US Citizens owning UK companies and dividends overview

20 April 2018 • US Tax returns

US Citizens owning UK companies and dividends overview

On 22 December 2017, President Trump signed into law major tax changes that will affect almost all US citizens that own an interest in a UK company.

Our dedicated US tax team have set out below the key points that US shareholders need to know:

  • Repatriation tax of between 15.5%-18% of Earnings & Profits generated between 1986 and 31 December 2017 not distributed by the company as a one-off tax based on 31 December 2017 accounts and the shareholder’s actual rate of tax.
  • The repatriation tax is a tax on the shareholder, and therefore for individuals owning shares in a UK company it is a personal tax on the US citizen and not a corporate responsibility.
  • Removal of eligibility for receiving a qualified dividend which is taxed at low tax rates from 31 December 2017.
  • The repatriation tax can be paid in instalments over 8 years as follows:
    • Years 1 to 5 - 8%
    • Year 6 - 15%
    • Year 7 - 20%
    • Year 8 - 25%
  • The first repatriation tax instalment is due on 15 June 2018 and then on 15 April thereafter.
  • The changes to the qualified dividend rules will likely result in an increased US liability for US Citizens.
  • US shareholders will need to change their profit extraction policy in 2018 and beyond.  There is no standard solution, every US individual will need bespoke advice and change the way in which they extract profits from their UK companies.

Our comments

There has been a huge out cry from the expat tax community regarding both the business and legality of the new rules.  It is entirely possible that there will be future changes and interpretations that will occur. However, we need to assume the legislation is here to stay.

We suspect some US individuals will need to take extreme measures such as expatriating from the US or closing and re-opening companies but for most US Individuals these extreme measures may not be necessary.

Please do contact our specialist US tax advisors if you would like our help in coming to terms with the changes, call us on 020 7731 6163.

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