UK Holding company

[Rome]

Due to requirement of a visa (passive income visa), LLC profits don't qualify as passive income. Here is my potential structure to convert LLC profits to dividends using a UK holding company. Could this structure work without issues and how would my taxes look like?

 

[Sols]

The only weakness in that structure is if UAE decides that the business activities of the US LLC actually take place in the UAE, in which case tax of 9% would apply on profits above 375,000 AED. It's hard to say what the risk of that is. UAE has been a stunning display of incompetence in rolling out its tax system. Only time will tell how aggressive and competent they become.

The US LLC probably has no actual tax liability in the US.

The UK LTD should pay no corporate income tax on dividends from a subsidiary it controls and there is no tax on distribution, so no tax is payable in the UK.

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[Rome]

Sols said:
The only weakness in that structure is if UAE decides that the business activities of the US LLC actually take place in the UAE, in which case tax of 9% would apply on profits above 375,000 AED. It's hard to say what the risk of that is. UAE has been a stunning display of incompetence in rolling out its tax system. Only time will tell how aggressive and competent they become.

The US LLC probably has no actual tax liability in the US.

The UK LTD should pay no corporate income tax on dividends from a subsidiary it controls and there is no tax on distribution, so no tax is payable in the UK.
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Thank you. I will look into that. Since the UK holding is the sole member of the Wyoming LLC, can I distribute the LLC profits freely to the UK holding company? Do I need some kind of additional agency agreement between the two companies?

Additionally, if my UK holding is tax resident in the UAE, who do I report to?

Last edited: Jan 25, 2024

 

[Sols]

Rome said:
Since the UK holding is the sole member of the Wyoming LLC, can I distribute the LLC profits freely to the UK holding company?
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Yes.

Rome said:
Do I need some kind of additional agency agreement between the two companies?
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No, just normal accounting that includes profit distribution from the LLC. You can use Quickbooks, Freshbooks, Wave, or some other accounting software like that if you don't want to outsource it.

The UK company should draft board resolutions approving dividends paid to the UBO, in addition to also doing basic accounting.

Rome said:
Additionally, if my UK holding is tax resident in the UAE, who do I report to?
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The FTA, Federal Tax Authority.

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This is the probably the answer to your question.

 

[Rome]

Sols said:
Yes.


No, just normal accounting that includes profit distribution from the LLC. You can use Quickbooks, Freshbooks, Wave, or some other accounting software like that if you don't want to outsource it.

The UK company should draft board resolutions approving dividends paid to the UBO, in addition to also doing basic accounting.


The FTA, Federal Tax Authority.
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Thank you Sols

 

[Rome]

Sols said:
Yes.


No, just normal accounting that includes profit distribution from the LLC. You can use Quickbooks, Freshbooks, Wave, or some other accounting software like that if you don't want to outsource it.

The UK company should draft board resolutions approving dividends paid to the UBO, in addition to also doing basic accounting.


The FTA, Federal Tax Authority.
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Is banking going to be hard with this structure?

 

[Sols]

Banking is always hard. This structure is perhaps a bit easier than some Seychelles, Belize, SVG structure, though.

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[Rome]

Would there be scrutiny from the HMRC because of the structure? Could they claim that the sole purpose of the structure is to reduce taxes? Even though in reality, I wanted a structure to distribute dividends instead of LLC profits and the tax reduction was an unintended bonus.

 

[Sols]

Your structure appears to be completely in line with UK law. The HMRC does not care about a holding company acting like a genuine holding company.

If you want to be certain, best to speak with a UK lawyer/tax adviser.

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This is the probably the answer to your question.

 

[Rome]

Sols said:
Your structure appears to be completely in line with UK law. The HMRC does not care about a holding company acting like a genuine holding company.

If you want to be certain, best to speak with a UK lawyer/tax adviser.
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What if a UK LLP were to replace the US LLC in the structure?

 

[Sols]

I thought you said you had to have UK LTD in order to receive dividends? An LLP doesn't distribute dividends. It's similar to LLC.

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This is the probably the answer to your question.

 

[Rome]

Sols said:
I thought you said you had to have UK LTD in order to receive dividends? An LLP doesn't distribute dividends. It's similar to LLC.
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Yes, that's right. I was asking about replacing the LLC with an LLP

UK LLP (profits) ---> UK LTD (dividends) --> UBO

 

[Sols]

Sorry, I misread.

UK LLP must have at least two members. You could form two UK companies, but you're just making things extra complicated at that point. Banks/EMIs don't like LLPs. All else being equal, many would prefer a US LLC over a UK LLP.

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This is the probably the answer to your question.

 

[Rome]

Sols said:
Yes.


No, just normal accounting that includes profit distribution from the LLC. You can use Quickbooks, Freshbooks, Wave, or some other accounting software like that if you don't want to outsource it.

The UK company should draft board resolutions approving dividends paid to the UBO, in addition to also doing basic accounting.


The FTA, Federal Tax Authority.
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I forgot to ask. Since the LLC is not taxed in the US, do I still have to report the income to the IRS?

 

[Sols]

Rome said:
I forgot to ask. Since the LLC is not taxed in the US, do I still have to report the income to the IRS?
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Yes, see this thread for a primer: Form 5472 + 1120 for LLCs Explained & Top Other Forms You'll Most Likely Need to File

You also need to file an annual report with the state.

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