Understanding UK LLPs in 2024: An Underrated Choice for Offshore Business
Last Updated on 4 January 2025
Though lots of folks know about US LLCs, **UK LLPs** (*Limited Liability Partnerships*) often slip under the radar, even though they offer special perks, especially for **people** with clients in the EU.
This article provides an introduction to UK LLPs, their advantages, and their potential drawbacks, allowing you to make an informed decision about whether this business entity could be suitable for your needs.
What is a UK LLP?
In the offshore business world, two types of companies predominantly stand out: US LLCs and UK LLPs.
The UK LLP, or Limited Liability Partnership, is a type of business entity that allows its owners to limit their liability, ensuring it cannot be compromised in the event of bankruptcy.
There are other options, such as LTDs (Limited Company) and SLPs (Scottish Limited Partnership). While the SLP can be an interesting option, it’s generally agreed that the LLP is the superior choice.
Taxation Applied to LLPs
The taxation system applied to LLPs is one of fiscal transparency. This means that the LLP’s earnings will be taxed as income tax, apportioned to each member based on their capital share percentage.
For instance, if two Spanish individuals, Diego and Mateo, each hold a 50% partnership in a UK LLP that made a profit of 250,000 euros in 2022, each partner would be taxed on their share of the capital: 125,000€ per partner.
If Diego is a tax resident of Estonia and Mateo is a tax resident of Dubai, Diego would be taxed according to Estonia’s progressive tax rate (at 20%), while Mateo would not be taxed at all, as Dubai does not impose an income tax.
Advantages of the LLP
Flexible Taxation
As mentioned above, LLPs are taxed at the member level, allowing for tax flexibility. By choosing the right tax residence, it’s possible to achieve a 0% tax rate.
Low Costs
The costs associated with creating and maintaining an LLP are relatively low, with a 500-pound creation fee and an approximately 500-pound annual maintenance fee.
Strong Reputation
The UK is the sixth-largest global economy, and owning a UK business can inspire trust in your partners.
Reduced Stripe Fees
If you charge European clients through Stripe EU, the fees will be significantly lower than with Stripe US. This also applies to many other payment processors, such as 2Checkout.
Access to Stripe with Wise
Unlike Stripe US, Wise functions well with Stripe UK.
Access to UK Banks
An LLP provides access to solid, established banks in England, such as Barclays and HSBC.
While opening an account as a non-resident can sometimes be complicated, some banks allow for remote account opening with a significant initial deposit.
Drawbacks of the LLP
Lack of Anonymity
The beneficiaries of a UK company can be found with a few internet clicks. If you do not want your name publicly associated with your business, an LLP may not be the best choice.
Number of Partners
As the name suggests, an LLP requires at least two partners. Having another business that you own as a partner in your LLP, however, can get around this.
Access to Financing
Similar to the LLC, non-UK residents may find accessing financing challenging. The feasibility of your business depends on its size and nature.
Should You Choose a UK LLP Over a US LLC?
As is often the case in matters of taxation, the answer is: “it depends”.
The choice between the two business forms will depend on various criteria, such as your business activity, the location of your clients, and your country of residence.
However, there are a
A few scenarios in which an LLP might be an interesting choice:
- If you charge clients by credit card (for instance, Stripe and 2Checkout charge lower fees on credit card payments than their US counterparts),
- If most of your business partners are European,
- If your transactions are predominantly in euros
In summary, the choice between an LLP and an LLC will hinge on your unique circumstances.
As always, it’s crucial to consult with a legal or tax expert to understand the potential implications for your business.
The UK LLP, with its flexible taxation and strong reputation, can be an attractive option for many, but it’s important to understand its constraints before making a decision.
