Setting Up a Business in Both the US and UK: Tax

Why Setup Decisions Lock In Your Tax Position for Years

Picture the usual sequence. A US founder builds a SaaS business in Boston. UK customers start signing up. Revenue from the UK side reaches £400,000 in the first year, and the founder decides to open a UK office. A local UK accountant incorporates a UK Limited company. A separate Delaware lawyer sets up the US-side structure. Two years later, the founder discovers that the transfer pricing position on the intercompany licensing arrangement is incorrect, the VAT registration was filed late, the GILTI inclusions on the US side are at 37 percent because no Section 962 election was made, and unwinding the structure requires expensive restructuring work.

Or the reverse. A UK founder builds a fintech product in London. US customers start signing up. Revenue from the US side reaches $600,000, and the founder decides to open a US subsidiary. The UK accountant treats the US-side setup as an afterthought. The US-side CPA never sees the UK parent structure. Six months in, the US C-corp is paying federal tax at 21 percent plus state tax in three states, the UK parent is missing FATCA reporting, and the treaty positioning for intercompany dividend flows was never modeled.

This guide walks through how a US-UK business tax setup specialist approaches the first 60 days of a cross-border business, what the integrated framework looks like, and the specific decisions that determine your effective tax rate for years to come. For a wider view of how we work, see our US-UK cross-border tax advisory service.

What a US-UK Business Tax Setup Specialist Does

Specialist advisers serving newly forming cross-border businesses run both regimes through a single integrated framework before any incorporation paperwork hits the registry. The UK side covers Companies House incorporation under the Companies Act 2006, Corporation Tax registration with HMRC under CTA 2009 and CTA 2010, VAT registration with HMRC under VATA 1994 where applicable, PAYE registration for any UK staff under the Income Tax (Earnings and Pensions) Act 2003, and the appointment of a UK registered office.

The US side covers state-level incorporation (Delaware, Wyoming, or other US states being most common for cross-border setups), Federal Employer Identification Number registration with the IRS, US state tax registration in states where the business has nexus, US sales tax registration where applicable, federal payroll tax setup for any US staff, and the relevant federal tax election filings such as Form 8832 for entity classification or Form 2553 for S-corporation election.

The cross-border framework covers the transfer pricing setup under TIOPA 2010 Part 4 and IRC Section 482, the entity classification election under Treasury Regulations Section 301.7701-3 (check-the-box rules) for how the UK Limited or US LLC will be treated for US tax purposes, the treaty positioning under the US-UK Income Tax Convention 1975 for intercompany flows, and the Controlled Foreign Corporation reporting framework under IRC Sections 951-965. For a US-UK business tax setup specialist, the integrated view matters because every UK structural decision interacts with a US position, and vice versa.

The HMRC business setup guidance sits at . The IRS small business setup guidance sits at .

Why This Matters More Than Ever in 2026

Three developments make 2026 a particularly important year to get cross-border setup right.

First, Making Tax Digital for Income Tax Self Assessment begins on 6 April 2026 for sole traders and landlords with qualifying income above £50,000. New UK businesses with self-employed directors or partners need MTD-compatible bookkeeping software in place from the start rather than retrofitting it later. The HMRC MTD ITSA reference sits at .

Second, the FA 2025 long-term residence framework replaced the UK domicile regime from 6 April 2025. Owner-managers of new UK businesses need to factor the long-term residence trigger into their succession planning from day one. Founders who will be UK-resident for 10 of the preceding 20 UK tax years face UK Inheritance Tax on worldwide assets, including their shareholding in the UK Limited company.

Third, Pillar Two GloBE under FA 2023 Part 3 applies to multinational groups with consolidated revenue above €750 million across at least two of the four prior accounting periods. Fast-growing cross-border businesses can cross the threshold within their first decade. The 15 percent effective rate floor on UK profits adds a planning layer that needs to be designed into the structure from the start. For deeper context, see our Corporation Tax service for US-owned UK companies.

The Three Core Setup Decisions That Drive Your Effective Tax Rate

Subtopic A: Entity Choice on Each Side

The UK side options are relatively narrow. A UK Limited company under the Companies Act 2006 is the standard cross-border vehicle, with the company subject to UK Corporation Tax at a 25 percent main rate above £250,000 of profit, a 19 percent small profits rate below £50,000, and marginal relief between the two bands. The thresholds are calculated based on the number of associated companies under FA 2022 Section 6. A UK Limited Liability Partnership under the Limited Liability Partnerships Act 2000 is a transparent vehicle for UK tax purposes, with the partners taxed personally. A UK branch of a foreign company is taxable in the UK only on the UK-source profits attributable to the branch under the UK permanent establishment rules.

