Change to the UK taxation of foreign branches
26/05/26
On 21 May 2026, the UK Government announced that the foreign permanent establishment (PE) exemption will become mandatory.
From accounting periods beginning on or after 1 January 2027 (earlier for oil & gas), UK‑resident companies will no longer be taxed on foreign branch profits. However, they will also lose access to UK tax relief for foreign branch losses.
What does this mean in practice?
- Overseas branch profits and losses will sit entirely outside UK tax
- Foreign losses will no longer reduce UK corporation tax
- Existing loss pools will not be usable post‑transition
- Anti‑avoidance rules will prevent accelerated loss planning
Why the change?
The Government’s view is that some groups have been able to claim UK relief for overseas losses without bringing corresponding profits into charge. This reform is designed to protect the UK tax base while aligning with international practice.
Actions to consider now
Businesses with overseas branches should start reviewing:
- Existing and forecast foreign loss positions
- Branch vs subsidiary structures
- Timing of restructuring
- Potential impact on effective tax rates
This is a technical change, but with real cash tax implications for some internationally active groups.
If this affects your business, feel free to reach out.
