I'm currently researching the optimal business structure for a client seeking to break America. They have been in touch with a legal advisor over there and have had several suggestions put to them.
In general, the advisor has pushed the idea of an "LLC" (for all intent and purposes, it is an LLP equivalent). Under an LLC business profits are taxed on Partners as individuals. Individuals enjoy considerably lower tax rates than "alien" owned Corporations.
I agree with his suggestion. However, I have delved deeper. As may have already assumed, the individuals concerned will remain UK Resident. CTA taught me that, simply, UK Res. should be taxable on worldwide income; thus making the current LLC proposal inefficient as the individuals would be HRTP and possibly ARTP.
However, on reading the Double Tax Convention applicable between UK/US, Art. 7 suggests that Business Profits will be taxable ONLY in the Contracting State in which they arise. This is of course at odds with my previous paragraph stating UK Res. should be taxable on worldwide profits?
Can I rely on the statements contained in Art.7 of the DTC?
Would disclosure of the reliance on the exemption to double taxation be required on the UK SA100?
Some other points which may be of relevance:
- The trade is an extension of one undertaken through a UK Ltd. There
- The UK Ltd is currently a UK Marginal CT payer.
Any other points, recommendations, or cautions would be welcome.
Thanks for reading,