How to Structure a Website Sale to Avoid Tax/Income in the UK

[Allenk]

Hi

I used to know a lot more about this stuff, but have got rusty! I'm hoping someone who's more familiar can offer a little more up to date insight!

Background Info
1) We earn money in a UK LTD company.
2) We have no US earnings, or staff or connections.
3) We have various websites that will grow in value.
4) We have a contract pension in Guernsey. (we could use this if needed, as it can hold a wide array of assets)

My Goal is As Follows:
1) Limit CGT/tax on the sale of any websites. (this is in the next 2 years, but we need to plan for it)
2) Invoice the UK company for a website rental etc. so we can reduce the profit in the UK and rather have it in the lower tax environment.

Proposed Structure
1) Contract Pension in Guernsey
2) Delaware LLC (holding the websites)

It seems a Delaware LLC could be ideal since:

• It seems there would be no tax on the sale of website assets which are not US based sites, and the buyer would not be US based.
• The income wouldn't be taxed as it's foreign sourced. Thus, we could easily get funds from the UK company into the LLC.

What structure setup would you recommend I investigate? Would my structure work or is there an easy way to do this now?

I look forward to any insights!

 

[Sols]

This is a boring answer, but there is so much nuance to this that the best you can do is speak with a UK tax adviser about it.

For example, the Delaware LLC becomes tax resident in the UK and UK consider LLCs opaque entities, meaning under UK law a US LLC pays tax like a UK LTD. You're right that the Delaware LLC might have no tax liabilities in the US, but it has tax liabilities in the UK. So adding a Delaware LLC into the mix probably just adds cost and complexity for no good reason.

As long as you live in the UK, steps you take are likely just going to look like (attempted) tax evasion if HMRC gets their eyes on it.

You can take steps to reduce tax burden on the company or companies involved in the chain, depending on how the sales are done. But by the time the money reaches you personally, it's either income or capital gains and taxed accordingly. Don't live in the UK if you don't want to pay UK tax.

Done correctly, taxes on these things needn't be particularly high in the UK. Greater than zero and greater than if you relocate. Again, a good tax adviser can help you with this, while taking every little aspect of the business into consideration.

Toggle signature
This is the probably the answer to your question.

 

[Allenk]

Sols said:
This is a boring answer, but there is so much nuance to this that the best you can do is speak with a UK tax adviser about it.

For example, the Delaware LLC becomes tax resident in the UK and UK consider LLCs opaque entities, meaning under UK law a US LLC pays tax like a UK LTD. You're right that the Delaware LLC might have no tax liabilities in the US, but it has tax liabilities in the UK. So adding a Delaware LLC into the mix probably just adds cost and complexity for no good reason.

As long as you live in the UK, steps you take are likely just going to look like (attempted) tax evasion if HMRC gets their eyes on it.

You can take steps to reduce tax burden on the company or companies involved in the chain, depending on how the sales are done. But by the time the money reaches you personally, it's either income or capital gains and taxed accordingly. Don't live in the UK if you don't want to pay UK tax.

Done correctly, taxes on these things needn't be particularly high in the UK. Greater than zero and greater than if you relocate. Again, a good tax adviser can help you with this, while taking every little aspect of the business into consideration.
Click to expand...

Firstly thanks for taking the time to answer my question. I truly appreciate it.

Firstly, I don't live in the UK. I live in South Africa. Then if the LLC is owned by a Guernsey pension trust, again, it would fall outside the ambit of the UK HMRC.

The part that's confusing me is when you say:

You're right that the Delaware LLC might have no tax liabilities in the US, but it has tax liabilities in the UK.
Click to expand...

But from what I read here https://<<snippet>>.com/finance/llc-taxation-for-non-us-residents/ it seems that even foreign owned entities attract tax in a LLC:

As an NRA running a US-based LLC, you need to know some of the following tax rates in the US: Income Tax Rate: 10% to 37%
Click to expand...

How come the LLC would have no tax liabilities in the US? I can't seem to find a place to verify this. When I speak to a US CPA, they seemed to suggest the LLC would attract tax even with a foreign owner.

So what I'm looking for is a place to setup a company that holds the website that won't attract CGT or tax on the sale of the websites.

Basically a jurisdiction that has a lower CGT rate on virtual assets.

Do you have any suggestions?

 

[Sols]

Allenk said:
Firstly, I don't live in the UK. I live in South Africa. Then if the LLC is owned by a Guernsey pension trust, again, it would fall outside the ambit of the UK HMRC.
Click to expand...

OK, yes, if you live in South Africa, that changes things a bit.

