International Business

Expanding to Texas: Key Tax and Legal Considerations for UK Companies

Guidance for English and Scottish Businesses from Vanguard Legal PLLC

At Vanguard Legal PLLC, with offices in Houston and Dallas, we advise UK-based companies — including those from England and Scotland — on the legal, tax, and commercial considerations involved in expanding into the United States. Texas, with its business-friendly environment, low taxes, and thriving energy, technology, and financial sectors, continues to attract leading UK enterprises and investors.

Today, numerous prominent UK-based companies maintain significant operations in Texas, from energy majors and engineering firms to financial services providers and technology innovators. For British businesses, Texas offers not only scale and opportunity but also a welcoming regulatory environment and a shared commitment to innovation and entrepreneurship.

However, successful expansion requires careful planning to address the U.S. and UK tax implications, entity structuring, and compliance obligations that come with cross-border operations.

Choosing the Right U.S. Entity Structure

The choice of U.S. entity is one of the most important tax and legal decisions for UK companies expanding to Texas. Common U.S. business forms include corporations and limited partnerships (LPs).

While LLCs are popular among American business owners, UK investors should generally avoid forming or investing through a U.S. LLC. This is because of ongoing uncertainty in how His Majesty’s Revenue & Customs (HMRC) treats LLCs for UK tax purposes.

The Anson Case and HMRC’s Approach to LLCs

In the Anson v. HMRC decision, UK courts examined whether income earned through a U.S. LLC could qualify for double tax relief. The result created uncertainty: HMRC does not uniformly treat U.S. LLCs as transparent or opaque entities. As a result, UK shareholders may be denied foreign tax credits, leading to potential double taxation on U.S. profits.

For this reason, UK investors are often better served by forming a U.S. C corporation or, in the case of closely held ventures, a limited partnership, depending on the nature of the business and ownership structure.

The U.S.–UK Income Tax Treaty

The U.S.–UK Income Tax Treaty is one of the most comprehensive tax treaties maintained by the United States. It provides significant benefits for British companies operating in Texas, including:

Reduced withholding tax rates on cross-border payments (generally 5% on qualifying dividends, 0–10% on interest, and 0% on royalties in many cases);
Exemptions from U.S. taxation on business profits where no permanent establishment (PE) exists in the United States;
Relief from double taxation through reciprocal foreign tax credits; and
Improved certainty for transfer pricing and dispute resolution through mutual agreement procedures.

These treaty provisions make it easier for UK companies to repatriate profits efficiently and structure their U.S. operations in a tax-efficient manner.

Recent UK–U.S. Trade Developments

In recent years, the United Kingdom and United States have strengthened bilateral trade cooperation through sector-specific agreements and memoranda of understanding. While a comprehensive free trade agreement has yet to be finalized, the UK and several U.S. states — including Texas — have entered trade and investment accords designed to encourage cross-border collaboration, particularly in energy, technology, life sciences, and advanced manufacturing.

Texas remains one of the leading U.S. destinations for British foreign direct investment (FDI), supported by its low regulatory burden, central location, and growing transatlantic business community.

Understanding U.S. Withholding Tax Rules

Under U.S. tax law, payments from a U.S. entity to a foreign recipient may be subject to withholding taxes, which can often be reduced or eliminated under the U.S.–UK tax treaty:

Dividends: The treaty generally reduces the U.S. withholding tax on dividends to 5% for qualifying corporate shareholders, or 15% for other shareholders.
Interest: Withholding on interest payments is often reduced to 0% for most arm’s-length, non-contingent interest payments to UK residents.
Royalties: Most royalties paid from the U.S. to a UK entity are also subject to a 0% treaty rate, provided beneficial ownership and documentation requirements are met.

Proper completion of IRS Form W-8BEN-E and beneficial ownership certifications is essential to claim these treaty benefits.

Permanent Establishment Considerations

Under the U.S.–UK tax treaty, a UK company is generally taxed in the United States only if it maintains a “permanent establishment” (PE) — such as a fixed place of business, branch, or dependent agent.

Texas-based operations that involve warehousing, marketing, or sales activity can sometimes create a PE, triggering U.S. income tax obligations. Structuring contracts carefully and using independent distributors can often reduce the risk of unintentional PE exposure.

Transfer Pricing Compliance

Both the United States and the United Kingdom have strict transfer pricing rules requiring that related-party transactions (e.g., between a UK parent and a U.S. subsidiary) be conducted at arm’s length.

Failure to maintain proper transfer pricing documentation can result in income adjustments and penalties in both jurisdictions. Companies should ensure that intercompany agreements — covering management fees, royalties, and cost-sharing — are well-documented, supported by economic analysis, and updated regularly.

Other Legal and Tax Best Practices for UK Companies Expanding to Texas

State and Local Tax Planning: Texas has no corporate income tax but imposes a franchise (margin) tax on gross receipts, which can apply to both U.S. and foreign-owned entities.
Employment and Immigration Compliance: UK firms hiring or transferring employees to the U.S. should plan early for visa sponsorship and local employment law compliance.
Insurance and Risk Management: Evaluate U.S. liability coverage, including directors’ and officers’ insurance, to align with U.S. legal exposure.
Intellectual Property Protection: Register key trademarks and patents in the United States, as UK protections do not automatically extend across the Atlantic.
Accounting and Reporting: Align U.S. GAAP and UK GAAP reporting for consolidated financial statements and tax compliance.

Leadership and Transatlantic Expertise

Vanguard Legal PLLC founding attorney Doug McCullough is a GlobalScot — a network of Scottish business leaders and advisors promoting international investment — and an active member of the British American Business Council (BABC). His experience advising British and Scottish companies entering the U.S. market provides clients with deep, practical insight into cross-border structuring, international tax, and business formation in Texas.

How Vanguard Legal PLLC Can Help

Vanguard Legal PLLC represents UK companies, entrepreneurs, and investors in all aspects of U.S. market entry and Texas expansion. Our team provides strategic counsel on:

Entity formation and structuring to avoid UK double-taxation risks;
Treaty-based tax planning and withholding optimization;
Transfer pricing compliance between U.S. and UK affiliates;
Cross-border mergers, acquisitions, and joint ventures; and
State and federal tax compliance for Texas operations.

With offices in Houston and Dallas, Vanguard Legal helps British and Scottish businesses expand confidently into one of America’s most dynamic and globally connected economies.