Company formation in brief

Scotland is a part of the UK and all businesses established in Scotland are subject to registration in the UK Companies House – the Unified Government Register which keeps records of all legal entities in the UK without any exception. Therefore, Scotland’s approach to the registration of companies and partnerships is absolutely identical to that of the UK (please, see details on this page).

Upon registration in the UK, each company has a reporting duty there in due course, filing relevant forms and returns to the UK Companies House and to HM Revenue & Customs, and a duty to pay taxes there if they become due in the course of business.

The only type of legal entity that had a specific difference compared to all the others in the UK, and therefore, used to be of great interest to foreign investors, is an LP (Limited Partnership), which is regulated in Scotland by the Limited Partnership Act of 1907.

Before mentioning this only “Scottish difference”, please, note that all, without exception, partnerships registered in the UK are not independent subjects of taxation in the UK. Partnership’s profit is treated in the UK as partners’ profit, and therefore, if partners are non-residents of the UK, partners’ profit is not subject to taxation in the UK. As a result, partnerships having non-resident partners may be released from filing their tax returns with HM Revenue & Customs - the UK tax service.

As mentioned above, in addition to tax reporting to the HM Revenue & Customs, all companies and partnerships registered in the UK are required to file appropriate forms with the Register - the UK Companies House. Partnerships have to file their tax returns with the UK Companies House even if they are not required to file them with the HM Revenue & Customs.

Therefore, now coming back to the only specific difference between a Scottish LP and all the other partnerships in the UK, we note that it was the right not to file tax reporting neither with the HM Revenue & Customs nor with the UK Companies House.

However, very few agents suggesting registration in Scotland told their clients that without reporting, the Registrar will not give, should a need arise, a certificate of good-standing, and following the LP path, customers will have to balance between having no reporting duty (and not being able to obtain anything from the Register) or following the path of a standard LLP (Limited Liability Partnership), in which case, you have the reporting duty but the Register is open for certificates you need!

This had been the case until May 1998, when the UK Government decided to make a number of changes related to Scottish LP regulation; as a result they lost their popularity among foreign investors and their number in the Register was reduced by 80%.

The negative press added fuel to the fire and, consequently, banks began to close accounts of Scottish LP which can not provide financial statements.

UK Double Taxation Agreements

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