Wyoming LLC vs UK LLP

[airborne18]

Hi all and this is my first time posting so go easy if i am asking something obvious.
I have done quite a bit of online research on the topic but there are conflciting sites,YT vids and reditt posts so i figured i would ask here as the folks here seem to be on the money.
So myself and my wife just moved to Montenegro and we are looking for a simple solution to deal with online payments.
Montenegran banks do not work with stripe as you need to create a special government issued invoice for all clients here and it is an absolute headache.
Most folks i have heard of simply use some form of offshore set up and then just bill once a quarter via their Montenegran company/invoice software.
I only have a couple of clients so my billing can be easily spaced out but my wife has multiple clients some are billed weekly, monthly etc and is more problematic.
I am also looking at another venture which would also require using a payment processor for subscriptions so i need to future proof whatever set up we create.
My thought was either a Wyoming LLC or UK LLP as a passthrough entity and we just invoice that entity from our Monte company once a quarter.
I understand UK tax forms (orignally from there) better than US although i did spend 6 years there as well and have always found HMRC customer service to be better at assisting than the IRS when you have questions.
Our clientelle is mostly from the US, around 90%, with maybe 2/3% coming from the UK and another 6/7% from Australasia, India, South Africa etc.
Now, this is where i have had conflicting reports, if our clients are US based and we have a Wyoming LLC are we then liable for any US taxation or not? I can't seem to get a straight answer on that one?
The same applies for the UK LLP and UK residents if they buy from us - are we in any way liable for UK tax - personal or corporate?
I was under the impression that they are both passthrough entities and it is where the end user is based, for us MNE, that the taxation takes place at that end.

I am looking for clarification on this along with any pros/cons of either set up?

Thank you all in advance for your help

 

[JustAnotherNomad]

I know nothing about Montenegro, but I would expect that using a transparent entity like a UK LLP or US LLC from Montenegro can be quite complicated.
From the UK/US side, the income would not be taxed if nothing happens in the UK/US, even if customers are based there (no office there, no people working there).
From that side, the income would be income of the partner/member, so either yourself or the Montenegran company. So invoicing the LLP/LLC would be like invoicing yourself/the company from the company. I'm not even sure how that would work? Then again, there is a possibility that Montenegro doesn't understand what is going on.
There is also a risk that Montenegro could say that the LLP/LLC is taxable in Montenegro like a local company anyway.
And if you what you do is B2B, then there is a risk that someone may ask where the LLP/LLC is really based etc.
I just see a lot of potential questions here if you do it by the book - but then again, maybe this isn't that relevant in Montenegro.

Have you considered just setting up a UK Ltd. and registering it for tax in Montenegro?

J

Thread 'The treaty non-resident UK Ltd. - the best-kept offshore secret?'

May 4, 2023

Some time ago, someone on this forum posted about his "non-resident UK Ltd."
This sounded a bit strange - after all, the UK doesn't have non-resident companies in the same way e.g. Hong Kong does.

Of course this sparked my interest, so I've investigated a bit more - and I've been considering for a while whether I should share this at all, as it seems to be such a well-kept secret.
But given that the information was already on the forum anyway, albeit less accessible, I decided to share my findings:

By default, a company that is incorporated in the UK is tax resident in the UK, as is the...

• JustAnotherNomad
• Replies: 47
• Forum: Offshore Company

• 

It might make your life a lot easier, though I don't know how difficult it would be to register it in Montenegro.
You would have a UK Ltd. company for all practical purposes, but it would be taxed as if it was incorporated in Montenegro.

I also don't know if the UK Ltd. company would then have to follow Montenegran rules and issue those special government-issued invoices.

But it's something I would at least explore further. I don't know if you would actually have to register the UK Ltd. in Montenegro. Maybe you could just declare to HMRC that the company is managed from Montengro and that would be acceptable to them?
Might be worth discussing with a UK accountant. You could also still invoice the UK Ltd. from your Montenegran company, as it would definitely be a separate entity from a tax perspective (but make sure it's not tax resident in the UK, otherwise you could run into issues with transfer pricing).

 

[airborne18]

I know nothing about Montenegro, but I would expect that using a transparent entity like a UK LLP or US LLC from Montenegro can be quite complicated.
From the UK/US side, the income would not be taxed if nothing happens in the UK/US, even if customers are based there (no office there, no people working there).
From that side, the income would be income of the partner/member, so either yourself or the Montenegran company. So invoicing the LLP/LLC would be like invoicing yourself/the company from the company. I'm not even sure how that would work? Then again, there is a possibility that Montenegro doesn't understand what is going on.
There is also a risk that Montenegro could say that the LLP/LLC is taxable in Montenegro like a local company anyway.
And if you what you do is B2B, then there is a risk that someone may ask where the LLP/LLC is really based etc.
I just see a lot of potential questions here if you do it by the book - but then again, maybe this isn't that relevant in Montenegro.

Have you considered just setting up a UK Ltd. and registering it for tax in Montenegro?

J

Thread 'The treaty non-resident UK Ltd. - the best-kept offshore secret?'

May 4, 2023

Some time ago, someone on this forum posted about his "non-resident UK Ltd."
This sounded a bit strange - after all, the UK doesn't have non-resident companies in the same way e.g. Hong Kong does.

Of course this sparked my interest, so I've investigated a bit more - and I've been considering for a while whether I should share this at all, as it seems to be such a well-kept secret.
But given that the information was already on the forum anyway, albeit less accessible, I decided to share my findings:

By default, a company that is incorporated in the UK is tax resident in the UK, as is the...

