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Contracting under UK company for US Client - now becoming a US resident

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    Contracting under UK company for US Client - now becoming a US resident

    Hi,

    I have two questions relating to my situation. I was contracting for a US client from the UK using my UK Ltd. company for about two years. I did not pay US tax on my income and no tax was withheld by the client I am shortly due to become a legal US resident and I have just been checking the laws and regulations.

    1) My US Client never asked me to fill out a W8-BEN-E which it seems like they should have. They did ask me to provide my Company's DUNS number for some. I believe that the" W8-BEN-E" was something they should have asked for and they need it for their own audit protection but that I or my company is unlikely to be at any fault for not having provided one?

    2) I read something elsewhere on this site about the fact that owning a UK company while a US resident will add a ton of paperwork to my US tax return. My UK company has not traded for about a year but I had not gotten around to winding it down yet. I likely will become tax resident in the US in August, so even if I initiate winding down now, it will not happen in time. Is this something serious enough to consider postponing my date of immigration to the US, or is it really just going to be a few hours extra paperwork with my first US tax return? Hoping it might be easier since my company has not traded for a year and has no assets.

    Thanks!

    #2
    Originally posted by JOJO89 View Post
    Hi,

    I have two questions relating to my situation. I was contracting for a US client from the UK using my UK Ltd. company for about two years. I did not pay US tax on my income and no tax was withheld by the client I am shortly due to become a legal US resident and I have just been checking the laws and regulations.

    1) My US Client never asked me to fill out a W8-BEN-E which it seems like they should have. They did ask me to provide my Company's DUNS number for some. I believe that the" W8-BEN-E" was something they should have asked for and they need it for their own audit protection but that I or my company is unlikely to be at any fault for not having provided one?

    2) I read something elsewhere on this site about the fact that owning a UK company while a US resident will add a ton of paperwork to my US tax return. My UK company has not traded for about a year but I had not gotten around to winding it down yet. I likely will become tax resident in the US in August, so even if I initiate winding down now, it will not happen in time. Is this something serious enough to consider postponing my date of immigration to the US, or is it really just going to be a few hours extra paperwork with my first US tax return? Hoping it might be easier since my company has not traded for a year and has no assets.

    Thanks!

    Perhaps a better way to frame my question about not owning the company by the time I become us resident.

    If I make sure all tax is paid, final accounts are on and yhe dissolution process has started, can I just give up ownership of.my company? is there any legal way to just resign as director ad give up ownership,

    Alternatively can I gift the company to a family member so that I am no longer the owner?

    Comment


      #3
      Originally posted by JOJO89 View Post
      Alternatively can I gift the company to a family member so that I am no longer the owner?
      Your posts were moderated so got lost in the noise.

      You have to be careful about gifting the company as it can look like a tax scheme.

      Personally I would get an accountant and take the hit on the first year assessment.

      Comment


        #4
        The hit on the first year assessment is not just on tax liability but also on filing OP's US tax return whilst owning a foreign company. It's not pretty.

        If it were me, and I couldn't get the company closed before moving, I would:
        1. pay any remaining bills
        2. find out what costs, including accountant's fees, are involved in closing the company and filing final accounts, and leave that in the company
        3. leave an extra 200 quid in it in case something unexpected comes up
        4. pay a large dividend of everything else
        5. sell it to a relative for a pound, appointing him/her as the director.

        The relative gets £200 or whatever is left when it is finally shut down for his trouble.

        If there is a lot of money in the company and it will cost you multiple thousands to take it as dividend rather than through MVL, then get advice from a US tax accountant with experience and knowledge on controlled foreign corporations and form 5471.

        Specifically you should find out
        1) if the deadline for closing the company and avoiding filing on it is when you move or 30 days later (I'd bet on 30 days later based on some wording here but I'm NOT an expert)
        2) whether it makes any difference or not that the company is not trading and hasn't for a year, and is in the process of closing down
        3) if you can't get it closed before the deadline, whether you can or should make an election to treat it as a pass-through entity (I'm guessing you can and should, especially since it won't actually be trading, and I think that may keep you from getting hit with US cap gains on an MVL)

        I would not waste any time on this, you want to get this moving. Is there money in the company, and if so, how much?

