ACCA Advanced Taxation (ATX) Practice Exam

How can a UK resident company establish operations overseas?

1. By opening an overseas office only.

2. Through a subsidiary or an overseas branch.

3. By merging with a foreign company.

4. By employing foreign staff in UK offices.

The correct answer is: Through a subsidiary or an overseas branch.

A UK resident company can establish operations overseas primarily through the formation of a subsidiary or an overseas branch. When a company sets up a subsidiary, it creates a separate legal entity in the foreign country, which can offer advantages such as limiting liability and potentially benefiting from local tax incentives. Alternatively, an overseas branch operates as part of the parent company and is not a separate legal entity but allows the company to directly conduct business in the foreign market. This option encompasses the most common and effective means for a UK company to penetrate international markets by offering operational flexibility and legal compliance with local regulations. The other alternatives are less comprehensive because simply opening an overseas office may not be sufficient for legal and operational purposes, as it does not account for the necessary legal structures that define a company’s presence in another country. Merging with a foreign company does establish overseas operations, but it is typically a much more complex process that may not apply to all companies, especially smaller operations looking for simpler solutions. Employing foreign staff in UK offices does not establish overseas operations at all; it merely enhances domestic operations without extending the company's footprint internationally.