UK Limited Liability Partnerships (LLPs) are increasingly used in the UK as tax efficient vehicles for non-UK international trading purposes.

LLPs combine the benefits of corporate status (i.e. the partnership has its own legal entity) and limited liability protection for members with the ability to operate and to be taxed as a traditional partnership.

Tax advantages of an LLP

A traditional partnership is essentially see-through for tax purposes i.e. “tax transparent” and as such the same applies to UK LLPs. This means that each member of the partnership will be taxed on their share of the LLP’s income or gains. UK tax is only payable on profits derived from trading in the UK. Any non-UK source of profits or gains made by an LLP i.e. any profits arising as a result of trade carried out in a country other than the UK, will not be subject to UK tax unless the members are UK resident individuals or companies.

Furthermore, it is possible for a UK LLP to have a virtual office in the UK, which will not be considered a permanent establishment (PE). This means the UK LLP will not need a base/headquarters in the UK and as such be considered to be carrying out trade in the UK.
There are no restrictions on the residence or nationality of the members of the LLP.

Therefore, if carefully structured, neither a UK LLP nor its members will be subject to UK taxation, if:

• All members of the LLP are non-UK resident members
• The LLP does not have any sources of income arising in the UK
• The LLP does not own any assets or have an office in the UK

The LLP itself is still required to file a partnership tax return to the UK tax authorities (HMRC) disclosing the profits and gains made in a tax year, regardless of whether the members are taxed or not.

There are instances whereby HMRC would exempt a UK LLP from filing a partnership tax return should they be satisfied that all of the above has been met. This is generally done by putting a request in writing to HMRC.

In determining the residency status, a UK LLP would be deemed resident in the jurisdiction from which it is controlled and managed, which would ordinarily mean the jurisdiction in which its members are situated.

Setting up an LLP

A UK LLP can be formed easily and quickly. An LLP must be incorporated by being registered with the Registrar of Companies. An LLP must have at least two designated members, which are essentially responsible for the management of the LLP. These members will have additional duties such as, ensuring the annual accounts are filed on time, the appointment of new members, resignation of existing members and notifying Companies House of any changes made to the LLP.

There is no requirement under the Act for an LLP to have a written partnership agreement, however it is always recommended that an agreement is in place between the respective parties.

An LLP must maintain records of its financial transactions and submit annual accounts, which are due no later than nine months after the relevant year end and will be publicly available.

UK LLPs can be an excellent vehicle for structuring a business that conducts international trade.

To find out more about setting up a UK LLP, contact our partner in the International Tax services team, Sonal Shah.