Allenk said:
The part that's confusing me is when you say:

But from what I read here https://<<snippet>>.com/finance/llc-taxation-for-non-us-residents/ it seems that even foreign owned entities attract tax in a LLC:


How come the LLC would have no tax liabilities in the US? I can't seem to find a place to verify this. When I speak to a US CPA, they seemed to suggest the LLC would attract tax even with a foreign owner.
Click to expand...

In the US, LLCs themselves aren't taxable, unless you specifically opt for it. They're disregarded entities, meaning profits of the LLC fall unto the owners (members) as personal income and it has to be declared as such if you are a US person.

We can even ask Uncle Sam (Limited Liability Company (LLC) | Internal Revenue Service):

Depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC's owner's tax return (a “disregarded entity”). Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and elects to be treated as a corporation. However, for purposes of employment tax and certain excise taxes, an LLC with only one member is still considered a separate entity.
Click to expand...

If you aren't a US person, the only situation under which you'd be liable for tax is if you have a strong connections to the US (significant customer base, local suppliers), that may create a taxable event for you personally. But even that is very rare, with rampant non-compliance and non-enforcement.

Allenk said:
So what I'm looking for is a place to setup a company that holds the website that won't attract CGT or tax on the sale of the websites.
Click to expand...

What I was saying before about UK applies in South Africa, too, though. If you effectively control/manage a company while resident in South Africa, that company becomes tax resident in South Africa.

Allenk said:
Basically a jurisdiction that has a lower CGT rate on virtual assets.
Click to expand...

There are a lot of those. But the problem is you're still under the influence of South African tax law. Anything else is simply tax evasion.

Unless you set up a genuine presence somewhere else, for example a GBC in Mauritius with local directors and some local staff. Then you'd be operating under very favorable taxes.

Speak with Acufin, JurisTax, Loita Management, Vistra, and maybe Parker Russell. There are a lot of good firms in Mauritius.

Toggle signature
This is the probably the answer to your question.

 

[Allenk]

Hi Sols

Thanks for this detailed response! I truly appreciate it.

1) The US LLC angle seems interesting. What reporting do they do regarding the beneficial owner?
2) I'm going to need to look at that POEM a bit more!
3) Do you know if Malta or a US LLC would get charged any VAT for online ads we run? I've realised we get charged a 20% VAT bill in the UK, but if I ran the ads, through another company in a 0% VAT location, I could pay 0% VAT and then sell on the 'ad results' saving 20% VAT. I'm wondering if Malta or a US LLC would work here?
4) Do you have anybody you'd recommend who knows more about US LLC's and is good to handle the filings?
5) Are you sure there's a 0% CGT on a LLC held by a foreign entity?

Thanks. This has been a fantastic, if not a bit daunting learning curve!

 

[Sols]

Allenk said:
1) The US LLC angle seems interesting. What reporting do they do regarding the beneficial owner?
Click to expand...

https://www.fincen.gov/boi

Allenk said:
3) Do you know if Malta or a US LLC would get charged any VAT for online ads we run? I've realised we get charged a 20% VAT bill in the UK, but if I ran the ads, through another company in a 0% VAT location, I could pay 0% VAT and then sell on the 'ad results' saving 20% VAT. I'm wondering if Malta or a US LLC would work here?
Click to expand...

A lot depends on the counterparty.

If a VAT registered Malta company buys ads placements from another VAT registered company in the EU (not in Malta), the invoice would normally carry no VAT. If you buy from within Malta, you pay VAT but claim it back.

If it's a US LLC buying from an EU entity, there is very little risk of anyone asking about VAT. There'd probably only be VAT scope if the US LLC was being operated from within EU/EEA.

Allenk said:
4) Do you have anybody you'd recommend who knows more about US LLC's and is good to handle the filings?
Click to expand...

The filings in the US are quite straight forward but if you want to hand over to someone, I have had good experiences with for example TMF Group and Wolters Kluwer.

Allenk said:
5) Are you sure there's a 0% CGT on a LLC held by a foreign entity?
Click to expand...

Since you ask about certainty, I can't answer that since I'm not a tax adviser. What I can say is that based on my experience, the US very rarely seeks to tax LLCs or income from LLCs owned and managed by non-residents when they have US connections. I don't think I've ever seen it happen when the LLC has no US connection at all.

Furthermore, as the link to the IRS website above shows, the LLC itself is not taxed unless you specifically ask the IRS to. The income of the LLC becomes your personal income (or the income of any parent company owning the LLC).

But best to check with a US tax adviser. The aforementioned TMF and Wolters Kluwer can help with that.

Toggle signature
This is the probably the answer to your question.

 

[Allenk]

Hi Sols

Thanks for this. It seems we're in a similar timezone! ;-)

I currently have a Malta company that's a bit of a pain to run TBH. The company that handles it all is no longer offering the service and I need to find an alternative that's a bit easier. We went to for Malta due to the 'cleaner' jurisdiction, but I now have my doubts as there's still a 5% tax and it's not the easiest jurisdiction it seems.