The US side options are wider. A Delaware C-corporation is the standard structure for US operations, subject to federal Corporation Tax at 21 percent plus state tax in the state of incorporation and any state where the company has nexus. A Delaware Limited Liability Company can elect to be treated as a corporation, a partnership, or a disregarded entity under the check-the-box rules in Treasury Regulations Section 301.7701-3. An S-corporation under IRC Section 1361 is available only to US-resident shareholders and small businesses meeting specific eligibility tests. A US partnership under IRC Subchapter K is a transparent vehicle for US tax purposes.

The interaction between UK and US entity choices is at the heart of the US-UK business tax setup specialist work. A UK Limited company owned by a US C-corporation produces a clean CFC structure with predictable GILTI inclusions and Section 250 deduction benefits. A UK Limited company owned by individual US shareholders triggers GILTI inclusions at individual marginal rates unless the Section 962 election is made. A US LLC owned by a UK Limited company creates check-the-box election decisions that affect the US-side classification and the UK-side recognition of the income flow.

Subtopic B: Transfer Pricing Position on Intercompany Flows

Once both entities are in place, intercompany flows between them require arm's length pricing under TIOPA 2010 Part 4 on the UK side and IRC Section 482 on the US side. Standard intercompany flows in a cross-border business include royalty payments for IP licensed between the entities, management fees for shared services such as executive oversight or technical support, intercompany loan interest where one entity funds the other, intra-group service charges for shared functions such as HR or finance, and cost-plus pricing on goods or services supplied between the entities.

Documentation thresholds apply to larger groups. Local File and Master File documentation under OECD BEPS Action 13 is required for groups with consolidated revenue above €750 million annually. Smaller cross-border businesses still need to support their intercompany pricing with benchmarking evidence, even if they fall below the formal documentation threshold.

The transfer pricing position needs to align on both sides. A royalty rate accepted by HMRC at 8 percent of UK revenue but reported on the US side at 12 percent creates a documentation gap that attracts scrutiny on both sides. HMRC's transfer pricing guidance is available at .

Subtopic C: VAT, Sales Tax, and Indirect Tax Registration Timing

UK VAT under VATA 1994 applies at a 20 percent standard rate to most goods and services supplied in the UK. UK businesses with UK-source taxable turnover above £90,000 in any rolling 12-month period must register for VAT with HMRC. The registration threshold catches many cross-border businesses earlier than expected because UK customer revenue grows faster than US founders typically project.

Voluntary VAT registration below the threshold is available and often makes sense for cross-border businesses with UK customers who can recover the input VAT on UK overhead expenses. The trade-off is administrative burden against the cash flow benefit of recovering input VAT.

US sales tax varies state by state. Each state has its own nexus rules determining when an out-of-state business must register and collect sales tax. The Wayfair decision (South Dakota v. Wayfair, Inc., 2018) established economic nexus thresholds in most states, typically $100,000 of sales or 200 transactions per state. Cross-border businesses with US customer revenue need state-by-state nexus analysis to determine registration obligations.

The interaction between UK VAT and US sales tax requires careful setup. A UK Limited company selling SaaS to US customers may or may not have US sales tax obligations, depending on the customer's state and the SaaS taxability rules in that state. A US C-corporation selling SaaS to UK customers may need to register for UK VAT once it crosses the £90,000 threshold, even though it has no UK physical presence, depending on the place of supply rules.

Step-by-Step: How a Specialist Sets Up a Cross-Border Business

Step 1: Run the entity structure diagnostic. Map the founders' tax residences, the customer locations, the IP ownership intentions, the staff plans, and the funding plans. The diagnostic identifies the optimal entity structure on both sides before any incorporation paperwork is filed.

Step 2: Incorporate the UK entity with Companies House. UK Limited company incorporation under the Companies Act 2006 with Companies House. The incorporation requires a UK-registered office, at least one director, a share capital structure, and articles of association. Most cross-border setups use standard model articles with customization around director powers and share class structure.

