UK LTD , US LLC and new 2020 SMEs rules

[Loisir]

Hi all,

So it is now quite a long time now that i look around everything and solutions CRS, AEOI, CFC, MMATM etc...
I have quite a good knowledge over Internationale Tax etc... but i still miss some point

Background :
- Dual citizens North Africa High country in EU
- I live in High tax country in EU ( Fr, Ger etcc)
- i own a website that will sell subscription on press articles so 100% web services
- On the Website the company behind it, is my US NM LLC
- Client are in EU (Excluding Uk)

As the US LLC is a pass through entity and i am not able to set-up a residency in my North African country easily (if it is easy tell me ?) all the profit will be indicated directly to the High tax country in EU.
As a reaction i decided to put the website under the ownership of my US LLC for the only reason that it will held my privacy which is what i want.
I once wanted to change the US LLC to a C-Corp for tax matter , but the cost of accounting and etc , freeze me to do it.
I Want to open an UK LTD for easy banking, expenses and proximity reasons, so it will be the UK LTD that will invoice client

Question : Since April 2019 SME LTD in UK are no longer exempt of transfers pricing rules so i will nedd to justify all expenses and transfers pricing from the UK to the US.

1/ When i will open my UK LTD, does i have to set-up it like : - Me personally hold 70% Shares and my Us LLC 30% or - Me hold 100 % Shares. I See no value to put the US LLC as Shareholder of my UK LTD, it will only bring more trouble with Transfers pricing ?
2/ Persist and try to have no matter how a residency in the North African country so only kept the US LLC ? ( this solutions may bring issue with banking)
3/ If you have any better set-up please tell me
4/ Even if it is a pass trough entity, can i declare as many expense i want under the US LLC ( i see NM tax dept are less cautioned than HMRC). The target is to Charge the UK LTD for licence, processing, sourcing etc.

The 4 questions are really blocking point so if you can provide answer to this it will be really great
I tried to make thing clear as possible and structured feel free to reach me if not.

Thanks

 

[JustAnotherNomad]

If the US LLC is owned by a company instead of an individual, there are more filing requirements and I think there may also be branch office tax. I think @Sols might know more about the details.

You could have the US LLC hold the internet domain. I don’t think either company needs to own the other. Why can’t they just be independent? Or the UK company could be the US company some minimal fee for “privacy protection.”

As for your UK Ltd., I don’t see how it could be tax resident in the UK at all without any substance or business activity? Even if it was considered UK resident, there would clearly be a permanent establishment in your EU home country. You might want to rethink this.

 

[Loisir]

Hi @JustAnotherNomad thank for your reply.

In Fact actually only the US LLC is created and owned by an Individual, this was done because this is the US LLC that is showing off the website to for client the company is the US LLC .
The target was to know if the US LLC need to be a shareholder of the future UK LTD or if it bring no value. I personally think that it bring no value and have to be two entites that are independant but wanted advice on it ??

As a matter of CFC , well i can create on short time substance in the uk and business activity too with maybe some client. but i agree with you, however before any kind of administration ask for clearance here i will change residency maybe ( timeline of no more than 1 Year)

The target here is that the Uk Ltd will invoice BToC client and will do some transfers pricing to the Us LLC, or does the US LLC have to be taxed as a C copr ? As the busines is online it will be better if we can show up some expenses and not only work with a Us LLC which is a passs trough entity

 

[onemansomewhere]

You need 2 things:

1. Obtain residence permit in a country with territorial taxation
2. Form a foundation in country with territorial taxation

And afterwords:

Make You as resident of another country and your foundation a partners in US LLC.
Make foundation to be a partner with 81 % of interest and you 19 %.
Whereas Foundation does not have UBO, there will be no UBOs reportable.

 

[JustAnotherNomad]

I’m not a lawyer. But I don’t see why one company should need to be a shareholder of the other. But this whole setup with three different countries doesn’t sound very convincing. I’m pretty sure there would be issues with permanent establishment, transfer pricing etc.
You can’t just run you company from your EU high tax country without paying taxes by simply registering a UK Ltd. and finding a customer there. You should probably talk to an experienced lawyer who knows the rules of your country of residency.