        Comment


          #5
          Originally posted by WordIsBond View Post
          The hit on the first year assessment is not just on tax liability but also on filing OP's US tax return whilst owning a foreign company. It's not pretty.

          If it were me, and I couldn't get the company closed before moving, I would:
          1. pay any remaining bills
          2. find out what costs, including accountant's fees, are involved in closing the company and filing final accounts, and leave that in the company
          3. leave an extra 200 quid in it in case something unexpected comes up
          4. pay a large dividend of everything else
          5. sell it to a relative for a pound, appointing him/her as the director.

          The relative gets £200 or whatever is left when it is finally shut down for his trouble.

          If there is a lot of money in the company and it will cost you multiple thousands to take it as dividend rather than through MVL, then get advice from a US tax accountant with experience and knowledge on controlled foreign corporations and form 5471.

          Specifically you should find out
          1) if the deadline for closing the company and avoiding filing on it is when you move or 30 days later (I'd bet on 30 days later based on some wording here but I'm NOT an expert)
          2) whether it makes any difference or not that the company is not trading and hasn't for a year, and is in the process of closing down
          3) if you can't get it closed before the deadline, whether you can or should make an election to treat it as a pass-through entity (I'm guessing you can and should, especially since it won't actually be trading, and I think that may keep you from getting hit with US cap gains on an MVL)

          I would not waste any time on this, you want to get this moving. Is there money in the company, and if so, how much?
          Thanks! Very helpful. My company does not have any money in it, nor has it for about 8 months. Basically I just was keeping it dormant in case I ever needed it. I only read about the IRS filing requirements for owning foreign corporations being an incredible pain by chance, I hadn't even really thought about it. And yes I am mainly just concerned about the filing requirements, not any tax hit - as there is no money to pay tax on. Sounds like option1, selling to a family member might be the best option if I cannot get it closed in time. My parents are in Republic of Ireland, does selling it cross border make this any more complex? I assume (and this may be a question that is too US specific for this forum) that as long as I divest ownership of the company prior to becoming tax resident, then the IRS will have no interest in it. HMRC may question why I have sold it to a family member but this should never become an issue I have to deal with, with the US tax authorities?

          As a separate question, how much of a pain can HMRC be when it comes to this kind of thing, or are they likely not to cause too much trouble when they see it is a company with no assets, with corporation tax paid, that only was in existence for 2 years and that has a former director who no longer lives in the UK. I believe I have paid corporation tax correctly(I used accountants) but if they were to question an expense or something else, could then then hassle my family member who I sold the company to? I suspect the answer to all of the above is - it just depends, HMRC may take a lot of interest or they may not care?

          Comment


            #6
            If you divest yourself of the company, either through closure or sale, before becoming tax resident I can't imagine the IRS would care about it and I wouldn't tell them about it, especially since you've had no income this calendar year (the standard US tax year is 1/1 to 31/12).

            Shares in a limited company can usually be sold to anyone anywhere. Check your articles of incorporation to see if there is any restriction.

            HMRC will not care about you selling your company to your parents if there is no money in it and it is not trading. They might wonder what game you are playing if you sell a company with assets for a pound. Or, they might just think you are Rangers Football Club. But they aren't going to care about you selling the company in this case.

            Much cleaner if you just get it closed. It may be also that if it has no assets and is in the process of being struck off that the IRS wouldn't care about it.

            The reason I mentioned the 30 day deadline from that link was section 4.61.7.4, paragraph 2, which suggests that if it doesn't meet the description of a CFC for 30 days during the taxable year, it may be possible to "eliminate" that entity (company). I'm not sure what that means. But if it isn't owned by a "US shareholder" for 30 days, then it isn't a CFC, it appears to me, and you don't become a "US shareholder" until you are tax resident there.

