A Canadian company in the UK is a structure decision, not a filing

The structure decides the tax, so it comes first

A Canadian company that decides to do business in the UK usually starts with the practical questions: an address, a bank account, a UK company number, perhaps a director on the ground. Those are real, and they are the easy part. The decision that shapes everything else is made before any of them, often without being recognised as a decision at all. It is the choice of the legal form the UK business will take.

That choice fixes four things at once. It decides whether the UK profit is taxed once or twice. It decides whether the Canadian company's own balance sheet stands behind every UK contract. It decides whether UK incentives, and UK investors, are open to the business. And it decides how expensive it will be to change course in three years, when the UK operation has grown or the group wants to sell it.

There are three possible forms. The Canadian company can trade in the UK through a branch. It can form a UK subsidiary. Or, in principle, it can try to move itself to the UK. The third is the one founders ask about most, so it is the right place to begin, because it is the one that is not available.

Why the Canadian company cannot simply move

A Canadian corporation is a creature of the statute that created it, federal or provincial. Canadian corporate statutes generally allow a corporation to continue into another jurisdiction, becoming a company of that jurisdiction while keeping its legal identity, provided the law of the destination accepts it. That last condition is where the route closes for the UK.

The UK has no inward re-domiciliation regime in force. The government published a consultation in March 2026 on an inward-only regime that would let foreign companies become UK companies while keeping their identity, but at the time of writing it is not law. Until it is, there is no UK procedure for a Canadian corporation to arrive as the same legal person. The wider pattern, that most common-law centres let companies in but not out, and that the UK currently does neither, is set out in the note on moving a company to another country.

Even once a UK regime exists, Canada makes leaving expensive. A corporation incorporated in Canada after 26 April 1965 is deemed resident in Canada, and it stops being resident only by being continued under the law of another jurisdiction, under subsection 250(5.1) of the Income Tax Act. When it does, two charges arrive together.

• A deemed disposal. Subsection 128.1(4) treats the corporation as having disposed of its property at fair market value immediately before it ceased to be resident, so its accrued gains are realised although nothing has been sold.
• An emigration tax. Section 219.1 imposes a further tax of 25% on the amount by which the fair market value of the corporation's property exceeds the paid-up capital of its shares and its debts. The rate can be reduced to the dividend rate in the relevant tax treaty, but not where one of the main purposes of emigrating was to reduce Canadian tax.

The emigration tax is, in effect, a final dividend charged on the company's surplus as it leaves. For an established Canadian company with value built up in Canada, it usually settles the question. The company stays Canadian and the UK business is built beneath it or beside it. How the UK and other countries tax a company whose residence moves is examined in the note on the corporate exit tax.

The branch, which is the Canadian company itself

A branch is not a smaller company. It is the Canadian corporation trading in the UK through a fixed place of business there, with no separate legal person in between.

Registration. An overseas company that opens a UK establishment registers it at Companies House on form OS IN01 within one month of opening for business, under the Overseas Companies Regulations 2009, for a fee of £124. It files certified copies of its constitutional documents and later files its accounts in the UK within three months of the deadline for filing them in Canada.

UK tax. A non-UK company that trades in the UK through a permanent establishment pays UK corporation tax on the profit attributable to that establishment, at the normal rates. The UK charges no tax when branch profits are sent home.

Canadian tax. A Canadian corporation is taxed on its worldwide income, so the UK branch's profit is also Canadian income. Canada relieves the double charge with a foreign tax credit under section 126 of the Income Tax Act for the UK tax paid on that profit. The result is that the branch's profit bears the higher of the two rates, not the UK rate alone.

Liability. Every contract the branch signs is a contract of the Canadian company. A UK claim against the branch is a claim against the whole corporation and everything it owns, in Canada or anywhere else.

A branch has real uses: a short engagement, an activity that must be carried on by the Canadian entity itself, or a period of testing the market before committing. It has one hidden cost for a Canadian business that is worth stating plainly. Because the profit is taxed in Canada as it is earned, a branch does not let the business keep UK profits in the UK at the UK rate to fund growth there. The full comparison of branch and subsidiary in the UK, with how other parent countries tax branches, is in the note on choosing a branch or a subsidiary.