 

[JustAnotherNomad]

You need 2 things:

1. Obtain residence permit in a country with territorial taxation
2. Form a foundation in country with territorial taxation

And afterwords:

Make You as resident of another country and your foundation a partners in US LLC.
Make foundation to be a partner with 81 % of interest and you 19 %.
Whereas Foundation does not have UBO, there will be no UBOs reportable.

That’s to fool CRS...?

 

[onemansomewhere]

That’s to fool CRS...?

Yes.. and if structured a little more better, also to have a legal structure for tax optimization

 

[JustAnotherNomad]

Why can’t the foundation simply own 100%? Why do you need this 81/19 structure?

 

[onemansomewhere]

US LLC has a different regime when it is a single member and different when there are at least 2 members. If it is a single member, it is regarded not as a partnership but as a sole proprietor. Sole proprietor may by liable for tax in the USA in more cases than a mambers of a partnership.
This set up is necessary for a reason, that 20 % is a limit for some banks in a USA to consider you to be a PSC. If you have a 19 % none bank in the USA will consider you to be a PSC. Foundations are well known in US legal system. And banks understand fact, that foundation has no UBO.
In a set up where 81 % is interest of foreign foundation and 19 % is interest of foreign person, US banks will consider this US LLC without having any PSC. And by a federal tax law, it is considered as partnership....

 

[JustAnotherNomad]

Sole proprietor may by liable for tax in the USA in more cases than a mambers of a partnership.

What cases for example? I thought single-member LLCs with non-resident alien owners (such as a foreign foundation) are disregarded for tax purposes? So they would be taxed as if the member had conducted the business themselves, as if the LLC did not even exist? Isn’t that the same way a partnership is taxed?

What does PSC stand for? Personal Service Corporation? What would be the downside with a PSC?

 

[onemansomewhere]

What cases for example? I thought single-member LLCs with non-resident alien owners (such as a foreign foundation) are disregarded for tax purposes? So they would be taxed as if the member had conducted the business themselves, as if the LLC did not even exist? Isn’t that the same way a partnership is taxed?

What does PSC stand for? Personal Service Corporation? What would be the downside with a PSC?

Person which is considered to be a sole proprietor is liable for US Tax if this US LLC has any customer in USA or supplier in LLC which is so called significant.. If LLC has two or more members, just having a customers in the USA does not have to automaticaly mean to be liable for a tax in the USA,

PSC does not mean personal service corporation. It means Person with Significant Control.

 

[JustAnotherNomad]

Thank you, I appreciate your insight.

Do you know where one can find more information about “significant” US customers?
All I found was that when services are delivered by non-resident foreign persons from outside the US, such income should always count as foreign sourced:
https://www.irs.gov/individuals/international-taxpayers/nonresident-aliens-source-of-income

 

[onemansomewhere]

Yes. In courts resolutions. You have to understand, that US law is not mainly written, but it is so called common law. It is not liek in Europe. A huge part of law in USA is formed by a resolutions of a courts. To be able to understand US law, you have to study it. It is not like in Europe, where it is mothly OK just to read exact act of law. There are differencies in a law system between continental law in Europe and common law in USA. If just reading some short article on internet would be enough to be able to understand any legal problem, there will be no lawyers at all.

 

[tco99]

You can still setup an offshore company in morrocco if you are from there.

 

[JustAnotherNomad]

Person which is considered to be a sole proprietor is liable for US Tax if this US LLC has any customer in USA or supplier in LLC which is so called significant..

And a foundation can be considered a sole proprietor?

 

[onemansomewhere]

And a foundation can be considered a sole proprietor?

Sure.

 

[JustAnotherNomad]

How much would your suggested setup be?
Which jurisdiction do you recommend for the foundation?

 

[JustAnotherNomad]

And also, why a ratio of 81/19 and not 99/1 for instance?

 

[onemansomewhere]

The best option is Panamian private interest foundation.

You can set up 99/1 if you want. Everything over 80.01/19.99 is OK.

 

[JustAnotherNomad]

Thanks. How much is such a foundation? Do you have to appoint nominee directors for the foundation or can you be both the director and the beneficiary?