Typically your US business may start by selling from the UK direct to your US customer. As your US market expands, you may have an increasing need to establish your own marketing or sales operation in the USA. At this point it becomes important to consider the most tax-efficient structure to maximise the return to the UK corporate or individual investor.
A simple structure would be to operate through a US branch of a UK company, which would be subject to US corporate tax on the US profits at federal and state level in a similar way to a US company. The US branch profits would be subject to UK corporation tax as part of the UK company’s total profits, with double tax relief given for the US tax, unless the UK company makes an election to exempt the foreign branch from UK corporation tax. An alternative structure would be to operate through a US subsidiary company. This could be a regular type of US corporation taxed in the USA at corporate level, or could be a US Limited Liability Company (LLC) which is taxed in the USA in a similar way to a partnership whilst providing limited liability protection.
There are many tax areas to consider in any cross-border structure, such as transfer pricing rules in the UK and USA, and use of tax benefits available under the UK/US double tax treaty. It is important to find a good local tax advisor in the USA to help navigate through the complexities of US federal and state taxes, and for there to be good co-ordination of the tax planning with the UK advisor who should drive the advice for the UK investors.
Ward Williams, Chartered Accountants
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