The UK subsidiary, and the Canadian foreign affiliate rules

A UK subsidiary is a separate UK company owned by the Canadian corporation. It is UK resident by incorporation under section 14 of the Corporation Tax Act 2009, pays UK corporation tax on its own profits, and carries its own liabilities. For Canada, it is a foreign affiliate, and that classification is what makes the subsidiary route efficient.

Exempt surplus. Canada sorts a foreign affiliate's earnings into surplus accounts. Earnings from an active business carried on by an affiliate resident in a country with which Canada has a tax treaty, or a tax information exchange agreement, generally fall into exempt surplus. The UK is a treaty country, so the active trading profits of a UK subsidiary normally become exempt surplus.

The deduction on dividends. When the UK subsidiary pays a dividend to its Canadian parent out of exempt surplus, the parent includes the dividend in income and deducts the same amount under paragraph 113(1)(a). The dividend arrives free of Canadian corporate tax. The UK, for its part, charges no withholding tax on dividends. Profit earned in the UK, taxed at the UK rate, can therefore be moved up to the Canadian parent without a second layer of tax.

FAPI. Canada's foreign accrual property income rules tax a Canadian shareholder each year on the passive income of a controlled foreign affiliate, such as investment interest, rents and royalties that are not part of an active business, whether or not it is paid out. A UK subsidiary that genuinely trades is largely outside them. A UK subsidiary that mainly holds investments or licenses intellectual property back to the group is not, and from 2026 Canada has increased the tax a Canadian-controlled private corporation pays on that kind of income.

Reporting. The Canadian corporation reports each foreign affiliate on form T1134, within 10 months of the end of its taxation year for years beginning after 2020. Late filing carries a penalty of $25 a day up to $2,500, and considerably more where the failure is knowing or grossly negligent.

The subsidiary route gives the business what the branch does not: a ring-fenced UK balance sheet, a UK-resident counterparty for UK customers and banks, UK profits retained in the UK at the UK rate, and a clean path for those profits to reach Canada.

The three routes side by side

Who owns the UK company matters as much as whether it exists

The comparison above assumes the Canadian corporation owns the UK company. Many founders consider two other arrangements, and each changes the tax and the funding in ways that are easy to miss.

Owned by the Canadian founders personally. Where Canadian-resident individuals own the UK company directly, it is still a foreign company to them, but the surplus regime and the section 113 deduction are available only to corporations. Dividends from the UK company are taxed in the founders' hands in Canada as foreign dividends at personal rates. The UK withholds nothing, so there is no UK tax on the dividend to credit. If the UK company is controlled by Canadian residents and earns passive income, the FAPI rules can still attribute that income to them. For a trading business that intends to reinvest in the UK, this structure works; for one that intends to send profits back to Canada, it usually costs more than ownership through the Canadian corporation.

Partly owned by UK investors. A business that wants to raise money in the UK has a particular reason to look at ownership. The Enterprise Investment Scheme and the Seed Enterprise Investment Scheme give UK individual investors income tax relief on shares in qualifying companies, and they are one of the main ways early UK companies raise equity. The issuing company must meet a control and independence requirement: it must not be a 51% subsidiary of another company, or otherwise under the control of another company. A UK company that is wholly owned, or controlled, by its Canadian parent does not qualify, however good its business. The same independence test applies to options under the Enterprise Management Incentives scheme.

This produces a genuine trade-off. Ownership by the Canadian parent gives the cleanest tax path home and keeps control in one place, but closes the UK's main tax-advantaged equity routes. A UK company that the Canadian parent does not control can be opened to EIS or SEIS investors, but then the parent's share of profits arrives on different terms, and control of the UK business is shared. Which is right depends on where the money is coming from, and that question should be answered before the UK company is formed, not after the first investor asks.

Funding the UK company from Canada

Where the Canadian parent funds the UK subsidiary itself, the form of the funding has its own consequences.

Equity. Share capital carries no UK tax on the way in and no withholding on dividends on the way out.

Loans. Interest paid by a UK company to a Canadian lender is subject to UK withholding tax at 20% under domestic law. The Canada-UK convention, signed on 8 September 1978 and amended by protocols in 1980, 1985, 2003 and 2014, reduces the UK rate on interest to 10%. The reduced rate is obtained by a treaty claim, and it applies only where the Canadian lender is the beneficial owner of the interest.