For every opinion I come across there are some strong counterpoints!

1) Wolters Kluwer - these guys do a broad range of services from finance to health care IT! Wolters Kluwer's expert solutions combine expertise with advanced technology "Trusted clinical technology and evidence-based solutions that drive effective decision-making and outcomes across healthcare." Interesting...
2) Is TMF like SovereignGroup? The Sovereign Group - Services to Companies, Trusts & Individuals who also have offices in SA. Any thoughts on this crowd?
3) For the VAT, it looks like VAT doesn't get levied at source. 🙂 so I might still have use of this company.
4) Do you by any chance know of a good way to get funds into a SA company that owns property? Is a loan still one of the best ways or are there any clever other methods I should explore?


Thanks for your patience!

 

[Sols]

Allenk said:
I currently have a Malta company that's a bit of a pain to run TBH. The company that handles it all is no longer offering the service and I need to find an alternative that's a bit easier. We went to for Malta due to the 'cleaner' jurisdiction, but I now have my doubts as there's still a 5% tax and it's not the easiest jurisdiction it seems.
Click to expand...

I feel your pain. Malta can be quite complicated. I often find Cyprus worth the extra 7.5% corporate tax (12.5% total) just for the sake of ease. If it's not an entity that generates the bulk of profits for the business, paying 12.5% on some symbolic profit is worth it for the increased ease.

Cyprus isn't perfect, though. Has its own issues.

Allenk said:
1) Wolters Kluwer - these guys do a broad range of services from finance to health care IT! Wolters Kluwer's expert solutions combine expertise with advanced technology "Trusted clinical technology and evidence-based solutions that drive effective decision-making and outcomes across healthcare." Interesting...
Click to expand...

It's to that if the tax man hits you with a tax bill because you didn't plan properly and you get a heart attack, Wolters Kluwer can still capitalize on you through healthcare spending. 😉

Allenk said:
2) Is TMF like SovereignGroup? The Sovereign Group - Services to Companies, Trusts & Individuals who also have offices in SA. Any thoughts on this crowd?
Click to expand...

Sovereign Group is excellent as well. Have worked with them on many projects over the years in different locations.

TMF's strength is strict adherence to the letter and spirit of the law. Sovereign Group can be a bit more cowboy-y, but not in a reckless manner. I go to TMF if everything has to be entirely above board. I go to Sovereign if there's a bit of creativity involved.

Allenk said:
4) Do you by any chance know of a good way to get funds into a SA company that owns property? Is a loan still one of the best ways or are there any clever other methods I should explore?
Click to expand...

This is hard to answer without looking at every little nuance of your personal and corporate affairs. A loan is good in some cases but can be disastrous in others. Not all loans are equal and things like amount, interest rate, and duration can affect their legality. If you forgive the loan, that can end up being a taxable event (it suddenly becomes taxable income for the borrower).

Best to discuss this with a tax advisor.

Toggle signature
This is the probably the answer to your question.

 

[clemens]

If you don't want to play by the book, take a good look here
https://www.offshorecorptalk.com/threads/you-need-a-real-address-and-director-for-a-uk-ltd.43463/

Toggle signature
One of my favorit articles in Mentor Group ~ Sending money anonymously archieve Financial Anonymity

 

[Allenk]

clemens said:
If you don't want to play by the book, take a good look here
https://www.offshorecorptalk.com/threads/you-need-a-real-address-and-director-for-a-uk-ltd.43463/
Click to expand...

Thanks. I'll definitely check that out.

 

[EliasIT]

clemens said:
If you don't want to play by the book, take a good look here
https://www.offshorecorptalk.com/threads/you-need-a-real-address-and-director-for-a-uk-ltd.43463/
Click to expand...

I completely agree with Clemen regarding the content in this link. However, I want to emphasize to you that you should be thorough in your research before setting up a company in the UK and using this service to appoint a director and shareholder.

If you need a director and shareholder for something later, like opening a bank account, payment processor, brokerage account, or something else, you need to be sure that you can contact the director and get them to sign. Check with several providers who offer their directors and shareholders to see if they are real people or if you are getting fabricated documents!

Fletcher Kennedy tends to deliver one real person and then fake the rest. There was a reseller from this forum who had a terrible experience with this (the forum member is now banned) - so make sure to thoroughly check everything.

If you have everything under control, then go for it and enjoy your life as a free entrepreneur. Renew this setup every two or three years to remain a ghost.

Toggle signature
If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability!
My personal favorite thread posted in the Mentor Group. Group of investment companies to avoid licensing.