Do foreign subsidiaries of US companies have to file and pay US taxes? What about UK specifically?

Foreign subsidiaries of US companies have their own tax requirements that can get complicated. Generally, a UK subsidiary would be its own legal entity that pays UK taxes on its UK income. The US parent company might need to report worldwide income, but there are mechanisms to prevent double taxation. Your uncle and aunt should look into Subpart F income rules, GILTI (Global Intangible Low-Taxed Income), and the foreign tax credit. These determine how and when foreign income gets taxed in the US. The UK-US tax treaty also provides some protections. Since they're just starting out, they should definitely consult with a tax professional who specializes in international business taxation. The structure they choose now will have big implications for taxes later.

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One thing to consider is whether to structure as a subsidiary or branch. They have different tax implications. A subsidiary is a separate legal entity subject to UK tax, while a branch is more directly connected to the US parent. For a photography business, the income might be considered FDII (Foreign-Derived Intangible Income) if services are provided to non-US clients, which has tax incentives. The 2017 tax reform changed a lot of these rules.

I went through this exact thing with my consulting business last year. The UK subsidiary ended up being its own corporation that paid UK taxes, but we still had to deal with US tax implications. The most annoying part was filling out Form 5471 - it's super complicated and the penalties for doing it wrong are insane (like $10k+ per form)!

This is exactly the kind of complex international tax situation where getting professional help early can save you thousands down the road. Based on what others have shared here, it sounds like your uncle and aunt will definitely need to understand CFC rules, Form 5471 requirements, and how the US-UK tax treaty applies to their specific situation. One thing I'd add is to consider the timing of when they set up the UK subsidiary. If they're expecting losses in the first year or two (which is common with international expansion), the branch vs subsidiary decision becomes even more important for tax planning. With a branch, those UK losses might be deductible against US income immediately, while with a subsidiary they'd be trapped until the subsidiary becomes profitable. Also, make sure they understand the compliance deadlines - some of these international forms have earlier due dates than regular corporate returns, and the penalties for missing them are brutal. The IRS takes foreign reporting requirements very seriously.