Pricing. Loans, management charges, licences and services between the Canadian parent and the UK subsidiary have to be priced as if the parties were independent. Canada's transfer pricing rule in section 247 of the Income Tax Act applies to the Canadian side. The UK's rules apply to the UK side, with an exemption under section 166 of the Taxation (International and Other Provisions) Act 2010 for small and medium-sized groups; the government decided to keep that exemption after consulting on narrowing it in 2025. Royalties paid from the UK to Canada bear UK withholding at a treaty rate of 10%, with exemptions for computer software and certain copyright and know-how payments.

UK incentives belong to the UK company

Most UK tax incentives for business investment, including the merged research and development regime and the sector-specific expenditure credits, are claimed by a company within the charge to UK corporation tax for its own qualifying expenditure. A UK subsidiary claims them in its own name, holds the benefit on its own balance sheet, and can show investors and lenders a UK incentive position separate from the rest of the group.

That is often the practical reason a Canadian business forms a UK company even where a branch would be legally sufficient. Each incentive has its own conditions about who incurs the expenditure, where the work is done and who controls the company, and those should be checked against the specific scheme before the structure is settled.

Forming the UK company from Canada

The formation itself is quick, and it now has one sequence point that catches overseas founders.

• Identity verification first. Since 18 November 2025 every new director and person with significant control must verify their identity with Companies House before the company can be registered. A Canadian director without a UK document usually does this through an Authorised Corporate Service Provider rather than the government's own route, as set out in the note on Companies House identity verification for overseas directors.
• Incorporation. The Companies House fee for digital incorporation is £100. The company needs a UK registered office address.
• Banking. A UK company owned from abroad often finds banking harder than incorporation; which providers will open an account, and what they ask for, is in the note on opening a UK business bank account as a non-resident.
• Registrations and filings. Corporation tax registration, and PAYE and VAT where they apply, run on their own deadlines, and the annual calendar of accounts and returns follows. The registrations a new UK subsidiary of an overseas group takes on are set out in the note on registering a UK subsidiary for tax, and the annual filings in the note on what a UK company must file every year.

The wider realities of running a UK company from abroad, including why the certificate of incorporation is the least important document in the process, are covered in the note on forming a UK company as a non-resident.

Where the UK company is really run

A UK subsidiary is UK resident because it is incorporated in the UK, whatever happens to its board. The opposite question is the one that matters for the Canadian parent. If the Canadian corporation's own strategic decisions start being taken in the UK, because a founder relocates to London, the parent can acquire a UK presence or, for a company incorporated outside Canada, a UK residence argument. Canadian incorporation keeps a corporation resident in Canada under the deeming rule, and the treaty decides any genuine dual residence, but a UK permanent establishment of the Canadian company can arise from people habitually concluding contracts for it in the UK.

The discipline is simple to state. The UK subsidiary's board decides UK matters. The Canadian board decides the group's matters in Canada. People who work for both are clear which company they are acting for when they sign.

Five traps

Trap one: waiting for the company to move. A Canadian corporation cannot continue into the UK today, and leaving Canada would trigger the deemed disposal and the 25% emigration tax. Build the UK business beneath or beside it.

Trap two: a branch for a business that will grow in the UK. Branch profits are taxed in Canada as they are earned. A business that will reinvest in the UK usually wants a UK subsidiary whose profits stay in the UK at the UK rate.

Trap three: forming the UK company under the parent and then seeking EIS investors. A company controlled by another company does not meet the independence requirement. Decide the ownership against the funding plan first.

Trap four: founders owning the UK company personally without modelling the cost. Individuals do not get the section 113 deduction, so profits sent to Canada are taxed again there. That can be the right choice, but it should be a choice.

Trap five: intercompany charges without pricing. Loans, fees and licences between the two companies are tested at arm's length in both countries, and UK withholding applies to interest and royalties unless a treaty claim is made.

Frequently asked questions

Can a Canadian company move to the UK?

