UK resident with clients in the US. What the best setup for a dual citizen?

[saintjohnny]

Hello all,

I've recently started a marketing consulting business with US clients exclusively and I am planning to move to the UK later this year. I also plan to take on UK clients in the future.

I was thinking that maybe a US LLC would suffice to do business with my US clients and then also have a UK Ltd to pay myself (and others) a salary and conduct business with my UK clients.

Can you recommend me a setup to optimize tax from the beginning? I expect my profits to be just a little north of $100k in my first year (2021)

 

[John Andrews]

Why mess with the IRS? If you're planning to move to the UK, forget it. Just trade with the UK Ltd and call it a day. Make sure you get a good accountant so you can deduct all kinds of expenses

 

[CaptK]

Johnny if I'm not mistaken DR has a territorial tax system. US LLC will only help you with non US clients. UK LLP only works for non UK clients but if you intend to live here then it's not going to work.
LLP and LLC only work if you dont live nor have an office in that country.

I personally would stay well away from US LLC and take advantage of your DR citizenship by incorporating a company there and using a limited company as the marketing office of the DR company.

I will double check but that sounds similar to what I have done before for a client of mine but it was a few years back. Need to check how that works for CFC now.

 

[saintjohnny]

Why mess with the IRS? If you're planning to move to the UK, forget it. Just trade with the UK Ltd and call it a day. Make sure you get a good accountant so you can deduct all kinds of expenses

Thanks for your answer.

Johnny if I'm not mistaken DR has a territorial tax system. US LLC will only help you with non US clients. UK LLP only works for non UK clients.

How would a UK LLP (or Ltd?) work with non-UK clients?

 

[Martin Everson]

Manage38 is right don't waste your time if moving to UK. You can reduce your taxes dramatically with just a UK limited if you know how. So speak to a good accountant. I think I have already explained how in the public forum or mentor group before.

No point dealing with IRS either unless its important to have a US facing company for your clients.

P.S UK resident non-dom scheme won't help you either.

 

[saintjohnny]

Manage38 is right don't waste your time if moving to UK. You can reduce your taxes dramatically with just a UK limited if you know how. So speak to a good accountant. I think I have already explained how in the public forum or mentor group before.

No point dealing with IRS either unless its important to have a US facing company for your clients.

P.S UK resident non-dom scheme won't help you either.

Thanks for your response, Martin. I suppose there won't be any problem for my US clients to sign a contract and transact with a UK limited company.

My only concern was payment processing using Stripe and billing my clients in USD, but I can just set up US bank details with Transferwise or even use my own personal Bank of America account over in the US. Am I right?

Also, may you recommend an accountant in the UK that is familiar with internet-based businesses and the like?

Thanks again and have a great day.

Edit: I'm also concerned about the taxation of foreign income. I would have to pay 20% corporate tax on my USD proceeds, is that right?

 

[Martin Everson]

but I can just set up US bank details with Transferwise or even use my own personal Bank of America account over in the US. Am I right?

You took words out my mouth to just use TW. Dont know why you would want to use personal account for business as this will cause problems with bank surely?

Also, may you recommend an accountant in the UK that is familiar with internet-based businesses and the like?

Any good accountant will know about internet business.

Edit: I'm also concerned about the taxation of foreign income. I would have to pay 20% corporate tax on my USD proceeds, is that right?

Yes buy you can lower it to an overall 15% effective rate on lets say $100k in revenue and thats even after taking into consideration corporate and personal taxes together. Its all about making the right deductions.

 

[JustAnotherNomad]

Where your customers are or whether you have an “internet” or “brick and mortar” business is largely irrelevant. I don’t know where that belief comes from. It doesn’t even matter much where the business is incorporated.

