You're a UK Resident - Do You Need a US LLC?
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- เผยแพร่เมื่อ 24 ก.ค. 2024
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US LLCs are a popular among online entrepreneurs these days , and UK residents often have questions about whether this could benefit them. In this video I dive into some of the key things UK residents should consider before they incorporate.
0:00 Introduction
1:07 How does the tax work for an LLC?
4:07 UK alternative: Limited Liability Partnership (LLP)
5:31 Privacy benefits
6:43 Benefits when I have US clients
6:59 Access to US business bank accounts
7:48 Getting investment in future
8:43 If you may become non-UK resident in future
9:09 Conclusion
A BIT ABOUT ME
I've been advising on international tax since 2014, and qualified as a Chartered Accountant in 2018. I worked for consulting firms PricewaterhouseCoopers and BDO, before I started a remote international tax consultancy firm, Degen Tax Advisers, in 2020.
I work with online entrepreneurs to help them navigate the complex world of international tax. I work with e-commerce businesses, digital nomads, content creators, tech startups, crypto investors and many more in the digital space. Like my clients I'm pretty nomadic. I've lived in the UK, US, Japan, China, Malaysia, Thailand and Singapore. Currently I'm spending most of my time around Southeast Asia.
DISCLAIMER
My videos are for general guidance, education and providing you an introduction to the concepts of international tax. They in no way constitute specific advice to your specific circumstances. I accept no liability for any reliance placed upon the content of these videos or references, therein.
Good to know about the Delaware business details privacy. One thing I felt why HMRC wants to make business details, like owners address and numbers public on the web.
Your chosen topic is excellent, and you've effectively highlighted the differences. Currently, I'm evaluating the optimal and simplest system for my situation. I've been residing outside my home country (the UK) for a few years and don't plan to become a UK tax resident anytime soon. I sell physical products online to Europe and the US, utilizing fulfillment centers within these countries-hopefully, this doesn't complicate matters significantly. I'm seeking a stress-free LLC setup with straightforward ongoing management. While I appreciate the privacy offered by a US LLC, the associated higher cost prompts me to consider whether a US LLC or a UK LLC would be the better choice.
Hi, thanks for the kind words! In general fulfilment centres don't add any complexity or additional tax presence so long as they are a genuine third party. For example, I work with a lot of structures which have 3PL in China or the US but they are independent 3PLs, they're not under control of the selling company. Therefore, this logistics company doesn't create a tax presence of the selling company. However, where people have gone wrong is when scaling, they've decided to get rid of the 3PL and replace with their own warehouse - suddenly that does create a tax presence in the country where the warehouse is located.
But for now if your fulfilment is a third party a US LLC could still be workable from a tax and privacy standpoint. Additionally, a UK LLP could also work here. Further afield I also see many e-commerce business owners incorporating in Singapore, Dubai and Hong Kong a lot these days.
Hello Andrew! Your video was truly enlightening, breaking down complex ideas into easily understandable concepts.
I have a couple of inquiries concerning the operation of an LLC by non-residents with income generated outside the US, specifically in the context of be a current UK tax resident full time employed:
If my LLC earns over £1000 in income, but after factoring in all expenses, costs, etc., I find myself with either no dividends or minimal income (less than £300), would I still be required to file a tax return with HMRC at the year's end?
Regarding a Wyoming LLC, is it accurate that there's no obligation to maintain accounting records? Furthermore, when completing a UK self-assessment tax return, must I declare all costs and expenses, and must they be directly linked to the business?
great content Andy, really appreciate your channel. Question: in one of your videos you mention that opening an LLC and being UK tax resident and being the sole owner central management and control is in the UK, you might still have to pay corporation tax, on top of your income tax? Is that so? When does/doesn't that happen? I have seen tons of videos on the matter and it's the first time I hear about it.
Thanks for the kind words! Yes this can happen in theory due to the UK's management and control rules. Basically a company is a UK tax resident if it is (a) incorporated in the UK or if its (2) central management and control (CMC) is in the UK.
CMC is judged on a case by case basis but broadly means where the key strategic decisions are made of the company. This can often be judged as to where board meetings are held (so many companies avoid UK CM&C by having regular meetings outside the UK) but its all about the full facts. The reason many won't mention CM&C rules with regards to LLC is the practical risk of HMRC assessing your LLC as controlled from the UK is generally very low. This is because questions of corporate residency mostly only apply to large corporates (companies with £10m+ revenue) and thus HMRC resources tend to be focused towards these large multinational entities with companies in various tax haven jurisdictions. One man small businesses are generally not the focus of HMRC's international tax issues so the practical risk is remote.
But its still good to be aware especially as if you scale your business and attract the attention of HMRC its more likely that this could become an issue - in which case you might want to mitigate this by spending some time out of the UK for executive/board meetings/key decisions etc, or perhaps think about structuring your business differently.
@@WorldTaxAndy wow super advices Andy, thanks a lot!
