US LLC or UK LLP for my situation?

[Skipper]

Having worked as a freelance writer for over 6 years on various freelancing platforms, I want to open up my own website/business since I already have regular clients (this way I'd avoid platform fees). Macedonia is pretty awful when it comes to payment processing (no paypal, stripe, etc.), so my only options are US LLC or UK LLP (don't want a limited company because it gets taxed as its own entity). From everything I've gathered so far reading online, both will work for me since if I open a US LLC, I'll have no ECI and will therefore not be subject to any US tax, and the same applies for a UK LLP. Annual tax income on additional income is taxed at 10% in Macedonia, so that's pretty great. I'd say 80% of my clients are from the US, and the rest are mainly from the UK. Given things like VAT in EU, dealing with the IRS, being able to open Mercury in addition to Transferwise in the US, etc., would it be better to open a US LLC or a UK LLP? I'll have to sign up my sibling if I decide to open an LLP, since I don't want to manage two separate entities. Any advice or help is greatly appreciated!

 

[John Andrews]

I would go with LLP unless you need privacy, dealing with HMRC is surely better than dealing with IRS

 

[Skipper]

mange38 said:
I would go with LLP unless you need privacy, dealing with HMRC is surely better than dealing with IRS
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You have any experience with either? From what I understand, I only have to submit 5472+1120 and 1040NR for the IRS. That doesn't seem too difficult in the grand scheme of things

 

[John Andrews]

Skipper said:
You have any experience with either? From what I understand, I only have to submit 5472+1120 and 1040NR for the IRS. That doesn't seem too difficult in the grand scheme of things
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Yes but if you mess something up you'll get a $25,000 USD fine.

I have experience with LLPs, for example it's much easier to get Paypal or Stripe which is not the case when it comes to LLCs.

 

[CaptK]

LLP would be better for you. VAT is applicable on your UK and EU customers as soon as you hit the £85K mark.

 

[Skipper]

CaptK said:
LLP would be better for you. VAT is applicable on your UK and EU customers as soon as you hit the £85K mark.
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Isn't VAT still required to be applied and paid? I read somewhere that you still have to apply VAT, even without a VAT number.

 

[JustAnotherNomad]

Have you checked how your own country handles such entities? Many countries tax LLC's as corporations regardless of what their tax status is in the US.

 

[CaptK]

Skipper said:
Isn't VAT still required to be applied and paid? I read somewhere that you still have to apply VAT, even without a VAT number.
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You do not need to charge VAT until you reach the threshold.

 

[fshore]

It's not sure that you can or should register for vat in the UK for the llp.
It depends if the llp "belongs in the UK" and if the services are considered as being supplied in the UK.
If you live in another country then the llp might not belong in the UK.
You probably need:
"a business establishment in the UK and no fixed establishment elsewhere that's more closely connected with the supply"

See sections 3 and 6
https://www.gov.uk/guidance/vat-pla...ied.&text=in the UK or a,the scope' of UK VAT

 

[Perry8]

Skipper said:
You have any experience with either?
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Yes, both of them. Both are tax transparent entities, and both have limited liability for the partner/member.

So, you will definatly need to check how your home country treats this because the normal situation in civil law (as opposed to common law) is that you either have a corporation that has limited liability, or it is considered a partnership. The first will be taxed separately, the second will normally not be taxed separatly. The LLC and LLP is in this respect a hybrid, they have limited liability but are not taxed separatly. Therefore you can expect different countries to treat them differently.

There are also many differences. One difference is that the LLC with (one or more) foreign member(s) will need to file like a corporation (one member) or domestic partnership (more than one member), wheras the LLP do not have this requirement.

Personally, I would use an LLP. But that is primarily because I want to stay away from the IRS, and that the current interpetation of how a one member LLC with foreign (alien) member is not taxed in the US, relies on a rather aggressive interpetation of the US tax code. But, it does work - at least for now - so if you do not mind an LLC is probably the most tax efficient solution as it is easier to avoid VAT/GST than with an LLP. All this provided that the tax implications "at home" are reasonable.