What matters is where the business is managed and where the work is performed.
If you are going to live and work in the UK, you and your company are going to have to pay taxes in the UK.
Unless you move to a country with lower taxes, you can choose 2 out of 3 properties for your structure:
- cheap
- legal
- substantial tax savings

So talk to a UK accountant first and see what they can come up with. 15% of 100k isn’t very much. It probably won’t make much sense to pay for a different structure because if it’s legal, it would probably cost more than what you’d save in taxes.

Unless you need to have a US LLC for your American customers, definitely just stick with a structure that’s as simple as possible, i.e. UK Ltd. if you live in the UK.

 

[saintjohnny]

You took words out my mouth to just use TW. Dont know why you would want to use personal account for business as this will cause problems with bank surely?

Any good accountant will know about internet business.

Yes buy you can lower it to an overall 15% effective rate on lets say $100k in revenue and thats even after taking into consideration corporate and personal taxes together. Its all about making the right deductions.

Got it. I will use USD bank details from TW. Thanks for your detailed explanation, it greatly appreciated.

Where your customers are or whether you have an “internet” or “brick and mortar” business is largely irrelevant. I don’t know where that belief comes from. It doesn’t even matter much where the business is incorporated.

What matters is where the business is managed and where the work is performed.
If you are going to live and work in the UK, you and your company are going to have to pay taxes in the UK.
Unless you move to a country with lower taxes, you can choose 2 out of 3 properties for your structure:
- cheap
- legal
- substantial tax savings

So talk to a UK accountant first and see what they can come up with. 15% of 100k isn’t very much. It probably won’t make much sense to pay for a different structure because if it’s legal, it would probably cost more than what you’d save in taxes.

Unless you need to have a US LLC for your American customers, definitely just stick with a structure that’s as simple as possible, i.e. UK Ltd. if you live in the UK.

Thank you for your answer. I will go ahead and open a UK Limited Company and run it with the help of an accountant.

 

[JustAnotherNomad]

I would simply the accountant first what they can come up with. If it’s 15% or so, I would say it’s worth it because you’ll have peace of mind, so you can concentrate on your business. You’ll know everything is legal, your life will be easy because banks and everyone you deal with will understand your structure.
If they say you’ll have to pay 40%, I’d probably look more into alternative ways to structure things. But as mentioned, unless you move, you can only pick 2 out of 3 options. Legal and substantial tax savings won’t be cheap, but at 100k+ in profits it might still be worth it, depending on how much you’d pay for taxes and accounting in the UK.

 

[CaptK]

Do not transact nor pay money into your US account. UK company can work if you invoice correctly.

Thanks for your answer. If I have an LLC I won't have to pay 20% UK corporate tax on my US earnings. Am I wrong?
Is it possible


Hi, thanks for you answer. DR does not have a territorial tax system.
How would a UK LLP (or Ltd?) work with non-UK clients?

 

[CaptK]

Do not transact nor pay money into your US account. UK company can work if you invoice correctly.

US derived business are due for WHT on an LLC as you provide a service.
Same as LLP, UK derived income, VAT is due and CT.

So essentially your US clients pay your UK LLP and UK clients pay your USLLC.
All other countries can pay in any currency they like.

TW will give you accounts in all the major currencies and proper details to route the payments.

If both the companies have the same name then it wont be an issue and when it comes to accounting you have seperate payments going to specific accounts.

Your problem is that you live in the UK and that mesns all your UK income is taxable. So to make it simple I would just pay your tax on the UK income and the US income is tax free.

I cant see any other way unless you move either the company or yourself somewhere more tax efficient. Romanian Micro company, Georgia company or UAE.

Im certain you can use the DR if you get a family member as your local director and set up an IBC. They franchise you the rights in the UK and take a 90/10 profit share. Or you set up LLP and have the DR company as the majority partner and you are the genral partner.
That allows you to be CFC efficient and still hold all the cards and mitigate your tax. I would ask my learned freinds @xzars and @Txaxandlxaxwxyxexr to chip in with their opinion.

 

[JustAnotherNomad]

US derived business are due for WHT on an LLC as you provide a service.