Step 3: Incorporate the US entity in the chosen state. Delaware C-corporation incorporation is most common for cross-border setups due to the flexibility of Delaware corporate law and investor familiarity. The incorporation requires a registered agent in Delaware, a certificate of incorporation, and corporate bylaws. Other states (Wyoming, Nevada, Texas) may be appropriate depending on specific circumstances.

Step 4: Register both entities for their respective tax obligations. UK Corporation Tax registration with HMRC within 3 months of the UK trading start. UK VAT registration if turnover exceeds the £90,000 threshold or voluntary registration where it makes sense. UK PAYE registration for any UK staff. US Federal Employer Identification Number registration with the IRS. US state tax registration in states where the business has nexus. The IRS EIN registration page sits at .

Step 5: Set up the entity classification election where applicable. US LLC owners file Form 8832 if they want corporate treatment instead of the default disregarded entity or partnership treatment under the check-the-box rules. The classification election affects the US-side reporting and the UK-side recognition of the income flow.

Step 6: Establish transfer pricing positions on intercompany transactions. Royalty rates for IP licensed between—managementties—management fees for Intercompany. An intercompany interest occurs when one entity funds another. Intra-group service charges. Benchmarking studies support each position, and Local File documentation captures the analysis for larger groups.

Step 7: Set up integrated bookkeeping covering both regimes. MTD-compatible UK bookkeeping software, such as Xero, QuickBooks, or Sage, covers UK Corporation Tax and VAT obligations. The same platform feeds the US-side reporting through appropriate intercompany allocation and consolidation. Cloud receipt capture through Dext or Hubdoc satisfies both UK and US record retention requirements.

Step 8: Apply treaty positioning on intercompany cash flows. Withholding tax on intercompany dividends, interest, and royalties is reduced to treaty rates under Articles 10, 11, and 12 of the US-UK Income Tax Convention 1975. UK companies paying dividends to US parents claim the reduced rate by filing the appropriate UK withholding form. US companies paying dividends to UK parents claim treaty rates through Form W-8BEN-E.

Case Study: A UK SaaS Founder Setting Up US Operations Through a Delaware C-Corp

Maple Analytics is a fictional but representative profile based on a typical engagement. The London-based SaaS founder had built a successful UK fintech product over the course of 3 years. UK turnover reached £1.8 million by 2025 with strong UK customer concentration. US customer inquiries had been growing and accounted for roughly £420,000 of pipeline revenue. The founder wanted to establish a US presence to serve US customers effectively and access US investor capital.

The founder approached us in early 2025, before any US-side incorporation. The diagnostic identified four key decisions—first, the entity structure. We recommended a Delaware C-corporation as the US-side vehicle, owned 100 percent by the existing UK Limited parent company. The C-corp would handle US customer contracts, US sales and marketing, and US support operations. Second, the intercompany licensing arrangement. The UK parent would license the core SaaS platform IP to the US subsidiary at an arm's length royalty rate, supported by a benchmarking study. We set the initial rate at 9 percent of US subsidiary revenue, in line with comparable SaaS licensing arrangements. Third, the transfer pricing documentation. We prepared a Local File covering intercompany licensing, the management fee charged by the UK parent for executive oversight, and cost-plus pricing for shared technical resources. Fourth, the US-side tax registrations. Delaware Corporation Tax registration. Federal EIN registration with the IRS. California, New York, and Texas state tax registrations are based on initial customer concentration and the Wayfair economic nexus thresholds.

The US subsidiary launched in mid-2025 with two US-based staff and a small US sales presence. The UK parent retained ownership of the core IP, provided technical support and executive oversight through the management fee arrangement, and received royalty payments at 9% of US revenue. UK Corporation Tax on the UK parent profits ran at the 25 percent main rate, with full expensing on UK capital equipment and merged R&D scheme credits reducing the effective UK rate. US federal Corporation Tax on the US subsidiary was 21 percent on US net profit after royalty and management fee deductions. The combined US-UK effective rate for the integrated operation was approximately 22.5 percent.

Without a specialist setup, the founder would likely have incorporated the US subsidiary as an LLC owned by individual shareholders, triggering personal US tax exposure on the US subsidiary income at individual marginal rates without the option of the Section 962 election. The royalty rate would have been set at a convenient round number without benchmarking, exposing the structure to transfer pricing scrutiny. The state tax registrations would have been incomplete, with backdated tax liabilities surfacing in states where the business had crossed nexus thresholds without registering.

