent acting on behalf of the company and habitually exercises their authority to enter into contracts on behalf of the company.
What is a fixed place of business?
A fixed place of business in the UK is defined as a place where an essential or substantial part of your business is carried out and has a taxable presence. Examples of what HMRC considers permanent establishments are:
– A place of management
– A Branch
– A workshop
– A building site
Important to note that a holding company with a UK subsidiary is not viewed as a UK permanent establishment by HMRC. More information on what is considered to be a permanent establishment in the UK can be found here.
A foreign company must have an agent in the UK:
A foreign company can also qualify for SEIS and EIS if they have an agent established in the UK. An agent can be an individual or a company and must have authority and repeatedly used it in the UK to enter into contracts on behalf of the company. The contracts must relate to the substantive business of the company and not to matters which would be considered preparatory or auxiliary. HMRC don’t provide an exact definition of what auxiliary or preparatory activities consist of and will review every application from non-UK companies on a case by case basis. This means that businesses will need to provide HMRC with persuasive reasons as to why a substantial part of your company’s overall business activities will be (or already are) carried out in the UK.
Agents who are independent of the company and offer their agency services to the company to benefit their own business are excluded. Examples of the types of agency businesses that would be considered to be independent are brokers and commission agents.
Having an agent established in the UK works as an alternative to the fixed place of business requirement and a foreign business only needs to meet one of the criteria to qualify for SEIS or EIS. More information on an established agent in the UK can be found on the HMRC website.
SEIS and EIS are the UK government-approved schemes that help to encourage investment into early-stage companies and can be used by foreign businesses. Whilst being similar, the key difference between them is that SEIS is explicitly targeted at start-ups and very early-stage companies, while EIS can be used by larger and more mature companies – although these are still relatively small and young in the context of the business and corporate landscape in the United Kingdom. It is an efficient way for foreign businesses to increase their chances when looking for investors. Find out more about how we can support you with your application when obtaining advance assurance from HMRC on our website.