US Citizen Member in UK LLP Tax Consequences

US Citizen Member in UK LLP Tax Consequences

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I Brian (US Resident, US Citizen) have been offered an equity stake in a UK LLP.  I have consulted with a few UK and US tax consultants, and none have been able to give me a clear recommendation on the best structure to handle this arrangement from each the UK and US tax liability/administration/simplicity view.  The UK LLP is operated and managed solely in the UK.  I Brian spend occasional times in the UK totaling no more than 60days a year but work solely from the US.  

It has been recommended to me that I create a UK Ltd Company to become a corporate member in the UK LLP.  I would pay myself solely with post corporate tax dividends from the UK Ltd Company.  In would file a form a form 8832 to 'check the box' classifying the UK ltd Company as a foreign disregarded entity.  I would then receive a tax credit for the tax paid in the UK. The results proposed look like this.  Assumptions = UK small company Corporate rate at 100k=20%, US Married-Filing Jointly Individual Rate at 100k=25%.

UK LLP distributes 100kUSD to UK Ltd Co

UK Ltd Co pays 20%  (20kUSD) in corporate tax

UK Ltd Co distributes 80kUSD to Brian in US

Brian's tax rate is 25% but credit is given to him for 20% paid in UK for Corporation Tax leaving him paying 5% or 5kUSD in the US.

I have not been able to find clear language that says the 'US check the box scheme' allows an  US individual to claim a credit for UK corporation tax.  

Any guidance is appreciated.

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By aiwalters
27th Mar 2012 12:59

SE tax

Be aware that if you do do this arrangement, you'll be liable to SE-tax in the US, and will have to file Schedule C and Schedule SE. This will add 13.3% to your tax bill ($13,300). You'll also need to file IRS form 8858.

Depending on whether the company is trading or investing, it may be considered a PFIC, in which case you'll need to file 8621 too.

Depending on which state you are in, you'll also need to pay state tax as no US state gives credit for foreign tax paid.

You'd save paperwork, and money if you just form an S-Corp in the US (or LLC taxed as an S-Corp). You won't avoid State tax or 8621 (if relevant) but you'll save on SE tax, and the 8858 filing, as well as the admin in dealing with filing a UK tax return, and full accounts (UK GAAP) for your holding company.

 

 

IRS CIRCULAR 230 NOTICE:

To ensure compliance with requirements imposed by the United States Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

 

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Replying to robvaughan:
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By briant57
27th Mar 2012 13:55

To clarify...... Are you saying that a US LLC taxed as an S-corp could be a corporate member in the UK LLP?  The company is trading not investing.  

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By aiwalters
27th Mar 2012 14:08

yes

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