The Ultimate Pass Through Tax Entity
There are many characteristics that make a business structure attractive, but one of the most beneficial is “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 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 essentially 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 tax 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.
The most common and easiest way to use the UK LP is to use our nominee General Partner with a non-economic interest in the UK LP (that is a 0% interest in ownership of the UK LP), and then the client is the sole Limited Partner. The advantages of this system is an ease in obtaining access to European bank accounts. We suggest using this system with a bank account in the Republic of Georgia. Banking in the Republic of Georgia is very advanced, safe, and provides easy online access. The laws of the Republic of Georgia are also very advanced and open.
Another more advanced option is to have your own US LLC be the General Partner (whether owned by you, a friend, etc.), a Bahamas Trust owns a 99% interest, and the client owns a 1% interest which is below any reporting threshold. As long as there is at least one individual 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 primary 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.
Another option is to have the US LLC as the General Partner obtain a US bank account on behalf of the UK LP. It is not unusual for a General Partner to maintain the accounts of a Limited Partnership in the name of the General Partner. 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 non-resident of the USA and owned 100% of the US LLC (another “disregarded” tax entity) the client would not be obligated to pay US income taxes on the income of the UK LP as long as the source of the LP income is not considered US Source Income.
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.
Please feel free to contact us to discuss your options, or DOWNLOAD OUR FREE REPORT [UK_LP_report].