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Paid in the UK, living in the US.

Paid in the UK, living in the US.

Old Sep 20th 2016, 3:19 pm
  #16  
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Default Re: Paid in the UK, living in the US.

Originally Posted by eg76
When you say CA does not recognise the US/UK tax treaty, I assume that means they will want to tax my UK Dividend income, but will leave the PAYE side alone (if within thresholds...)?
No. You must realize that as a US and Californian resident they are your primary tax authority and both will tax your worldwide income. The US and CA are not required to give you credit for any UK PAYE. You should file a P85 before you leave the UK
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Old Sep 21st 2016, 1:50 pm
  #17  
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Default Re: Paid in the UK, living in the US.

Originally Posted by Cook_County
No. This is not correct. California will tax your worldwide income and that of the foreign corporation according to California law.
Ok - quick question, as I have heard this from a different source. Do you know whether California will look to apply corporation tax to the entire business if I am resident there (even if no business is handled in California - all in the UK)?
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Old Sep 21st 2016, 1:51 pm
  #18  
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Default Re: Paid in the UK, living in the US.

Originally Posted by nun
No. You must realize that as a US and Californian resident they are your primary tax authority and both will tax your worldwide income. The US and CA are not required to give you credit for any UK PAYE. You should file a P85 before you leave the UK
So best bet would be to pay primary tax in California, not UK?
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Old Sep 21st 2016, 3:56 pm
  #19  
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Default Re: Paid in the UK, living in the US.

As you are choosing to have a UK resident CFC, the UK will retain the primary right to charge tax on the profits of the CFC. Whether the US will give any credit for that is doubtful.
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Old Sep 21st 2016, 4:41 pm
  #20  
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Default Re: Paid in the UK, living in the US.

Originally Posted by Cook_County
As you are choosing to have a UK resident CFC, the UK will retain the primary right to charge tax on the profits of the CFC. Whether the US will give any credit for that is doubtful.
The rules for apportioning imcome and dividends between the US and the UK are given in the treaty. I'm not sure how CA will look at it, but CA tax will be due as a resident.

For the CFC issues I'd employ an expert.

In general I think the OP needs to realize that once in the US there are strict rules about how to pay tax and the US will be the primary tax authority. Residence is key here when it comes to the taxation of the income and dividends.
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Old Sep 21st 2016, 4:43 pm
  #21  
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Default Re: Paid in the UK, living in the US.

Originally Posted by eg76
So best bet would be to pay primary tax in California, not UK?
You don't get a choice. Look at the tax treaty.
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Old Sep 23rd 2016, 2:23 am
  #22  
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Default Re: Paid in the UK, living in the US.

Originally Posted by eg76
Slightly complicated tax question, but in the planning stages of a move to California in 2017.
Actually pretty complicated.

Originally Posted by Cook_County
So there are CFC issues, possibly SubPart F and California tax to think about...
Mmm. And the UK corporation may have to file an 1120-F as well. But before we get that complicated...

Okay so if you're still going to be physically in the UK working, you can stay on the UK payroll, but you've got to be non-resident for tax purposes, so you can claim a foreign tax credit on your US tax return for the work you do in the UK. You have to tell HMRC this. (HMRC might disagree that you are non-resident, depending on how much time you spend in the UK).

You put that income down on your US tax return and pay US tax on it. If you're doing work in the US for this UK corporation, then you can set up a US payroll for it. Or you can pay yourself dividends.

If you do a US payroll, then your corp has a presence in the US and then it has to file an 1120-F. Which is why multinationals instead set up a US subsidiary and file an 1120 and have a US payroll. But then your corps would have to invoice each other and/or transfer money back and forth and that gets complicated quickly.

If you use dividends you pay tax in the US on them obviously, not sure how it works with a UK corporation that is owned by someone resident abroad, there may be UK tax involved in which case you may have to file for a foreign tax credit. The problem with dividends generally is that they aren't an expense to the corporation so you end up paying corporation tax on that amount (unless you use a flow-through entity like an S-corp, not terribly relevant here).

As you own the UK corporation, you have to file a 5471 to report it to the US. And then you can get into subpart F tax, which is basically a tax designed to stop people from parking their money in offshore corporations to avoid US income tax. Any passive income the foreign corp earns can be subject to subpart F tax, active business income is generally exempt. You have to be very careful on that point. You may also run into form 926 from time to time as you're now resident in the US so you have to be careful what you put into the foreign corp.

Obviously what you are now thinking is, I need an accountant to help me with this. Unfortunately there aren't many accountants about that are familiar with the tax systems of both countries. And if you think PWC, KPMG etc. can figure it for you, think again, I know from personal experience they cannot. You need to find a British expat accountant who lives in the US, usually.

Last edited by Steve_; Sep 23rd 2016 at 2:26 am.
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Old Sep 23rd 2016, 2:26 am
  #23  
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Default Re: Paid in the UK, living in the US.

Originally Posted by eg76
Ok - quick question, as I have heard this from a different source. Do you know whether California will look to apply corporation tax to the entire business if I am resident there (even if no business is handled in California - all in the UK)?
The corporation wouldn't pay any tax in the US, only you would. The important point is to make sure it does not have a "permanent establishment" in the US, have a look at the tax treaty for how that is defined.

I didn't even mention the whole situation with California tax but it's not that big of a deal provided you do it correctly, i.e. you just end up paying California income tax on your personal income.
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