Tax Planning
How the Foreign Permanent Establishment Exemption Changes Affect UK Multinationals
Understanding the new UK regime where profits (and losses) of foreign permanent establishments are exempt from UK tax—what's changed, who's impacted, and how to prepare now.
By NomadicTax Research Team • 5-8 min read • June 27, 2026
## What’s Changing?
In a policy shift published on 21 May 2026, UK-resident companies operating foreign permanent establishments (PEs) will see **profits and losses from those PEs exempt from UK Corporation Tax (CT)** for accounting periods starting on or after **1 January 2027**. For businesses in **oil and gas extraction/exploration**, this exemption takes effect from **1 September 2026**. ([gov.uk](https://www.gov.uk/government/publications/foreign-permanent-establishment-exemption/foreign-permanent-establishment-exemption-policy-paper?utm_source=openai))
## Who’s Affected—and How
- **UK companies with foreign PEs**: The rule now makes it crystal clear that these entities can’t use PE losses to shield UK profits from CT. The new legislation closes tax planning routes that facilitated profit shifting.
- **Oil & Gas operators**: Because their exemption lives kick in sooner (1 September 2026), these businesses should be especially alert—impacts begin earlier than general rule.
## Planning & Compliance Implications
- **Review profit allocation models**: How do you currently allocate revenue and expenses to foreign PEs? Post-policy, only profits and losses will be **fully exempt**—so ensure allocations are documented and justified for audits.
- **Monitor accounting periods**: The effective dates are critical. For example, if your CT year ends on 31 December, profits from your PE between 1 January 2027 and the end of your next period are exempt. For oil & gas businesses, any PE profits from **1 September 2026** are affected.
- **Consider intercompany arrangements**: If you currently use intra-group loans or recharges to shift profits into UK, this may now have less utility.
## Practical Example
**Scenario**: A UK-based technology firm has a foreign PE in Germany generating a **£200,000 profit** in its accounting period ending 31 December 2027.
- Previously, that profit might have been taxed in the UK (depending on treaties, etc.).
- Under the new rules, for that period (starting 1 January 2027), the profit is **exempt from UK CT**.
- Losses from that PE, say **£50,000** in the same period, also wouldn’t offset UK profits—they’re also exempt.
**Impact**: UK taxable profits will **exclude both** profits and losses from the PE. If your UK-only operations have £500,000 profit, your CT base remains £500,000 (i.e., PE activities don’t alter the UK CT liability).
## Action Steps Before Implementation
- **Audit existing PEs**: Identify all PEs in which you operate internationally. Clarify their profit/loss contributions.
- **Update accounting and tax models**: Adjust your tax provision, forecasting, and planning tools to reflect new exempt status past effective dates.
- **Consulting overseas tax treaties**: Ensure that treaty benefits or foreign tax credits you rely on are still available or needed once the exemption applies.
## Final Tips
- Mark **1 September 2026** and **1 January 2027** in project schedules—dates when rules kick in for oil & gas vs general companies.
- Seek specialist advice if you have complex cross-border structures.
- Document everything! Clear allocation between UK business and foreign PEs will be critical for compliance and audit defence.