Dual citizen - Should I run my business in the UK or US?

I’m trying to get some advice on what would be the most financially beneficial way to run my business - either based in the UK or in the US.

Basically, I’ve been living and working in the UK for 17 years (dual citizen) where I run my own Limited Company (one man band, freelancing at various places) but recently I have acquired a US client (my main contract) where I am able to be location independent and the client is paying me in my UK account.

However, with the US expat tax liability coupled with the recent increase in UK corporation tax, it looks like I’ll be subject to double taxation in the US as well as higher taxes now in the UK….which is going to HURT next year at tax time.

So I’m trying to work out if it would be financially better to switch my business to the US and operate as either a sole trader or LLC and have the client pay me into my US account - which would essentially mean all my earnings would be in US dollars, and I would have to transfer all my earnings into £ British Sterling. (The contract is likely to carry on for at least a year or more and it’s a very good salary).

I’m also in the unique position where the client has offered to pay more for me to compensate for making this switch (it’s easier for them to pay a US contractor rather than a UK one).

So I would need to work out how much more this would cost me in exchange rates and transfers, etc. so that I could make up the difference and not lose money. 

Seems like a great opportunity, but I’m afraid it could be complicated. I want to be sure I’m considering every eventuality and not forgetting anything crucial. And I don’t know the first thing about operating a business in the US since I’ve been in the UK for so long!

Has anyone experienced a similar thing where they have done both? Which was better? Or does anyone foresee an issue with this for tax reasons? Surely it would be the same as just working remotely?

Any thoughts or advice based on personal experience would be greatly appreciated!!

Personally I would not own a UK limited company anymore as a US citizen due to transition tax and GILTI that is due and paid through your personal 1040 return. Even though I pay myself a salary, and pay UK taxes the IRS is now taxing me as an individual at >15.5% on undistributed earnings held by my ltd company. So to pay this tax I will have to take money out of the business (which will be UK taxed) to pay US tax. From 2018 you will owe tax through GILTI which will be again personal tax on undistributed earnings. This is effectively double taxation and we cannot afford this so we will have to close our business. Of course this is my understanding of current legislation and I think congress was trying to prevent the likes of amazon from keeping untaxed earnings offshore.

Personally I would not own a UK limited company anymore as a US citizen due to transition tax and GILTI that is due and paid through your personal 1040 return. Even though I pay myself a salary, and pay UK taxes the IRS is now taxing me as an individual at >15.5% on undistributed earnings held by my ltd company. So to pay this tax I will have to take money out of the business (which will be UK taxed) to pay US tax. From 2018 you will owe tax through GILTI which will be again personal tax on undistributed earnings. This is effectively double taxation and we cannot afford this so we will have to close our business. Of course this is my understanding of current legislation and I think congress was trying to prevent the likes of amazon from keeping untaxed earnings offshore.

While the planning opportunity is now closed (but only if one is trying to avoid the transition tax), most folks in these circumstances would have made a timely check the box election. This is still effective for other issues.

Personally I would not own a UK limited company anymore as a US citizen due to transition tax and GILTI that is due and paid through your personal 1040 return. Even though I pay myself a salary, and pay UK taxes the IRS is now taxing me as an individual at >15.5% on undistributed earnings held by my ltd company. So to pay this tax I will have to take money out of the business (which will be UK taxed) to pay US tax. From 2018 you will owe tax through GILTI which will be again personal tax on undistributed earnings. This is effectively double taxation and we cannot afford this so we will have to close our business. Of course this is my understanding of current legislation and I think congress was trying to prevent the likes of amazon from keeping untaxed earnings offshore.

Thanks for your reply.

It's really awful that you now have to close down your company because of this. So will you now work as a sole trader in the UK?

I haven't looked in detail at GILTI but I fear this is going to hit me hard.

I guess it's just trying to work out what kind of a headache it will be to have to transfer my income into pounds from dollars and all the fees or hassle involved. What a hassle.

It's almost enough to make someone want to give up citizenship!

Not sure if we will close the business or just sell most of the company shares so that it is no longer a CFC. Am researching various options.

Hi everyone

Like Santafe, I am thinking of closing my current UK company as it is treated as a US corporation (silly me!). Since I will be paying myself wages/dividends in the coming months there should be no undistributed earnings this year which will help to avoid paying GILTI. Small victories!

As I still need to work through a UK limited company, I was thinking of creating another UK limited doing a check the box election (treated as a partnership since my significant partner will also be a shareholder) in order for all income to pass through on US 1040 and be able to use the UK corporation taxes and UK dividend taxes as tax credits. I do understand that I won't need to file form 5471 anymore but will have to deal with 8865 instead.

However, before jumping the gun, I am wondering if it wouldn't make more since to just make an election for the current company to be treated as a partnership? Since my old company will no longer have any assets or reserves once I pay wages/dividends in the coming months, would that simply make more sense? As anyone here done such a change of classification? Any tax issues I am not seeing?

Thanks a lot

hey @italo1881 - regarding your comment "Since I will be paying myself wages/dividends in the coming months there should be no undistributed earnings this year which will help to avoid paying GILTI."

I'd be curious to know where you got this advice.

I'm fairly sure that dividends are also subject to GILTI tax b/c it's shareholder earnings and not necessarily classified as distributed income. At least this is the advice I got.

Are you sure you're not referring to the repatriation tax? I could be understanding it wrong, but you may want to double check.