Hi Andy, Would I be able to use a USA Wyoming LLC as a subco for my main UK company, I want to use the US LLC to access certain products offered only to US LLC's such a "buy now pay later" elements of payment processing on stripe
Would it be the case that profits are passed up to the UK topco and taxed in the UK entity?
If so that's fine, just want to make sure there's no Witholding tax
Thanks! if easier I can book a paid consulting call?
Hi James, yes that's possible and quite a common structure. In the case of LLC profits yes if the UK Ltd is the parent then its profits can be distributed up to the UK Ltd and taxed at that level. There wouldn't be any withholding taxes from the LLC in this case, assuming the LLC is only being used as described i.e accessing certain payment products.
The exception would be if the LLC is 'engaging in a trade or business 'in the US. Generally this means having a significant physical presence or Permanent Establishment in the States such as you personally being there & managing the business in the US, or you have key value driving staff there or long term physical space e.g an office/warehouse/factory etc there. So for most foreign LLC owners who have a US LLC they have no US tax liability to worry about
Question: will I run into double taxation with an LLC setup as a UK resident?
Hi, thanks for the question. Generally, no. For a few reasons. Firstly an LLC is not a taxable entity. Its basically non existent in the eyes of the IRS. The tax burden falls on its owners.
The exception (which could give you the owner a tax liability in the US) is if your LLC is engaging in a trade or business in the US. Generally this means having a significant physical presence or Permanent Establishment in the States such as you personally being there & managing the business in the US, or you have key value driving staff there. Having US customers is not sufficient to meet this criteria. So for most foreign LLC owners who have a US LLC with US customers, they have no US tax liability
In a scenario where you did have a US tax liability (lets say you had a Permanent Establishment) then you’d have to consult the UK US double tax treaty to see whether your income type is covered. In almost all cases you’re protected from double taxation, and you never pay more than whatever the higher tax rate between the two countries is
Respectfully there are millionaires and billionaires in the UK who pay minimal tax so how do they do it?
I’ve noticed the key is in wording when it comes to tax meaning when things are in YOUR name or come direct to YOU is taxable by X but let’s say for example, I had a Nevis Asset Protection private Trust which owned an LLC and that LLC owned a US LLC and done business through that with business income going to an offshore business bank account all while living in the UK would HMRC expect to still declare that or in most cases would the super wealthy not even declare it anyway
Hi, thanks for the question & yes there are still ways in which people can get away with minimal taxes. Unfortunately, the brutal reality is that the methods tend to be reserved for the elite rich because a lot of the structures are extremely expensive to set up and maintain.
When I worked for a big 4 firm in London we often advised large hedge funds, insurance firms etc on structures which enabled their key staff to live mostly in the UK but still pay minimal taxes due the company structure. For example, many London hedge funds incorporated parent entities in the Channel Islands such as Guernsey where they usually pay no tax. In order to justify most profit going through this entity, the key staff would fly from London to Guernsey at least 4 times per year where they'd host board meetings, discuss key strategic decisions of the business etc. And on paper, they could usually claim that the key business is operating from Guernsey. To justify the economic reality of this (and to counter any HMRC accusations of it being an artificial tax structure) they would also open a physical office in the Islands, as well as hiring directors who live there full time along with other admin staff. All in these kind of set ups may cost the business £1m per year annually in operating expenses, but when you're a billion pound hedge fund, the tax benefits massively outweighed the costs. But for the average person this just doesn't add up.
On top of that, some of the directors in the UK may also be able to claim 'non domicile' status (though this is finally changing in 2025) which would allow them to not declare any of the income they made from the company so long as it was held offshore. But this is all just one common example, and ultimately there's a myriad of ways top lawyers are constantly working on to exploit loopholes. But anti-avoidance rules are getting more widespread and closing loopholes all the time, and it is harder than it was 20 years ago to implement aggressive avoidance strategies. That said, its always the people at the very top wealth brackets that can still access the methods that do exist
@@WorldTaxAndy Thank you for the very detailed answer, couldn’t a person the UK just open an LLP have a UK LLC as a partner then a Cayman Islands LLC as the other partner. I’m talking from a perspective of if this person has a lot of money
@@GOATLAVISH777 its theoretically possible, yes, and there’s certainly ways in which that could avoid tax (at the company level). You’d always have to keep mindful of the UK central management and control rules though - if you give HMRC enough ammo to determine that the company is managed & controlled from UK then they may still subject the whole structure to UK corporate tax. At a personal level, you would still be paying UK income tax on salaries / dividends taken from the company, but often people will take minimal income from the business for years, let funds build in the company, then move abroad to somewhere like Dubai where there’s no income tax & take it all out then. Just one of many strategies that does get used by some wealthy Brits
@@WorldTaxAndy That makes sense so pretty much if you want to live and operate from the UK then you’re screwed unless you pay companies like PWC or Deloitte to structure it for you. Funny you mention hedge fund earlier because that’s exactly what I’m looking to do but I have all my family in UK I don’t want to have to move to Dubai