 

[JustAnotherNomad]

Perry8 said:
There are also many differences. One difference is that the LLC with (one or more) foreign member(s) will need to file like a corporation (one member) or domestic partnership (more than one member),
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I don't have any practical experience with US LLC's, but isn't that only the case when at least one member is not an individual, such as a foreign holding company?

 

[Skipper]

Perry8 said:
Yes, both of them. Both are tax transparent entities, and both have limited liability for the partner/member.

So, you will definatly need to check how your home country treats this because the normal situation in civil law (as opposed to common law) is that you either have a corporation that has limited liability, or it is considered a partnership. The first will be taxed separately, the second will normally not be taxed separatly. The LLC and LLP is in this respect a hybrid, they have limited liability but are not taxed separatly. Therefore you can expect different countries to treat them differently.

There are also many differences. One difference is that the LLC with (one or more) foreign member(s) will need to file like a corporation (one member) or domestic partnership (more than one member), wheras the LLP do not have this requirement.

Personally, I would use an LLP. But that is primarily because I want to stay away from the IRS, and that the current interpetation of how a one member LLC with foreign (alien) member is not taxed in the US, relies on a rather aggressive interpetation of the US tax code. But, it does work - at least for now - so if you do not mind an LLC is probably the most tax efficient solution as it is easier to avoid VAT/GST than with an LLP. All this provided that the tax implications "at home" are reasonable.
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Most of my clients are from the US, so I won't even reach the VAT threshold. My home country is pretty lax when it comes to this kind of stuff, I think they just tax all additional income (or income gained from working for yourself) at a flat 10% rate (the rate I've been paying when transferring profits from Upwork, Fiverr, etc.), but I will check with an accountant just to make sure. Will probably go for a LLP then. And thank you for the advice!

 

[dziter]

For UK LLP, you need two members if I am right?

What's the best way for a freelancer to achieve that? Using a nominee from a service provider?
Some recommendation for a UK LLP?

 

[Spinat]

Most often you want to appoint nominees if you don't have any partners you can appoint. If this is long term use I would say a LLP is better but if you only need the company a year a LLC will be easier and faster to setup and you can just leave it once you don't need it any longer.

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[Perry8]

dziter said:
What's the best way for a freelancer to achieve that? Using a nominee from a service provider?
Some recommendation for a UK LLP?
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Use a company as the second member.

 

[JustAnotherNomad]

I bet you can just use a US LLC as the second partner in the LLP...

 

[Marzio]

dziter said:
What's the best way for a freelancer to achieve that?
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Dormant UK LTD

 

[CaptK]

Bank account will be difficult if the partner is not a UK person or company.

A dormant UK LTD can work as the other partner.

 

[Perry8]

marzio said:
Dormant UK LTD
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This is , of course, an option. The problem with this solution is that your dormant UK ltd will be a taxable entity in the UK (unless you try to get it taxed in your home country instead), wheras an LLP is not a taxable entity. So, unless your LLP agreement is properly made (and I am a bit uncertain if this is enough) it will be difficult to keep your UK ltd dorment with this setup.

 

[dziter]

Perry8 said:
Use a company as the second member.
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Yes I got it.

marzio said:
Dormant UK LTD
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So, starting from scratch for a freelancer, it's required to :
- Open a Uk Ltd. From this point, what's the minimal requirements to make it dormant without problem? No accounting, no tax return, no maintenance costs, nothing at all even at beginning?

or use a nominee.

It's not possible to be screwed? This person can't claim any thing/money from the company? Is it possible to restrict access like crazy?
Do you recommend some provider?

- Setup the UK LLP between:
me and UK Ltd or me and nominee.

Any idea about maintenance costs for the global?

Thanks for your feedbacks, really appreciate it.