During the first six months of 2019, £1.2 billion investment from China flowed into the UK, making the UK the second preferred investment destination after Sweden, surpassing Germany and France, amongst all European countries. The Chinese Ambassador to Great Britain Liu Xiaoming said, "Events I attend the most during my seven years here are the opening ceremonies of Chinese companies in the UK," during an interviewed with China Daily.
To point out the elephant in the room, Brexit has played a significant role in Chinese investment in the UK. Cutting ties with the EU will force the UK to forge closer links with other strategically important bilateral partners like China. While companies from the rest of Europe are bracing for a potentially messy divorce between the UK and EU, Chinese investors actually see a lot of upside in the country. Another contributing reason for the UK's high performance as a destination for Chinese investment is the depreciating pound sterling. Energised by a Brexit-battered pound, Chinese businesses poured more money into the UK between January and August 2019 than they did in the entirety of 2018, according to Deloitte.
There are numerous reasons why the UK has been particularly favoured by Chinese capital:
- The UK is known to be liberal and open to foreign trade and investment, and has a stable political, legal and social environment. These qualities have over many years enabled this country of 65 million people to remain globally visible and wield considerable influence in international politics, economy, science, technology and culture.
- There are many strategic benefits to establishing a presence within the UK. A UK-based business can create better brand awareness, public image and show commitment enabling Chinese investors to reduce costs of developing and coordinating industry alliances and channel partnerships. It is also the bridgehead into the rest of Europe and potential worldwide expansion.
- The tax advantages of setting up a UK business can't be overlooked – at Summer Budget 2015, the UK government announced legislation setting the Corporation Tax main rate (for all profits except ring fence profits) at 19% for the years starting 1 April 2017, 2018 and 2019. It is worth pointing out that the corporate tax rate is 25% in China and 21% in the US.
- The process of incorporating a private limited company in the UK is simple and swift–very minimal information is required and it can be formed as quickly as within 24 hours. And there is no minimum paid-up capital or capital duty required. Once the company is incorporated, Chinese investor can apply for the business visa, which allows multiple entries and a maximum of six-month stay in the UK for up to five years.
- In addition, interestingly, Post-Study Work (PSW) visa was brought back to life in September 2019, after Theresa May put a stop to it and forced all international students to leave only four months after finishing their degrees back in 2012. With the visa relaunch, we will soon witness a spike in international student enrolments in universities, which is bound to bring a fresh breeze to the real estate investment market. And combined with the UK's Tier 1 Entrepreneur Visa, more and more Chinese students will be encouraged to stay in the country and start their own businesses.
However, as beneficial as it is to invest in the UK, for Chinese companies planning to move beyond the Chinese shores, important tasks await.
- Today, managing multinational companies has never been more challenging and as compliance demands grow in all jurisdictions, including the UK, company secretaries are becoming central to running businesses. The responsibility borne by company secretary will increase by 69% in the next five years due to the growth of international compliance regulations, including Anti-Money Laundering (AML), General Data Protection Regulation (GDPR) and other initiatives. However, there is a general lack of good corporate governance practices from Chinese-owned UK companies due to unfamiliarity with local regulations.
- The UK's generally business-friendly environment may make Chinese-owned UK companies underestimate the complexity of its tax regime. British authorities are, in theory, free to update rates and duties every year, and there are also multiple taxes at national and devolved regional level (ie Scotland, Wales and Northern Ireland) that companies must keep abreast of. Corporate tax deadlines can vary depending on a company's financial year and needs not necessarily to follow the calendar year of China. Procedures in areas like deductions and value added tax tend to be stringent and require a high level of detail.
- It is equally crucial for Chinese investors to comply with personal tax requirements. To maintain the non-resident status and benefit from certain tax laws, investors will need to report their presence in the UK to the tax authorities when they visit. Failure to do so, even unintentionally, may result in tax evasion, damaging their credit record and affecting their ability to continue to manage UK investments. Therefore, assistance and advice from local tax and accounting experts is essential.
- Stringent rules around employment and data protection shouldn't be overlooked either. It is the employer's responsibility to provide a safe working environment and a defined health and safety policy. Penalties for breaches of these kinds of regulations can be severe.
- Last but not least, understanding the difference between China and the UK is vital. To be able to successfully expand in the UK, Chinese businesses must learn to respect how companies are operated in the UK, recognise the differences, integrate cultures, and develop effective strategies to manage local employees.
In conclusion, the advantages of investing in the UK are clear but full compliance with local requirements and regulations are essential for businesses to strive in the country.
For more information, please reach out to our bilingual team at Vistra UK's Asia Desk.
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