UK Limited Company + Dual Resident Delaware C- or S-Corp

[cvc8445]

I have an International UK/USA Company Tax Question.

I am a dual citizen USA/UK residing long term in UK. In 4/2012 I will become "domiciled" in UK. At which time I will have tax obligations on worldwide income in both USA and UK.

I want to start a "close" company (100% owned and operated by myself initially + using contractors) and operate it from my home office in UK (selling products via Internet etc). I am very concerned about eliminating double-tax in UK and USA on both corporate profits and also on my income - and also minimising excessive double-taxes when I exit the company in a few years through a trade sale.

I'd expect to reach £100K GBP ($165K USD) in profits in year 2.

I'm considering setting up a "dual resident/domesticated" corporation in Delaware (either a USA S Corp or a USA C Corp) at the same time as setting up the main limited corporation in UK.

Then I plan to run 2 parallel sets of accounting books (USA/UK) and report the same income, expenses etc on my corporate/personal tax returns in USA and again on my corporate/personal tax returns in UK. I'd expect gross profit, expenses allowed etc. to be slightly different due to the different tax rules in USA and UK.

I plan to use the Foreign Tax Credit to offset tax paid in USA that's also been paid in UK (and vice versa). I am hoping this will offset most double taxes on: corporation tax (USA Form 1118 - if I'm a USA C Corp not an S Corp), income tax paid on salary (USA Form 1116), income tax paid on dividends (USA Form 1116) etc.

Does this corporate structure and logic make sense from a tax point of view? Will this structure help me to avoid being classed as a CFC (Controlled Foreign Corp) in both USA and UK (and having to file USA Form 5471). Will it reduce the accounting/bookkeeping complexity? (USA Subpart F etc.). Or is there a better way of structuring this? (Virtual Branch office in USA?, Have USA Corp own 100% of shares in UK Corp?)

Also, will I have to pay NI and Employers NI in UK as well as both equivalents in USA? (FICA/Medicare in USA and Employers FICA/Medicare) - or does the UK/USA Totalisation Agreements eliminate some of these 4 employment taxes?

Would appreciate opinions on this. Also any referrals to books/articles etc.

[Incredulum]

4/2012 I will become "domiciled" in UK. At which time I will have tax obligations on worldwide income in both USA and UK.

On what basis do you consider you become domiciled during that month?

[cvc8445]

I arrived in 2/2007. 4/2012 is the start of my 7th tax year in UK. I won't be paying the 30K/year fee to retain non-dom status.

[Incredulum]

I do not believe you become UK domiciled. I believe only that you are no longer entitled to use the remittance basis without paying the annual 30k remittance basis charge.

Try posting on the "international" forum on here. Your main problem appears to be subpart F (or PFIC?).

[cvc8445]

Not sure what the difference is when you say:

"I do not believe you become UK domiciled. I believe only that you are no longer entitled to use the remittance basis without paying the annual 30k remittance basis charge."

Isn't it true that I must lose the ability to be taxed in UK on remittance basis in 4/2012, at the start of my 7th tax year resident in UK (I'm not paying the 30K annual fee)? And that means I will be taxed then in both USA and UK on worldwide income on the arising basis?

The ability to be taxed in UK on the remittance basis seems to me to be the main (only?) benefit of being non-domiciled in UK? In fact I thought they were the same thing? Thanks.

[section 44]

Isn't it true that I must lose the ability to be taxed in UK on remittance basis in 4/2012, at the start of my 7th tax year resident in UK (I'm not paying the 30K annual fee)? And that means I will be taxed then in both USA and UK on worldwide income on the arising basis?

Yes ... subject to what the UK and US double tax treaty provides.

The ability to be taxed in UK on the remittance basis seems to me to be the main (only?) benefit of being non-domiciled in UK?

IHT benefits (for example).

thought they were the same thing?

What's "they" remittance and domicile?

[Incredulum]

If you become UK domiciled you lose your US domicle, you can only have one domicile at once.

It took me almost a week to understand your question as to how you expected to be taxed as though you were still US domiciled yet thought you were UK domiciled.

[Incredulum]

I'm sorry I cannot answer your question, but at least I now understand what you were trying to say. You probably need a US tax specialist, not UK - the UK tax analysis is very easy, it is the interaction that is apparently the problem. And yes, I understand that it can be possible to get double tax relief on UK/US national insurance/social security taxes.

From a UK perspective you would probably be better not paying salaries and NI, but instead paying yourself dividends

[cvc8445]

Yes, I was referring to remittance and domicile.

On reflection I can see the difference. Presumably if I keep my USA Domicile but am resident in UK after Year 7 and taxed on Remittance Basis in UK I get other advantages. e.g. Can I leave UK and not "stay resident for tax purposes for the next 5 years" ?

Not sure how long HMRC will allow me after Year 7 to stay Non-Domiciled in UK but taxed on remittance basis? I will have house and business and all my family in UK at that point. I also carry a UK as well as USA passport - but lived in USA for 20 years and had most of my career there.

But the reason for my OP was that I want to set up a 1-man UK company now and past Year 7. I can't see a sensible way of incorporating it on either side of the Atlantic without massive complexity and likely huge, tax prep/accounting fees - with the possible exception of the "dual resident company" idea I noted above. (to avoid CFC rules etc.) I've been advised that Incorporation would be needed in BOTH the UK and the USA, most likely. Again, very complicated.

Actually I may well go with a UK Sole Proprietorship and also declare my SE income and expenses in USA on Schedule C - and claim back FTCs from the USA for the UK personal taxes paid (USA Form 1116). (I don't use Form 255 for the FEIE.) Also I'd use the UK/USA Totalisation agreement to avoid paying USA FICA/Medicare as I'd be paying UK NICs (Class 2 and 4). The main problem is the personal "liability" issues in both UK and possibly USA. Do you know if I can "compensate" for the unlimited liability with insurance? I'd be publishing ebooks on business, travel and cultural subjects via the web. Using overseas freelancers on an irregular basis.

[Incredulum]

I'm getting well beyond my US tax knowledge. Some thoughts best taken with a pinch of salt:

If being a sole trader solves the US problems but you are uncomfortable with being a sole trader from a liability point of view, then what about a UK LLP. If you've no wife to make a 0.01% partner, then you could incorporate a company which could be your 0.01% partner. Presumably that would be transparent from a US perspective.

Alternatively, as transparency appears to be your requirement, can you check the box on a UK limited company in order to make it transparent from a US perspective? I know they're planning on changing the rules, but it might be years.

Alternatively again (and now I'm guessing) what if your UK company makes no profit by paying you a salary of all its profit? Does that get you out of Subpart F?

Finally, do you ever intend to return to the US? If not, then perhaps you can abandon your US domicile.