I have an american client with an italian wife. In late 2013/14 they left the UK to live and work in Italy but he retains his UK company through which he is still working. We will be applying for an NT code for 2015/16, at which stage he will probably take a high salary to use up the company profit, but for the current year we will keep him on a much lower salary with a large dividend, due to the NI that is payable on the salary for the first 12 months of being away.. However, my one question is this: whilst his Italian wife would be due personal allowances as an EU citizen, is he due any personal allowance for a year in which is is not resident in the UK? He is USA domiciled.
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Has he made a check the box election? If not why not, and why is he thinking of making a change in pay without looking at US and Italian tax rules?
As a US citizen ...
... he will have to file a US tax return and declare his UK income, which will be taxed there.
From a US perspective this is a Controlled Foreign Corporation. If the client has not elected for the entity to be disregarded (commonly known as a “check the box elction”) the dividends are more likely to give rise to current US tax on payment of dividends.
If a check the box election has been made the client is taxed instead on the underlying income of the entity and can claim both the foreign earned income and housing exclusions plus foreign tax credits.
David Treitel | Managing Director | American Tax Returns Ltd
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