Hi all,
This is my first post - I've learned a lot from reading this forum over the past couple of days.
I am dual US/UK citizen and after a career break, I took a freelance/contract role that came up unexpectedly. That led to another one and so on. I've just been filing as self-employed - it was a little tricky the first time but I figured it out and filed both my US and UK taxes myself online. Now I've been doing this for a couple of years and I'm about to start a new contract so I thought it would be useful to set up a limited company for the tax benefits (particularly for pension contributions to my SIPP). I am not married and I would be the only shareholder in my UK limited company.
Being quite nervous about the tax implications, I started researching and what I have learned from this helpful forum and other websites would seem to indicate that:
1. I can set up a UK limited company and as the sole owner I can register the company as a foreign disregarded entity using IRS Form 8832. I will also need to file for an Employer Identification Number. Annually I will have to file Form 8858.
2. If my limited company is a disregarded entity, it is not a Controlled Foreign Corporation and I will not have to file Form 5471 (which is horrible, time-consuming and expensive).
3. I can pay myself from my company using a combination of salary and dividends for UK tax purposes but for US tax purposes this would all be earned income?
4. I can use the UK corporation tax and dividend tax towards the Foreign Tax Credit to wipe out any US tax liability and carry forward unused tax credits for 10 years.
5. I should use the Foreign Tax Credit rather than the Foreign Earned Income Exclusion bc the FEIE is only approx $105k and my earnings will exceed that.
6. I should change my UK limited company's tax year to the calendar year for ease of filing US tax returns.
7. I don't intend to retain any earnings in my limited company so I would not be subject to the GILTI tax?
Does this make sense? Can anyone tell me where (if) I'm going wrong here? Of course I've reached out to several tax advisors (including several recommended on this forum), but have so far only managed to speak to one. They told me that even if I file form 8832 to have my UK limited company treated as a disregarded entity, it would still be a CFC and I would therefore still have to file 5471, which they confirmed is a terrible hassle and very expensive. Perhaps I explained something incorrectly to this tax advisor, or I've misunderstood something somewhere. Or perhaps that particular advisor is incorrect?
I am still waiting for my calls/messages to be returned, so that I can get confirmation from another advisor about whether this is true or not. If anyone here could point out the error to me in the meantime, it would be much appreciated.
And any further guidance would be most welcome as well.
Thank you in advance.
This is my first post - I've learned a lot from reading this forum over the past couple of days.
I am dual US/UK citizen and after a career break, I took a freelance/contract role that came up unexpectedly. That led to another one and so on. I've just been filing as self-employed - it was a little tricky the first time but I figured it out and filed both my US and UK taxes myself online. Now I've been doing this for a couple of years and I'm about to start a new contract so I thought it would be useful to set up a limited company for the tax benefits (particularly for pension contributions to my SIPP). I am not married and I would be the only shareholder in my UK limited company.
Being quite nervous about the tax implications, I started researching and what I have learned from this helpful forum and other websites would seem to indicate that:
1. I can set up a UK limited company and as the sole owner I can register the company as a foreign disregarded entity using IRS Form 8832. I will also need to file for an Employer Identification Number. Annually I will have to file Form 8858.
2. If my limited company is a disregarded entity, it is not a Controlled Foreign Corporation and I will not have to file Form 5471 (which is horrible, time-consuming and expensive).
3. I can pay myself from my company using a combination of salary and dividends for UK tax purposes but for US tax purposes this would all be earned income?
4. I can use the UK corporation tax and dividend tax towards the Foreign Tax Credit to wipe out any US tax liability and carry forward unused tax credits for 10 years.
5. I should use the Foreign Tax Credit rather than the Foreign Earned Income Exclusion bc the FEIE is only approx $105k and my earnings will exceed that.
6. I should change my UK limited company's tax year to the calendar year for ease of filing US tax returns.
7. I don't intend to retain any earnings in my limited company so I would not be subject to the GILTI tax?
Does this make sense? Can anyone tell me where (if) I'm going wrong here? Of course I've reached out to several tax advisors (including several recommended on this forum), but have so far only managed to speak to one. They told me that even if I file form 8832 to have my UK limited company treated as a disregarded entity, it would still be a CFC and I would therefore still have to file 5471, which they confirmed is a terrible hassle and very expensive. Perhaps I explained something incorrectly to this tax advisor, or I've misunderstood something somewhere. Or perhaps that particular advisor is incorrect?
I am still waiting for my calls/messages to be returned, so that I can get confirmation from another advisor about whether this is true or not. If anyone here could point out the error to me in the meantime, it would be much appreciated.
And any further guidance would be most welcome as well.
Thank you in advance.
Comment