The case shows the standard pattern for UK founders setting up US operations. The first 60 days of structural decisions determine the effective tax rate for years to come. A US-UK business tax setup specialist running both sides together captures the right structure from the start.

Common Mistakes Founders Make Without Specialist Setup Support

Incorporating the second entity before running the cross-border diagnostic. The most expensive mistake is filing incorporation paperwork on the second side without first running the full structural analysis. A UK Limited company under a US LLC produces different outcomes from a US C-corp under a UK Limited. Founders who incorporate first and ask questions later typically need expensive restructuring within two years.

Choosing the wrong US entity type for the cross-border ownership pattern. US S-corporations under IRC Section 1361 are not available to non-US-resident shareholders, which rules them out for UK-resident founders. US LLCs default to partnership or disregarded-entity treatment under check-the-box rules, which can produce unexpected US tax consequences for UK-resident owners. A Delaware C-corporation is usually the right choice for cross-border ownership, but the analysis must be conducted on a case-by-case basis.

Setting transfer pricing rates without benchmarking documentation. Royalty rates, management fees, and intercompany loan interest all require arm's-length pricing supported by benchmarking studies. Convenient round numbers like 10 percent or 15 percent without analysis expose the structure to HMRC transfer pricing adjustments and potential double taxation under TIOPA 2010 Part 4.

Missing US sales tax registration in states where economic nexus has been triggered. Each US state has its own nexus rules determining when an out-of-state business must register and collect sales tax. The Wayfair decision established economic nexus thresholds in most states, typically $100,000 of sales or 200 transactions per state. Cross-border businesses with US customer revenue need state-by-state nexus analysis from the start.

Failing to coordinate the UK VAT registration timing with the US sales tax setup. UK businesses with UK-source taxable turnover above £90,000 in any rolling 12-month period must register for VAT with HMRC. The registration threshold catches many cross-border businesses earlier than expected. Voluntary VAT registration below the threshold can also make sense for cross-border businesses that need to recover input VAT on UK overhead expenses. HMRC's VAT registration guidance is available at .

Missing the Section 962 election for individual US shareholders of UK CFCs. Individual US shareholders of UK Limited companies are subject to GILTI under IRC Section 951A on the UK company's tested income each year. Without the Section 962 election, GILTI is subject to the individual marginal rate, up to 37 percent federal plus state tax. The election typically eliminates the US individual tax overlay by absorbing the foreign tax credit against UK Corporation Tax already paid.

How US-UK Tax Helps You Set Up Your Cross-Border Business

US-UK Tax holds CIOT credentials and ACCA membership, with team members holding IRS Enrolled Agent status for US-side representation. As US UK business tax setup specialist advisers, we handle integrated structural diagnostics, UK Limited company incorporation with Companies House, US C-corporation incorporation in Delaware or other relevant states, Federal EIN registration with the IRS, UK Corporation Tax and VAT registration with HMRC, UK PAYE setup, US state tax and sales tax registration analysis, entity classification elections under Form 8832 where applicable, S-corporation elections under Form 2553 where appropriate, transfer pricing benchmarking and documentation under TIOPA 2010 Part 4 and IRC Section 482, and the integrated US-UK Income Tax Convention treaty positioning on intercompany cash flows.

Engagements run across three streams. First, the pre-incorporation diagnostic covering founder residence analysis, entity structure recommendation on both sides, transfer pricing concept design, customer location and tax registration analysis, and the full first-year tax modeling against the proposed structure. Second, the incorporation and registration, UK Limited or Delaware C-corp incorporation, all required tax registrations on both sides, entity classification elections, and the initial transfer pricing setup. Third, ongoing annual compliance with the UK CT600 alongside US Form 1120, including all supporting forms and schedules, transfer pricing documentation refresh, year-end planning, and coordination with the founder's personal tax position on both sides.

For more on how we work, see our US-UK cross-border tax advisory service and our Corporation Tax service for US-owned UK companies. Get in touch with our team today at or visit to discuss your situation.

