Dilemma - Paying tax for LLC income in the US or in the UK?

[Asterion]

Hello,

Setup:
I'm a non-dom tax resident in the UK who will soonish (Q1 2023?) start to sell an app product on App Store and Google Play using a single member Wyoming LLC.
I thought I could avoid US tax simply because I am a Non-Resident Alien to the US and the SM LLC is a disregarded entity.
I also thought I could potentially avoid tax in the UK thanks to my non-dom status, as long as I did not bring that income to the UK.
However, tax reasons were not the main driver for the US LLC choice. Privacy was and still is.

Plottwist:
In this thread (link), a fellow forum member cast a serious doubt on the doability of that loophole. According to his careful interpretation of article 4 of the US/UK DTT, my non-dom status in the UK means I don't qualify for the benefits of the DTT of zero tax withholding from the US. At a push, I could have zero withholding, but I'd have to show very clearly that I'd remit that income to the UK and pay tax on it.

More setup:
I'm a UK tax resident. I already have my UK ltd company paying me the optimal mix of salary and dividends. Any more income (unless it could be capital gains I think) would be 40%.
The US withholding would be 30%.
However, unless the product is really successful, I'd rather prioritise other aspects in the choice between US and UK (assuming I have one).
Also, I don't plan to be UK-based forever. In fact, probably less than 2 years more.

My questions:
1) What would be the cons of starting to have a tax presence in the US, which I wouldn't have (as much) otherwise if I claimed zero withholding?
2) Also, how much leeway can I expect in having cost in the LLC, to decrease its "profit" and that 30% tax liability?
3) Anything else I should consider?


Thanks

 

[Marzio]

Asterion said:
I don't plan to be UK-based forever. In fact, probably less than 2 years more.
Click to expand...

Where you'll be moving to?

 

[Asterion]

Cyprus or Portugal. Essentially, somewhere in Europe that doesn't require me to stay there too much (I won't be staying in other country for more than 5 months a year anyway) and that won't ask for more than 20% tax between corporate and personal tax.

 

[Marzio]

And you intend to use US LLC in PT and CY the same way you intended to use it in UK?

 

[Asterion]

All to be seen. I guess the important requirements are max 20% taxation for eveything and basic anonimity (i.e. from the public eye, not authorities) for the App venture.
But time is running out, I think I might start with 0% US withdrawal (because that doesn't require me to get a US ITIN to put on the W8BEN), and then change, submitting a different W8BEN with the ITIN.

I need to submit the W8BEN to Apple asap and if I want the US withdrawal I need an ITIN, which would take some time to get. But if I claim 0% US withdrawal, I can put my UK unique tax reference number in the form.

 

[Marzio]

US LLC will give you some privacy but would't work either with Cyprus and Portugal.

In PT and CY can avoid the PE trap by not spending too much time there (60 days minimum in Cyprus and no minimum time in Portugal) but the real problem is that for Portugal there will be 10% WHT and then potentially you could pay 20% as income tax because US LLC profits are not passive income which are tax exempt under NHR.

In Cyprus US LLC is seen as transparent so its profts are taxed as personal income.

To be safe you have to interpose a CY LTD between you and the US LLC and this would require you to have drafted an operating agreement that allows the change the single member from you to the CY LTD without closing the company or without IRS seeing it as a hidden company sale.

 

[Asterion]

Hats off to you Marzio, as always.
In the meantime, my more immediate question (the one of the topic) got an answer. It's too late for my timeframes to go for an ITIN. I'll have to claim 0% withholding for now and then change. Does anyone see any problem with that?

Many thanks as usual, to anyone.

 

[Marzio]

Asterion said:
I'll have to claim 0% withholding for now and then change
Click to expand...

Do you mean will you claim 0% witholding by using your UK TIN?

If you don't foresee a money windfall from the app stores i'd say don't worry.

Last edited: Dec 17, 2022

 

[Asterion]

Precisely, yes, UK TIN. I'm unlikely to get any revenue or in fact any financial activity before the end of the LLC's first year (which ends at the end of January).
So I should have time to rectify after that deadline.

 

[JohnLocke]

marzio said:
To be safe you have to interpose a CY LTD between you and the US LLC and this would require you to have drafted an operating agreement that allows the change the single member from you to the CY LTD without closing the company or without IRS seeing it as a hidden company sale.
Click to expand...

Very interesting setup. Something to work with, thank you.

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