Not as the same legal entity at present. Canadian corporate statutes generally allow a corporation to continue into another jurisdiction if that jurisdiction accepts it, but the UK has no inward re-domiciliation regime in force; it consulted on one in March 2026 and it is not yet law. A Canadian corporation that did continue abroad would also face a deemed disposal of its property under subsection 128.1(4) and a 25% emigration tax under section 219.1 of the Income Tax Act. In practice, a Canadian business enters the UK through a branch or a UK subsidiary.

Should a Canadian company open a UK branch or a UK subsidiary?

It depends on what the UK business will do. A branch is the Canadian company itself, registered at Companies House on form OS IN01, with its profits taxed in the UK and again in Canada with a foreign tax credit, and its liabilities on the Canadian balance sheet. A subsidiary is a separate UK company with its own liability, whose active profits can be paid to the Canadian parent as exempt surplus dividends free of Canadian tax. A business that will grow or raise money in the UK usually needs a subsidiary.

How does Canada tax the profits of a UK subsidiary?

A UK subsidiary of a Canadian corporation is a foreign affiliate. Its active business profits generally form exempt surplus because the UK is a treaty country, and dividends paid out of exempt surplus to the Canadian parent are deductible under paragraph 113(1)(a) of the Income Tax Act, so they bear no Canadian corporate tax. Passive income of a controlled foreign affiliate can instead be taxed in Canada each year under the FAPI rules. The parent reports the affiliate on form T1134.

Is there withholding tax on payments from the UK to Canada?

The UK charges no withholding tax on dividends. It charges withholding tax at 20% on interest and on certain royalties under domestic law, reduced by the 1978 Canada-UK convention to 10% for interest and 10% for royalties, with royalties for computer software and certain copyright and know-how payments exempt. The reduced rates require a treaty claim and beneficial ownership by the Canadian recipient.

Can a UK subsidiary of a Canadian company raise money under EIS or SEIS?

Not while it is controlled by the Canadian company. Under the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme, the issuing company must not be a 51% subsidiary of another company or otherwise under another company's control. A UK company wholly owned by its Canadian parent therefore cannot offer UK investors EIS or SEIS relief. A business that intends to raise UK equity on those terms needs to structure the UK company's ownership for it before formation.

What happens if Canadian founders own the UK company personally?

The UK company is still taxed in the UK on its own profits, but the Canadian foreign affiliate surplus regime and the section 113 deduction apply only to corporate shareholders. Dividends to the founders are taxed in Canada as foreign dividends at personal rates, and because the UK withholds nothing there is no UK tax to credit. If the UK company is controlled by Canadian residents and earns passive income, the FAPI rules can attribute that income to them each year.

How do you set up a UK company from Canada?

Each proposed director and person with significant control first verifies their identity with Companies House, usually through an Authorised Corporate Service Provider for someone without UK documents, and receives a personal code. The company is then incorporated online for £100 with a UK registered office address. It registers for corporation tax and, where relevant, PAYE and VAT, opens a bank account, and keeps an annual calendar of accounts, a confirmation statement and a company tax return.

What UK tax does a UK subsidiary of a Canadian company pay?

It pays UK corporation tax on its worldwide profits as a UK-resident company, at 25% on profits above £250,000, with a 19% small profits rate up to £50,000 and marginal relief between. The rates were left unchanged by the Autumn Budget on 28 October 2026. It also claims UK incentives in its own name, such as research and development relief, subject to each scheme's conditions.

---

Critical advisory. A Canadian company entering the UK is usually told the formation takes a day, and it does. What takes thought is the three decisions made in that day without anyone naming them: whether the UK business is a branch or a company, who owns the company, and how it will be funded. Those decide whether the UK profit is taxed once or twice, whether UK investors and incentives are open to it, and whether the group can later sell or refinance the UK business on its own.

In my experience the expensive corrections are almost always to ownership, made after the first UK investor asks why the company does not qualify. We form and run UK companies for overseas groups, verify their directors through our authorised route, register them, keep their accounts and filings, and model the Canadian and UK tax position before the structure is fixed, through our UK company formation for non-residents and UK accounting for non-residents services. If you are bringing a Canadian business to the UK, speak to us before the company is formed.

This article is general information and not legal or tax advice; your own position should be confirmed against your specific facts, and with a Canadian adviser on the Canadian side, before you act.