Reply to: LLP for non-residents

[cojak]

My guess is that the logic is:

1. Oh, I can get a A1 so I don't have to pay foreign social security.
2. Ah, but I'm not resident in the UK and so don't pay any UK tax or NIC.
3. And if the two partners are companies that a nominee of mine owns shares in, and I have nominee directors in two different tax havens then I won't have to pay any tax anywhere.

I got the last bit from the poorly worded, poorly thought through document from Dominca that the OP linked. If my last thought is right then it would be worth googling "How long is the prison sentence for money laundering and tax evasion in the UK and [local country]".

And on that happy note I think that I'll close this thread.

[Iliketax]

There's no logic to the proposed approach and the question posed by Stek seems reasonable, the scenario is so daft that it could be yet another load of utterly fictional bollocks by a sockpuppeteer.

My guess is that the logic is:

1. Oh, I can get a A1 so I don't have to pay foreign social security.
2. Ah, but I'm not resident in the UK and so don't pay any UK tax or NIC.
3. And if the two partners are companies that a nominee of mine owns shares in, and I have nominee directors in two different tax havens then I won't have to pay any tax anywhere.

I got the last bit from the poorly worded, poorly thought through document from Dominca that the OP linked. If my last thought is right then it would be worth googling "How long is the prison sentence for money laundering and tax evasion in the UK and [local country]".

[Iliketax]

If they are not withdrawn in the form of dividends how are they classified in the terms of a personal tax return (UK or foreign)? Also - what do I show my local tax authority regarding this income? It should be stated normally on something like a P60 as to what kind of income it is which is normally salary or dividends but in this case won't be either. Capital gains?

Normally, you will be taxed on your share of the profits as trading income, regardless of whether or not you draw them out of the LLP.

I read HMRC guidelines for determining whether a foreign company can be regarded as a UK tax resident - it has to do with exercise of control mostly (it's absolute bull if you ask me).

Great but you need to sharpen up your googling skills. An LLP is not a company. [And anyway, even if it was a company it wouldn't be a foreign one]

Question is, as we are performing the work ourselves don't we need to put ourselves on a salary even if it's an LLP? In my country it's obligatory no matter what the legal form of the company is. You move a muscle - you pay income tax and NICs. Heck, they are even trying to force us paying NICs and income tax on certain income that cannot be regarded as employment by any normal person OR even better - for income received as a natural person

I've no idea what your local tax system does. But you should probably do a bit more googling on what a partnership is. Partners share in profit and it is the profits that are taxed. How partners draw the money out (e.g. £100 per month) is neither here nor there (unless the salaried members rules apply).

Before you spend too much time on it, it is probably worth finding out whether you would actually be able to get an A1 certificate. I know little about these but it would seems a bit Alice In Wonderland to say that you are normally self-employed in the UK for the A1 but that you don't carry on any of that self-employment in the UK for UK income tax and NIC.

[TykeMerc]

I don't get it at all, it seems a fairly absurd scenario to me.

The most ridiculous bit seems to be that a non Brit who isn't UK resident is intending to contract outside the UK and yet you're talking about setting up a UK LLP as a contracting vehicle. There's no logic to the proposed approach and the question posed by Stek seems reasonable, the scenario is so daft that it could be yet another load of utterly fictional bollocks by a sockpuppeteer.

[stek]

We are both EU citizens, correct. Believe me, I've read a lot about the 183-day rules and DTAs as well. The end game is decreasing the amount of taxes currently paid in a legal manner. If it's tax avoidance I wouldn't look into the UK at all. There are more than enough cannibal countries where you can incorporate, do banking and nobody can ever touch you. You want to look till the rest of your life over your shoulder? Be my guest.



Zero. We have nothing to do with the UK.



183-day rule works whether you are a one-man band or a multinational corp. Even if you are stupid enough to become a permanent employee of a company in let's say Belgium if you spend there less than 183 days your are not liable to Belgian tax and you can claim it back if it's already paid (social security is another story). In case you don't spend 183 days in any particular country your are a tax resident based on your centre of vital interests. If such can't be determined than your nationality comes into play.

OMG, Epic fail!!

Good luck with this, you will need it...

Who's sockie is this? No one is this thick....

[TheGrave]

You've got this all wrong! Suggest you read up about this 183 day rule, tax residency and domicile. Are you all EU citizens? You must be actually....

What's the end result of all this jiggery pokery going to achieve? It's tax avoidance isn't?

We are both EU citizens, correct. Believe me, I've read a lot about the 183-day rules and DTAs as well. The end game is decreasing the amount of taxes currently paid in a legal manner. If it's tax avoidance I wouldn't look into the UK at all. There are more than enough cannibal countries where you can incorporate, do banking and nobody can ever touch you. You want to look till the rest of your life over your shoulder? Be my guest.

So how many days will you (or your partner) spend in the UK?

Zero. We have nothing to do with the UK.

It doesn't work like that as Stek has indicated.

