This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

Uk citizen setting up a remote business in the usa

emybotanicals
Posts: 1
Joined: Wed Aug 21, 2019 10:09 am

Uk citizen setting up a remote business in the usa

Postby emybotanicals » Wed Aug 21, 2019 10:21 am

Hi,
I am a uk citizen, myself and my business partners (all US citizens) will be setting up an LLC in the USA. I will be running the company remotely so will not be residing in the usa, but our business (selling herbs and teas online) will all take place in the US.
I am aware that there is a tax treaty between the US and the UK which may avoid double taxation for me, but i’m not sure this will apply to me as i will not be living as an expat in the US, and i will be classified as self-employed.
My question is: where am i liable for tax?
Thanks 🙏

AGoodman
Posts: 857
Joined: Fri May 16, 2014 3:47 pm

Re: Uk citizen setting up a remote business in the usa

Postby AGoodman » Wed Aug 21, 2019 3:26 pm

I assume you are UK resident. An LLC is a simple structure for Americans; less so for you. I can't give you an answer but can explain what you should be looking at.

There are different flavours of LLC depending on the particular state. They are (I believe) all taxed as partnerships in the US (so partners are taxed on profits as they arise) but can be taxed differently in the UK. Until 2015, HMRC's default position was to treat an LLC as a company - so the LLC itself would pay tax on profits and members would pay tax on distributions (aka dividends).

The US will generally tax an LLC as a partnership so you would be directly liable for US tax on your share of the profits as they arise. You should probably aim to get the same treatment (transparent) here to avoid double taxation. Assuming you can, I'm still not entirely sure where you would actually pay tax - the default under the treaty is the location of the business but you being here could (possibly) constitute a permanent establishment.

There are two complications here:

(a) does HMRC consider the LLC to be opaque (akin to a company) or transparent (like a partnership)? HMRC traditionally treated LLCs as opaque but in 2015 (George Anson v HMRC), the Supreme Court found that a particular Delaware LLC was transparent. This may not apply to all LLCs (because state laws are different) or even all Delaware LLCs (as the LLC agreement could be different). The main test is whether the member (you) are entitled to a share of LLC profits as of right (transparent) or whether the LLC has to declare a dividend or similar and has the option to accumulate profits. Ideally you probably want transparent in order to get the same treatment in both countries and maximise your chances of getting double tax credit. Without that, you are at risk of paying tax in both jurisdictions and you won't be left with very much.

(b) if you are running the LLC from the UK, the LLC could itself be UK tax resident, so may need to file UK tax returns. That may be avoided if it is found to be transparent and to have its main place of business in the US.

You need to get yourself an accountant with expertise in both jurisdictions. There are a number available from a Google search, mostly London based.

DavidTreitel
Posts: 204
Joined: Thu Aug 16, 2012 4:31 pm

Re: Uk citizen setting up a remote business in the usa

Postby DavidTreitel » Fri Aug 23, 2019 11:58 am

This 2015 article discusses the Anson case in detail: https://www.taxadvisermagazine.com/article/certainty-uncertainty

In essence, a US domestic LLC would be an extremely unusual entity to select for a UK resident. With the business described I would equally be worried about management & control.

There is no substitute for cross-border professional advice.


Return to “International Tax”