Conclusion

Three takeaways. First, a US-UK business tax setup specialist's advice in the first 60 days of a cross-border business determines the effective tax rate for years to come, and the structural decisions you make at incorporation are far cheaper to get right at the start than to fix through later restructuring. Second, the three core setup decisions are entity choice on each side (UK Limited, US LLC, or Delaware C-corp), transfer pricing for intercompany flows (royalty rates, management fees, intercompany loan interest), and VAT and US sales tax registration timing. Third, MTD ITSA from April 2026, Pillar Two GloBE for larger groups, and the FA 2025 long-term residence framework all make integrated specialist support more valuable in 2026 than ever before. Get in touch with our team today at or visit to discuss your situation.

Frequently Asked Questions

Q: What is the best entity structure for a US founder opening a UK subsidiary?

The standard cross-border structure is a UK Limited company owned by the existing US C-corporation parent. The UK Limited handles UK trading operations under UK Corporation Tax at the 25 percent main rate. The US C-corp parent includes the UK subsidiary on its consolidated GILTI inclusion under IRC Section 951A, with Section 250 deduction reducing the effective GILTI rate to approximately 10.5 percent. The foreign tax credit on Form 1118 offsets the UK Corporation Tax already paid against US tax on the same profit.

Q: What is the best entity structure for a UK founder opening a US subsidiary?

A Delaware C-corporation owned by the existing UK Limited parent is usually the right structure. The Delaware C-corp pays US federal Corporation Tax at 21 percent on US net profit, plus state tax in Delaware and any state where the business has nexus. UK CFC reporting applies to the UK parent side. Treaty positioning under Article 10 of the US-UK Income Tax Convention reduces withholding tax on dividends paid by the US subsidiary to the UK parent.

Q: When does my UK business need to register for VAT?

UK businesses with UK-source taxable turnover above £90,000 in any rolling 12-month period must register for VAT with HMRC under VATA 1994. Voluntary VAT registration below the threshold is also available and often makes sense for cross-border businesses that need to recover input VAT on UK overhead expenses. Registration must be completed within 30 days of crossing the threshold. The HMRC VAT registration page sits at .

Q: When do I need to register for US sales tax in different states?

Each US state has its own nexus rules determining when an out-of-state business must register and collect sales tax. The Wayfair decision (South Dakota v. Wayfair, Inc., 2018) established economic nexus thresholds in most states, typically $100,000 of sales or 200 transactions per state. Cross-border businesses with US customer revenue need state-by-state nexus analysis to determine registration obligations and timing.

Q: What is the check-the-box election, and when does it apply?

The check-the-box election under Treasury Regulation Section 301.7701-3 allows eligible business entities to choose how they will be treated for US federal tax purposes. A US LLC can elect to be treated as a corporation, a partnership, or a disregarded entity. A foreign business entity, such as a UK Limited, can also make a check-the-box election to be treated differently from its default US classification. The election is filed on Form 8832. The IRS check-the-box reference sits at .

Q: How does transfer pricing work between UK and US entities?

Transfer pricing under TIOPA 2010 Part 4 on the UK side and IRC Section 482 on the US side requires arm's-length pricing for intercompany transactions. Standard intercompany flows include royalty payments for IP licensed between the entities, management fees for shared services, intercompany loan interest, and intra-group service charges. The arm's length standard follows the OECD Transfer Pricing Guidelines. Groups with consolidated revenue above €750 million annually need Local File and Master File documentation under OECD BEPS Action 13.

Q: How long does it take to set up a cross-border business properly?

A typical US-UK business setup engagement runs for 6 to 10 weeks, from initial diagnostics to a fully operational structure. The first 2 weeks cover the diagnostic and structural recommendations. Weeks 3 to 5 cover incorporation on both sides and the initial tax registrations. Weeks 6 to 8 cover the transfer pricing setup and entity classification elections. Weeks 9 to 10 cover the integrated bookkeeping setup and the first quarter operational planning. Faster turnarounds are possible for simpler structures.

Q: Can the US-UK Tax handle our full cross-border business setup?

Yes. This is a core practice area for our specialist team. We handle the pre-incorporation diagnostic, UK Limited company incorporation with Companies House, US C-corporation incorporation in Delaware or other states, Federal EIN registration with the IRS, UK Corporation Tax and VAT registration with HMRC, UK PAYE setup, US state tax and sales tax registration analysis, entity classification elections, transfer pricing benchmarking and documentation, and the ongoing annual compliance with UK CT600 alongside US Form 1120. Fees for a typical cross-border setup engagement run £6,500 to £18,000, depending on complexity. Contact to discuss your situation.