eg76

Slightly complicated tax question, but in the planning stages of a move to California in 2017.

I am currently part owner in a UK based company that conducts all of its business here in the UK. I am moving to California in 2017, but will continue to work in the UK company, remotely from the US. It (the company) will not have any dealings with the US, other than me working out of a house there and commuting back and forwards to the UK. I will still be paid in £'s into a UK Bank Account and pay UK taxes.

Does anyone know whether I will have to pay US taxes in my UK income? I currently pay myself in Dividends and PAYE to make it more tax effective.

Any help gratefully appreciated.....

Pulaski

Yes, you will have to pay US taxes (federal and state) and payroll taxes. If you are living in the US while you are working you have no choice in the matter, and you will pay taxes on your worldwide income no matter whether it is remitted to the US or not. You cannot just defer income in a corporation that you own and reduce your income tax bill that way - if you could, everyone would be doing it.

You will not pay UK taxes or NI (unless voluntarily, but that is a whole other matter)

eg76

Aware that there will be some tax liability, but what about double taxation rules (taxed in the UK, therefore not liable in the US)? Conscious that I do not want to open the whole company accounts, profits etc to the IRS.

Pulaski

If you are living in the US, you are in the IRS's bailiwick, you will have to get used to that.

You will not be liable for UK taxes, and to try to pay them and claim offset will massively complicate your taxes.

Noorah101

Just curious what your status in the USA will be? Done status don't allow you to work (or just allow limited work).

Rene

Pulaski

It looks like his wife has/ is getting an L-1x, so the OP wil get an L-2 and access to an EAD.

Cook_County

So there are CFC issues, possibly SubPart F and California tax to think about...

tantrum

Just wondering why you are saying it would be this way round? AFAIK, as they own a UK company the company will be liable for corporation tax in the UK. They will also be liable for NI and personal tax in the UK depending on how much they take out in dividends and PAYE per tax year. As it is not a US company, in the US they would be liable only for personal taxes, after taking into account what has been paid in the UK. They would also have to file other forms such as 5471.

Pulaski

Maybe I'm wrong then, but I thought HMR&C had neutered the personal service company in most cases, and certainly the IRS will want to tax the revenue generated by the owner of such a personal service company, won't they?

I am 99% certain that a tax resident of the US can't just work remotely in the US and book all his revenue in an off-shore vehicle and thereby avoid US taxes.

tantrum

I do not see any reference to a PSC from the description. They are a director (and probably employee) of a UK company so UK corporation tax, PAYE and NI rules will be owed to HMRC. As they will be generating an income while in the US, then of course they are liable to file, and possibly pay, US personal tax, declaring it as overseas income. Whether their visa status would allow them to work in the US in this way is unknown.

eg76

All - thanks for the posts. To clarify a couple of things. My wife is American, so I am currently applying for a Green Card under I-130.

I currently run and part own a company in the UK (with employees). As a family, we are moving to LA for a couple of years with my wife's work, but I am going to commute back and forth from LA to London over that period. All my work will still be in the UK (clients, invoicing etc.), as will the company. The only difference will be that I will handle some of my business whilst living in LA.

I appreciate that by living in the US and having a Green Card, will mean that I will have to file for taxes in the US. My question was over how my UK income would be taxed? Currently I am paid in a mixture of PAYE and Dividends. Clearly I do not want to be double taxed, so was trying to work out the best way of declaring my income.....

Hope this makes things a little clearer.

Cook_County

You'll owe US Federal and State tax on the salary and dividends. If you owe any UK tax on these the IRS (but not California) would give you a foreign tax credit for foreign tax that is paid.

nun

Getting a Greencard and becoming a US tax resident might be the only difference, but it is an enormous one. If you do any work while a US tax resident the income (or dividends) will be taxable in the US and CA. You should remember that CA does not recognize the US/UK tax treaty so you have to go by it's regulations.

You won't be double taxed, but you will be liable for both US and UK tax. You will have to file in both countries and work out the proportion of tax to pay. You will have to pay US payroll taxes too.

Take a close look at Article 10 of the tax treaty as that deals with dividends.

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...)?

Cook_County

No. This is not correct. California will tax your worldwide income and that of the foreign corporation according to California law.