            I know a thing or thirty about US tax law, but I'm not an expert in this particular area. Certainly the best thing is to just get the thing closed.

            I will add that filing Form 5471 on a dormant company with no assets and no trading activity during the tax year is probably not that complicated. Typically you might pay several thousand quid for someone to prepare 5471. A contractor's accountants are pretty simple so it might cost less than that for a typical contractor. But I would hope the cost for a dormant company that has been dormant all year would be significantly less than $500. So if you can't get it closed before going, then it may be feasible to keep the company, continue with the closing process, and pay an accountant as BrilloPad suggested. That wouldn't be a plan if the company had been active or had significant assets, but it seems feasible in the circumstances.

            Comment


              #7
              Originally posted by WordIsBond View Post
              If you divest yourself of the company, either through closure or sale, before becoming tax resident I can't imagine the IRS would care about it and I wouldn't tell them about it, especially since you've had no income this calendar year (the standard US tax year is 1/1 to 31/12).

              Shares in a limited company can usually be sold to anyone anywhere. Check your articles of incorporation to see if there is any restriction.

              HMRC will not care about you selling your company to your parents if there is no money in it and it is not trading. They might wonder what game you are playing if you sell a company with assets for a pound. Or, they might just think you are Rangers Football Club. But they aren't going to care about you selling the company in this case.

              Much cleaner if you just get it closed. It may be also that if it has no assets and is in the process of being struck off that the IRS wouldn't care about it.

              The reason I mentioned the 30 day deadline from that link was section 4.61.7.4, paragraph 2, which suggests that if it doesn't meet the description of a CFC for 30 days during the taxable year, it may be possible to "eliminate" that entity (company). I'm not sure what that means. But if it isn't owned by a "US shareholder" for 30 days, then it isn't a CFC, it appears to me, and you don't become a "US shareholder" until you are tax resident there.

              I know a thing or thirty about US tax law, but I'm not an expert in this particular area. Certainly the best thing is to just get the thing closed.

              I will add that filing Form 5471 on a dormant company with no assets and no trading activity during the tax year is probably not that complicated. Typically you might pay several thousand quid for someone to prepare 5471. A contractor's accountants are pretty simple so it might cost less than that for a typical contractor. But I would hope the cost for a dormant company that has been dormant all year would be significantly less than $500. So if you can't get it closed before going, then it may be feasible to keep the company, continue with the closing process, and pay an accountant as BrilloPad suggested. That wouldn't be a plan if the company had been active or had significant assets, but it seems feasible in the circumstances.
              Thanks WordIsBond. All good advice. BTW I saw your have to notofy the IRS of every foreign bank account you own that has had more than $10k in it. Is there a lot of paperwork in this too or this less arduous?

              Comment


                #8
                The beloved FBAR. Choose your own definition of what those initials stand for.

                It's not every account that has $10K in it. It's every foreign account. If at any time in the year you have non-US accounts total in excess of $10K, then you have to file the FBAR. And if you have to file the FBAR, you have to give them financial institution name and address, account number, and highest balance during the year.

                That's for every account in your name, every joint account you have with someone else, and every account on which you have signature authority (so that would include your company, any account of any voluntary organisations where you have signature authority, etc). Then, they can go check with the banks to find out if you have millions of dollars investment income that you aren't reporting. And the banks have to report (that's FATCA, which is one of the ugliest inventions ever, and means some UK banks won't accept US taxpayers). So the IRS will know if you don't report your accounts, so don't neglect to do it.

                It's really not that bad, though. You keep your bank statements, and by 30 June every year you go online and fill out the form. Takes 2-3 minutes per account, probably. So if you have ten accounts it might take you half an hour. It's a nuisance, but not egregious. But UK citizens living here and married to US taxpayers really don't like having to report their joint accounts to the US. It's an invasion of privacy, it really is none of their business, and it complicates your life when you can't open a joint account, or a business account if your spouse is a director, because of this atrocity. But the form itself isn't that bad.

                Comment

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