• JustAnotherNomad
• Replies: 47
• Forum: Offshore Company

• 

It might make your life a lot easier, though I don't know how difficult it would be to register it in Montenegro.
You would have a UK Ltd. company for all practical purposes, but it would be taxed as if it was incorporated in Montenegro.

I also don't know if the UK Ltd. company would then have to follow Montenegran rules and issue those special government-issued invoices.

But it's something I would at least explore further. I don't know if you would actually have to register the UK Ltd. in Montenegro. Maybe you could just declare to HMRC that the company is managed from Montengro and that would be acceptable to them?
Might be worth discussing with a UK accountant. You could also still invoice the UK Ltd. from your Montenegran company, as it would definitely be a separate entity from a tax perspective (but make sure it's not tax resident in the UK, otherwise you could run into issues with transfer pricing).

Hi there,
Thanks for your comments.
As it stands, the MNE company allows us to have residency as directors of the company here in MNE. To run this properly you need to have a MNE based bank account and issue those pesky fiscalised invoices.
MNE would not care that you are billing another entity outside of MNE only that the money was coming into the local company and that you are doing your local taxes etc. As a point of interest, MNE is on the grey list as they have not been doing the CRS reporting...oopsss!
I know we have the CFC, controlled foreign company rules, but if the money is passing straight through to the MNE entity they get their slice of tax anyway. We are not trying to avoid tax, we are trying to have a system of using a payment processor like stripe without any issues and then issuing a quarterly invoice from the MNE company.
I never thought of registering a Ltd company here, that could be one to investigate but if it has to do banking here then we are back to the same issue with payment processors.
Back to the Wyoming LLC though, i read somewhere about federal income tax withheld at 30% for any US business/sales...is this incorrect then?
As i said there is so much info out there but a lot of it contradicts itself.
Thanks again for your advice and please if anyone has any other comments/suggestions please feel free to chime in

 

[JustAnotherNomad]

A transparent single-member US LLC pays tax in the US as if it was the member that had provided the service/sold the goods.
So if you or your Montenegran company owns the US LLC, the US will "look through" the US LLC and decide if you/the Montenegran company should pay tax in the US.
If you sold to a US client under your own name from Montenegro, or your company did, would there be tax in the US? No. Therefore, there would be no tax with a US LLC either.
But if anything was happening physically in the US (employees, freelancers, an office or warehouse, ...), the situation could be different. Then there might be tax in the US due to so-called ECI (effectively connected income) - but again, this would also be the case if it was you or your Montenegran company providing the service or selling the goods. If there was ECI (something taxable happening in the US) AND the US LLC was owned by your company (instead of you personally), then there could also be up to 30% branch profit tax.
So the risk of US tax is very low.
But from the US side, as mentioned, the income of the LLC flows through to the member. So if you own the LLC personally, the US would say you should pay personal income tax on that money, as if it was a salary, basically.
Now where it really gets interesting is: How would Montenegro view your US LLC?
Some countries view them as transparent, like the US. Such countries would then argue that any profits of the US LLC are your own personal income, like salary income. So invoicing the US LLC from your Montenegran company would be like invoicing yourself.
Other countries view them as opaque (like a UK Ltd.), so they would likely say that the LLC should register and pay tax like a local company.
Then some countries view them as opaque, but also as offshore, so they treat the income as dividends from a foreign business and apply no or very low tax (but those would typically be less developed countries like Malaysia or Paraguay, but there also is a loophole in Portugal at the moment).
And then some countries don't have a general rule for this and look at the "shareholder agreement" to determine how the US LLC should be treated.
So you can see that this can get hairy if you live in a country that actually cares about this stuff and has the resources to enforce their tax code (like most of Europe).
But if Montenegro doesn't really care about any of this and no profit is left in the US LLC anyway, it might be a good solution.
That's why such a setup is very popular with people living in less developed countries like Thailand, Malaysia etc. - those countries don't really care and if nothing happens in the US, there is no US tax, just a couple of pages to file every year with just a handful of numbers.
With a UK LLP, the situation would probably be very similar, but I'm not 100% sure if UK customers could lead to UK tax, especially since you're also a UK citizen. But probably not, if nothing happens in the UK (just like with the US LLC).
Unlike a US LLC, a UK LLP requires two partners (but I guess this could be you and your company).
It might be an advantage that you have connections in the UK and know how things work there, but then again, the filing requirements for a US LLC without ECI are quite simple.

I still wouldn't rule out a UK Ltd. where you declare to HMRC that it's run from Montenegro. That might be enough for HMRC to exempt it from tax in the UK.
I just don't know if you need any kind of confirmation from the Montenegran tax authorities that it's taxable in Montenegro.
You are familiar with the UK, you could get liability insurance from the UK, access to UK payment processors, UK customers might prefer dealing with a UK vs. US company, etc., and you don't need multiple partners to set it up. You could also get access to the UK legal system, which I guess would be an advantage (US lawyers are probably a lot more expensive and you know how things work in the UK).
Then you just invoice it from your Montenegran company.

I think a US LLC could probably be a good solution for you, provided that Montenegro doesn't really care.
Since it's a non-UK entity, I would guess that the risk of the UK trying to tax you would be zero if nothing happens in the UK (no office, no work performed in the UK etc.).
But I don't know how high that risk would be with a UK entity (LLP or Ltd.) - it might be zero anyway.
So I would probably still pay for a consultation with a UK accountant and ask both about the treatment of UK LLP's and the "section 249" thing (UK Ltd. managed from Montenegro).
Just because I think that being familiar with how the system works might be an advantage. For a non-UK citizen, I would probably just go with the US LLC.