|
|
| There are many characteristics that make a business structure attractive, but one of the
most common is a "Pass Through" or "Disregarded" tax treatment. This means that the entity
itself is not taxed, but that the owners of the entity are taxed on their share of the entity’s profits.
This is often beneficial in that it avoids double taxation, but also because there are often
exceptions to taxation for some owners which can result in zero taxation. The United Kingdom
Limited Partnership (hereinafter the UK LP) provides just such a feature. The UK LP legislation was established in 1907 and has remained unchanged since then. It
is easy to establish, and once established requires zero reporting since it is a truly 100% "pass
through" entity. The income from the partnership is attributed to the partners without the need to
file a partnership return in the UK. If the partners are not in the UK and the income is not derived
from UK business, there will be no UK taxes and thereby no reports that need to be filed. Now
since the UK has some of the best tax treaties around, this income may also be tax exempt in the
client's home country.
The advantages of the UK LP are profound since it makes UK and European banking
available to "offshore" entities that might otherwise be on black lists. For instance, a US Limited
Liability Company could be the General Partner with a 1% interest, a Bahamas Trust could be a
Limited Partner of the UK LP with a 98% interest, and a non-resident individual could be a
Limited Partner with a 1% interest. As long as there is at least one individual member/partner of
the UK LP there will be no need to report anything to anyone, or to maintain audited accounts. Now you may ask, why doesn't everyone know about the UK LP? The reason that the UK
LP is not more commonly used is that it is really not the ideal entity to use if you are a UK
resident or a UK business that is taxable under the UK tax system. The Limited Company or
another corporate entity would probably be much better, and give you better tax treatment in the
UK. As such it is used primarily by non-UK residents who do not make a lot of noise about it since it really is a nice little secret.
Now the above example is just one possible configuration that could be employed. It has
many advantages since the use of the US LLC as the General Partner makes it easy to obtain
access to US bank accounts. It is very common for the General Partner to maintain the accounts
of a Limited Partnership in its own name, and because of this it is a simple way of using the UK
LP while maintaining accounts in the USA. Under this system, if the client was a US citizen and
owned 100% of the US LLC (another "disregarded" tax entity) the client would only be obligated
to pay taxes on 2% of the income of the UK LP. This of course presumes that the remaining 98%
Limited Partnership interest is owned by a PROPERLY STRUCTURED non-US entity that is
not considered an imputed US resident entity for tax purposes and is not considered a
"Controlled Foreign Company" under US tax laws. This presumption is not unreasonable since
we are experts at handling these matters and can design the structure to avoid these
circumstances and meet all the legal requirements. This configuration could very well be an
advantageous structure for non-US clients as well. Another possible configuration would be to
have the client act as the General Partner and have the properly structured offshore entity act as
Limited Partner with a 98% interest in the UK LP. The advantages of this system could be an
ease in obtaining access to European bank accounts. There are many different ways of
configuring the UK LP, and each might provide specific benefits for different clients depending
upon the circumstances. Please feel free to contact us to discuss your options. |