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SEIS / EIS advance assurance for foreign companies - is it really possible?

 

SEIS and EIS advance assurance for foreign companiesShort answer: yes it is. At Sapphire we are increasingly being asked to obtain SEIS and or EIS advance assurance for foreign-based companies. Contrary to popular belief, this is a popular structure. We recently obtained SEIS and EIS advance assurance for a company based in Malta (link to example), EIS advance assurance for a company in the United States (link to example) as well as one based in the Netherlands (link to example).

It should be noted that the main advantage of getting SEIS and / or EIS advance assurance for foreign-based companies is that investors’ monies are received directly by the foreign company. So, for example, if the company is based in the United States, it is the actual US company that is obtaining the advance assurance, with the SEIS and / or EIS monies being received directly into the foreign company’s bank account.

This has two advantages – investors can invest in foreign companies via SEIS and / or EIS (thus hopefully reducing their exposure to risk) and secondly it allows foreign companies to raise capital in the UK.

There are two main ways of obtaining SEIS and / or EIS advance assurance for a foreign company, as follows:

1) Option 1: A foreign company (such as a USA company) sets up a permanent establishment in the UK through which the company’s business is partly carried on. For a company to be considered to have a permanent establishment in the UK, either of the following must apply:

(a) it has a fixed UK place of business through which the company’s business is wholly or partly carried on; or

(b) a UK based agent acting on behalf of the company has and habitually exercises authority to enter into contracts on behalf of the company.

The fixed place of business can be a UK branch such as a small office (this is not to be confused with setting up a UK subsidiary – see below). If possible, we also advise our clients to do both of the above, i.e. to have a fixed place of business and have a representative in the UK who has the authority to enter into contracts on behalf of the company. The company should also consider registering its branch with the Companies House, since registration of an overseas company is required when it has some degree of physical presence in the UK (such as a place of business or branch) through which it carries on business. 


2) Option 2: A UK registered company can obviously raise SEIS and / or EIS monies. The UK company can also have subsidiaries – which can be a foreign company. In order to pass the money raised by the top holding company down to the subsidiary (being the foreign company), the subsidiary must be a 90%+ subsidiary and be qualifying for SEIS and / or EIS purposes. Therefore, a UK company which has a 90%+ owned foreign subsidiary could pass the money raised in the UK down to the foreign company subsidiary.

However, one point to note, in order to qualify, none of the above companies can be older than seven years old (unless the company is knowledge based and is less than 10 years old). Also note that a foreign company with a UK subsidiary will not be regarded as having a permanent establishment in the UK. The legislation makes it clear that an overseas-registered parent company will not be regarded as having a permanent establishment in the UK merely by virtue of the fact that it has a subsidiary which is resident in the UK, or which carries on its business there. An overseas parent company must itself have a permanent establishment in the UK for it to qualify.

Typically we advise foreign-based clients to go for option one as it is the option that requires less restructuring, is relatively straightforward to set up and may be less onerous in terms of the ownership holding percentage required. If everything is set up correctly, we have found that advance assurance applications for option one are typically approved with relatively few HMRC questions (which can be a real time saver as HMRC are currently at an eight week response time to questions that they ask).

For a further blog article on SEIS/EIS for foreign companies - click here

 

 

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Sapphire Capital Partners LLP is authorised and regulated by the Financial Conduct Authority to conduct investment business.  If we can help you in any way - please let us know by calling 0870 7348 912.

 

 
  Boyd Carson 
 
 
 

Written by Boyd Carson

As a partner at Sapphire Capital Partners LLP, Boyd spends his days structuring SEIS and EIS schemes for companies and applying to HMRC for advance assurance on behalf of clients. Contact him by email at boyd@sapphirecapitalpartners.co.uk or view Boyd's profile here.

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