For international trade outside of the UK, a UK registered Limited Liability Partnership (LLP) has a well-earned reputation as tax efficient entity and this is reflected in its increasing popularity. An LLP has the combined advantages of its own legal identity, limited liability of its members and can operate and be taxed as a partnership.
An LLP combines elements of both corporate entities and traditional partnerships. It can be formed by a minimum of two members, which is can be both individuals and corporate entities with no restriction on their nationality, residence or, in the case of corporates, their place of incorporation.
While there is no requirement for there to be a partnership deed, it is highly recommended that a partnership agreement is entered into at the outset, to set out the formalities of the operation and management of the LLP, as well as the members’ rights and obligations.
There are registration formalities to be completed at Companies House, which are roughly similar to those on the incorporation of a corporate entity.
Once incorporated, an LLP is subject to accounting obligations and, when an LLP exceeds a certain size, an obligation for the accounts to be audited. There is also an obligation on the LLP to file a UK tax return, subject to our comments below.
The tax treatment of an LLP is as a ‘tax transparent’ entity, so the UK source income and any capital gains of the LLP are taxed in the hands of the LLP members, with any non-UK source income and capital gains of the LLP is only subject to UK tax if the recipient LLP member is a UK resident individual or company. Thus a UK LLP with non-UK resident members and non-UK income or gains, will not be subject to tax in the UK.
A UK LLP is an attractive and efficient vehicle for international trading activities, with considerable tax advantages and the benefit of limited liability for the members.