The 183 day rule only really works if you are a large company and even then it doesn't always apply to individual company employees or officers who are sent to work in a particular jurisdiction. Some jurisdictions such as France will tax you personally from day one regardless of what individual or company structure you work through in another EU country.

Firstly no UK contractor who isn't closely related to you or has known you since childhood, so you are like a relation, will agree to go into business with you as it simply isn't worth their while. Secondly even if they are related to you, human nature for close relations is to protect them from trouble the main exception is when people hate their spouse/partner and know the relationship is breaking down.

183-day rule works whether you are a one-man band or a multinational corp. Even if you are stupid enough to become a permanent employee of a company in let's say Belgium if you spend there less than 183 days your are not liable to Belgian tax and you can claim it back if it's already paid (social security is another story). In case you don't spend 183 days in any particular country your are a tax resident based on your centre of vital interests. If such can't be determined than your nationality comes into play.

[TheGrave]

1. OK. But who will the two members? Will they be you and your mate? Will they be someone else?

I have two options - me and an ex-colleague or me and my brother (less likely to happen) but whoever it is he will work on his own contracts. Or I could involve a relative which won't be doing anything in the company - just for the mere requirement of 2 members.

2. OK. Will these contracts be in the scope of IR35? I guess you will say no. But just because it is an LLP does not mean that it is outside IR35. Out of interest, an LLP is not a company.

IR35 - I haven't heard this one in a while. There are various sources claiming IR35 is not applicable for non-residents working abroad (including this site) but I can't find substantial evidence on HMRC's website:

Contractors' Questions: Is IR35 a factor overseas? :: Contractor UK

I re-read my contract and there is nothing in it pointing to IR35. I can't imagine HMRC sending someone abroad to question my employer for our daily duties and benefits so I wouldn't worry too much about IR35.

4. You write it down as "At the end of the year we draw the line and distribute dividends in a proportion that corresponds to our real contribution (minus the individual expenses made)". As LLPs don't pay dividends, it would be worth referring to drawing profits rather than distributing dividends but nobody will care if you leave it. Or you could make it a bit more complex, it's up to you. You can draw your profit share from the LLP whenever you like. You don't need formality (although it is worth knowing what profits you have made and that the LLP is solvent).

Hm, you bring an interesting point. If they are not withdrawn in the form of dividends how are they classified in the terms of a personal tax return (UK or foreign)? Also - what do I show my local tax authority regarding this income? It should be stated normally on something like a P60 as to what kind of income it is which is normally salary or dividends but in this case won't be either. Capital gains?

5. Profits of an LLP allocated to an individual partner are free of corporation tax. Profits of an LLP allocated to a corporate partner are subject to corporation tax. An LLP does not pay dividends. If a non-resident individual has profits allocated to them then they will pay UK income tax on profits of the trade carried on in the UK. The fact that the customers are overseas does not mean that there is no trade in the UK. A DTA is unlikely to help with that.

I know nothing about VAT.

I read HMRC guidelines for determining whether a foreign company can be regarded as a UK tax resident - it has to do with exercise of control mostly (it's absolute bull if you ask me). My agency does not even have a branch in the UK. The end customer does (which is probably irrelevant) but the headquarters are abroad so their company can't be deemed a UK resident.

6. If there is no UK income tax due because the you are not resident in the UK and the trade is not carried on in the UK then the salaried members rules cannot apply. Otherwise, assuming that both of you have a significant influence on the LLP as a whole then you won't be subject to PAYE/NIC on your drawings as you will fail Condition B. Your last sentence is wrong.

Yes, BUT! Question is, as we are performing the work ourselves don't we need to put ourselves on a salary even if it's an LLP? In my country it's obligatory no matter what the legal form of the company is. You move a muscle - you pay income tax and NICs. Heck, they are even trying to force us paying NICs and income tax on certain income that cannot be regarded as employment by any normal person OR even better - for income received as a natural person

7. No dividends are paid by an LLP. It would be unusual for an overseas tax tax authority to treat an LLP as opaque and so you are likely to just pay overseas income tax / social security on your profits as they arise rather than as they are drawn.

Does it make sense? No. Why not just do what you are planning to do as two sole traders? There would potentially be two VAT registrations but you don't have to trust the other person or take on their risk (e.g. you work hard and make a lot of money, they work hard, spend a lot of money of fancy hotel rooms and but the client goes bust and pays nothing).

Sole proprietors have unlimited liability and that's a good enough reason to me. And I'm not even sure you can register as one if you don't reside or plan to do business in the UK.

Sorry, I missed this one.

[stek]

[SueEllen]

Ha, sorry, I was missing the point, obviously. Believe me, I make sure I'm not spending more than 183 days in the countries I work and most importantly I can prove it if a dispute is raised.

It doesn't work like that as Stek has indicated.

The 183 day rule only really works if you are a large company and even then it doesn't always apply to individual company employees or officers who are sent to work in a particular jurisdiction. Some jurisdictions such as France will tax you personally from day one regardless of what individual or company structure you work through in another EU country.

