SEIS: Guide to the Seed Enterprise Investment Scheme
Founders guide to SEIS. Find out how it helps startups and investors, eligibility criteria, how to get Advance Assurance...
Many people don’t know that non-UK companies can offer investments to UK investors which qualify for the Enterprise Investment Schemes (SEIS and EIS). It doesn’t matter if your startup is based in France, Germany, Spain, Italy, Estonia, the US – or anywhere! It’s possible.
In this post, we explain how non-UK companies can qualify for SEIS / EIS and become much more attractive to UK investors.
To qualify for SEIS / EIS, your company doesn’t need to be incorporated in the UK, but it does need to register as a having a permanent establishment in the UK.
There’s a full description of how HMRC defines a UK permanent establishment on the gov.uk website – in brief, it means either:
Below in this post, we’ll look at what exactly HMRC means by fixed place of business and agent.
As well as meeting one or both of these criteria, you’ll need to register as an overseas company in the UK within one month of establishing the business filling in the OS IN01 form and sending it to Companies House. There are full details on how to do this at the gov.uk website.
A fixed place of business in the UK is defined as any place of work, for example a branch, office, factory, workshop or project site where an essential or substantial part of your business is carried out.
This means the business activities your company carries out in the UK can’t be auxiliary or preparatory. HMRC give some examples of activities which might be considered auxiliary or preparatory:
HMRC deliberately doesn’t give an exhaustive list of auxiliary or preparatory activities – they review every SEIS / EIS application from non-UK companies individually. When you’re completing your application for SEIS / EIS Advance Assurance or SEIS / EIS Compliance, make sure you state the reasons why you believe a substantial part of your business activity is carried out in the UK. You can put this on the application form or in a separate letter.
In our experience, HMRC will expect at least some sort of physical presence in the UK. A PO box or virtual office won’t be sufficient. As evidence, HMRC will want to see the lease of the property. If you’re working from a WeWork or co-working space, then your contract for the co-working company will do.
Another way of qualifying for SEIS / EIS as a foreign company is by having an agent working for you in the UK.
A UK agent is defined as a person who can exercise their authority in the UK to enter into contracts on behalf of your company. Merely maintaining an employee in the UK is not enough.
This means the agent must plan to, or already has, repeatedly entered into contracts that bind the company. The contracts must be to do with the substantive business of the company and not related to activities which are auxiliary or preparatory. The definition of auxiliary and preparatory is the same as above.
If you have a UK agent, make sure you explain this clearly in your SEIS / EIS application and submit evidence.
If you have one or more of your company directors resident in the UK, then that’s usually sufficient to count as an ‘agent’ in the UK because directors can enter into contracts on behalf of the company. As evidence, HMRC will want to see the employment contract for the director(s).
To make sure investments in your company stay eligible for SEIS / EIS, your company must maintain your permanent establishment in the UK for three years from the date trading started, or from the date you issued the SEIS / EIS shares.
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An overseas-registered parent or holding company must itself have a permanent establishment in the UK to qualify for SEIS / EIS – the parent can’t just have a subsidiary resident in the UK.
Investments won’t qualify for SEIS / EIS if they’re taken into the subsidiary because SEIS & EIS investment must be taken into the TopCo.
If you have a UK parent or holding company (also known as a TopCo) and the administrative and management functions of your company are based in the UK, your company is likely to qualify for SEIS/EIS. The business of your subsidiaries doesn’t need to be carried out in the UK.
If you’re taking investment into both your holding or parent company and subsidiary company, for the investment to qualify for SEIS / EIS, it must be taken into the holding company.
You can then use the money to carry out a qualifying trade in a foreign subsidiary, as long as the parent company owns 90% or more of the subsidiary.