Not if the services are provided from outside the US.

https://www.irs.gov/individuals/international-taxpayers/nonresident-aliens-source-of-income

 

[CaptK]

Not if the services are provided from outside the US.

https://www.irs.gov/individuals/international-taxpayers/nonresident-aliens-source-of-income

He said he only has US clients currently.
@saintjohnny can you clarify where your service providers are and how are you paid for your work, card or bank transfer? As I think we have exhausted all the different avenues.

 

[JustAnotherNomad]

It doesn’t matter where his clients are. The only thing that matters is where he is. (Assuming he doesn’t have nexus in the US.)
So once he lives in the UK, he can work for US clients exclusively and would still not be paying any US taxes. Not even if he used a US LLC.

 

[CaptK]

• A Delaware Limited Liability Company (LLC) is a good vehicle for non-resident aliens to earn tax free income (not derived in the USA), utilizing a US business entity.
• Members of a Delaware LLC are not liable for tax to the United States providing that:
  • The members are non-resident aliens.
  • The LLC does not employ US residents as permanent staff, or rely on a dedicated place of business within the United States.
  • The LLC does not undertake any business activity that is effectively connected with business or trade within the United States.

The IRS are very clear in their definition with regards to payment. Not one cent should come from the USA into his DE company.

I think he is over complicating things.
He is a DR national he can use that as the basis of his structure which will be the most efficient for him.

 

[saintjohnny]

He said he only has US clients currently.
@saintjohnny can you clarify where your service providers are and how are you paid for your work, card or bank transfer? As I think we have exhausted all the different avenues.

Hello, thanks for your response.

I usually invoice my customers using Stripe payable via ACH or Credit Card. I was able to set up Stripe with an LLC I formed in Florida a while back. I have an EIN. I also have a TFW account but I am using my personal account at BofA for payouts. I suppose my clients wouldn't mind to pay me with a bank transfer.

Anyway, here's some news:

Things have changed now and I don't plan to be physically present in the UK for more than 6 months per year, as I want to travel for a while. I also dropped all my UK clients.

I guess that leaves us with new options. Would it possible to take all the profits as a salary from UK Ltd if I'm not a tax resident? I have formed a UK Ltd but it costed peanuts so I wouldn't mind incorporating somewhere else.

Perhaps @Martin Everson might have an opinion here?

Thank you so much to everyone who has commented. You're really helpful and kind.

 

[John Andrews]

Would it possible to take all the profits as a salary from UK Ltd if I'm not a tax resident?

All? No. If you end up with 100k GBP profit you can't pay yourself a salary of 100k GBP.

Things have changed now and I don't plan to be physically present in the UK for more than 6 months per year

Not being in the UK does not necessarily grant you a UK non resident status. Take a look at the following: RDR3 Statutory Residence Test

Question: Which country are you tax resident of at the moment?

 

[CaptK]

You need to find a home country. You will need to show real proof of you staying there.
You can still use the US LLC or incorporate a new LLP.

You could set up a new co in a favourable jurisdiction like an freelance in UAE. You get the residency and can use your profit to set up a UAE office. That helps to build substance in the UAE and knowing how expensive it is you can burn through 100K easy.

Also can get a good number of PSP's as well.
You can bill from your UK and pass the profits on to the UAE.

Most important question we left out is where do you currently live and pay your taxes.

 

[saintjohnny]

You need to find a home country. You will need to show real proof of you staying there.
You can still use the US LLC or incorporate a new LLP.

You could set up a new co in a favourable jurisdiction like an freelance in UAE. You get the residency and can use your profit to set up a UAE office. That helps to build substance in the UAE and knowing how expensive it is you can burn through 100K easy.

Also can get a good number of PSP's as well.
You can bill from your UK and pass the profits on to the UAE.

Most important question we left out is where do you currently live and pay your taxes.

What would be the advantages of a UK LLP? I have heard that it's impossible to open any type of EMI account or bank account for those. So I would use my personal accounts?