International Trade – Case Studies
The UK Limited Liability Partnership (LLP)
A Versatile European Vehicle for International Trade
Introduced by the UK Government in 2000, the United Kingdom Limited Liability Partnership (LLP) is a distinct legal entity and a corporate body with all the functionalities of a Private Limited Company. However, it is taxed as if it were a Partnership.
The United Kingdom Tax Authorities have affirmed that the taxation model for LLPs follows the procedure that Partnerships have adhered to in the past. Consequently, the income and capital gains of an LLP are treated as income allocated to its members. This means that the UK LLP can serve as a tax-efficient instrument for international trade, provided there is no income sourced from the UK, and the members are non-residents of the United Kingdom, which would exempt them from UK taxation.
It is also important to note that LLPs are subject to similar limitations in terms of asset protection as companies. If, for instance, an LLP is engaged in fraudulent activities, the courts can hold the partners responsible for settling any outstanding liabilities.
In the eyes of general law, an LLP is considered a ‘body corporate,’ resembling a company. However, for tax purposes, an LLP is typically treated as a ‘partnership.’
Consequently, from a tax perspective, an LLP is usually viewed as transparent, and each member or partner is taxed on their respective share of the LLP’s income or gains as if they were part of a conventional partnership.
Practical Case Study
Let’s consider a scenario:
A United Kingdom LLP has 95% of its members residing in a low-tax jurisdiction like Belize or The Seychelles, while a UK Private Limited Company owns the remaining 5%. The UK LLP’s intention is to procure goods from Asia for resale to a South American country.
The goods are acquired from Asia and then delivered to the buyer, with payments made from outside the United Kingdom. Since there is no income originating in the UK, 95% of the profits, which are attributed to the non-resident members, would be subject to taxation in their respective countries at applicable rates. The remaining 5% attributed to the UK resident member would be taxed in the UK at the prevailing rates after deducting business expenses.
Potential Considerations
To ensure tax liability is avoided, the UK LLP must be established with a profit-making objective, and it should not have any UK sourced income. Additionally, none of its members should be UK residents.
Anti-Avoidance Provisions
It’s important to note that the UK LLP generally does not have access to double taxation agreements. Moreover, it must comprise a minimum of two Partners (Members).
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