Firstly no UK contractor who isn't closely related to you or has known you since childhood, so you are like a relation, will agree to go into business with you as it simply isn't worth their while. Secondly even if they are related to you, human nature for close relations is to protect them from trouble the main exception is when people hate their spouse/partner and know the relationship is breaking down.

[Iliketax]

I make sure I'm not spending more than 183 days in the countries I work

So how many days will you (or your partner) spend in the UK?

[stek]

Ha, sorry, I was missing the point, obviously. Believe me, I make sure I'm not spending more than 183 days in the countries I work and most importantly I can prove it if a dispute is raised. But even then take a really good look here:

EU - Abroad on short assignments (max 2 years) - Your Europe

To brief it: if you manage to get an A1 from HMRC (or your relevant taxman) you can work as much as you want under foreign EU jurisdictions with zero chance of becoming a tax resident (the 2-year period can get extended), get full health benefits in their country as you are a permanent employee there. The problem is that in order to obtain an A1 you should be able to show at least 25% of your profits received from local clients. For me it's a huge problem as I can't get anyone in my country to partner with so that he brings 25% of what I make but for you guys in the UK it shouldn't be a problem. Find a UK contractor you trust, form an LTD or LLP or whatever you want, get an A1 and work wherever you please by keeping your social security in the UK and health benefits in both places.

As for Scottish LLPs - not having to file tax returns is a relaxation for your accountants, not yourself. If you have a legit business and the taxman comes after you it doesn't make any difference. It's just a matter of how much abuse these LLPs can take before legislation gets changed.

You've got this all wrong! Suggest you read up about this 183 day rule, tax residency and domicile. Are you all EU citizens? You must be actually....

What's the end result of all this jiggery pokery going to achieve? It's tax avoidance isn't?

[TheGrave]

The point myself and other posters are making is while the UK taxman, HMRC, won't care about you because you are both resident and working in a foreign jurisdiction, the taxmen in the foreign jurisdiction(s) will care about your income.

Tax and individual/company structures across the EU let alone the world aren't harmonised. So while you are welcome to set up a company anywhere within the EU (or world) , the taxman/taxmen of the countries you reside and work in will be interested in taxing your income.

So for example, I can reside and work in Norway and work through a UK limited company but the Norwegian taxman will expect me to pay any taxes liable to them under their tax law. In the case of Norway they tax company income for very small companies as personal income.

Ha, sorry, I was missing the point, obviously. Believe me, I make sure I'm not spending more than 183 days in the countries I work and most importantly I can prove it if a dispute is raised. But even then take a really good look here:

EU - Abroad on short assignments (max 2 years) - Your Europe

To brief it: if you manage to get an A1 from HMRC (or your relevant taxman) you can work as much as you want under foreign EU jurisdictions with zero chance of becoming a tax resident (the 2-year period can get extended), get full health benefits in their country as you are a permanent employee there. The problem is that in order to obtain an A1 you should be able to show at least 25% of your profits received from local clients. For me it's a huge problem as I can't get anyone in my country to partner with so that he brings 25% of what I make but for you guys in the UK it shouldn't be a problem. Find a UK contractor you trust, form an LTD or LLP or whatever you want, get an A1 and work wherever you please by keeping your social security in the UK and health benefits in both places.

As for Scottish LLPs - not having to file tax returns is a relaxation for your accountants, not yourself. If you have a legit business and the taxman comes after you it doesn't make any difference. It's just a matter of how much abuse these LLPs can take before legislation gets changed.

[AtW]

There are very different reporting requirements for LPs (whether English or Scottish) v LLPs. But comparing an LP to an LLP is like comparing a car to a carp.

From reporting point of view and level of HMRC's involvement LPs in Scotland (maybe also England but I don't know about it) could suit foreigners better than English LLPs with much higher levels of disclosure and submitting tax returns for all partners to HMRC

[Iliketax]

It's actually called LP (Limited Partnership) - not LLP: LIMITED PARTNERSHIPS IN SCOTLAND | Brodies LLP

The reporting requirements for LPs in Scotland much more lax, I've come across with it when I was investigating some foreign fraudsters who used it and it turned out that they are not obliged to file more or less anything other than formation papers. Made their life easier for sure.

There are very different reporting requirements for LPs (whether English or Scottish) v LLPs. But comparing an LP to an LLP is like comparing a car to a carp.

[SueEllen]

I read about Scottish LLPs but they are much more expensive to incorporate and seem to bring no real benefit over UK. I already have experience with the UK banking system, accountants, and HMRC so I feel very comfortable doing business there.

Your post above indicates you seriously need to do much more research about company structures, personal tax and company tax.


Scotland is part of the UK.

However there are different legal jurisdictions within the UK e.g. England and Wales, Scotland, and Northern Ireland. In he vast majority of cases the legal structures and laws mirror each other, so they are exactly the same. There are however there are some differences and these difference can be important.

To get proper help from people I suggest you state the country you reside in and the countries you think you will work in. This is because many posters on this board have contracted abroad and have worked out safely (or otherwise) how to get around the tax issues.