Best set up if I’m tax exempted in my country from offshore profits

[BTCNG]

Hello all
I wish to ask the dear forum members about what you think is the best setup in a certain case.
Assuming I will get an exemption from my home country that I am not paying any taxes deriving from all incomes deriving from outside of my country (only), and that any offshore company that I own will not be subject to the “management and Control” test, meaning even if I will live in my home country a company that I hold offshore will be considered as tax resident in my home country (therefore, AEOI is a not a big issue for me even though I would prefer if there will still be no reporting), what will be the best setup for me. Basically what I need:

• A company or another vehicle that is not liable to taxes (corporate tax and for dividend distribution) in its jurisdiction of incorporation and is incorporated in a stable economic environment.
• Easy setup of such company.
• Preferable that I will be able to open a bank account in the same jurisdiction (which is, as I mentioned – safe) so the clients will be directly to this bank account in the jurisdiction of incorporation.
• Very simple annual returns to be submitted.

I considered a tax haven (like BVI, Cayman etc.) but with the new regulation of the economic substance for these companies and threats to blacklist them, I’m not sure it will be so wise.
I considered Singapore but I discovered that if proceed from clients will be paid directly to the bank account I will open for the company in Singapore will be subject to tax (even though the income is from outside of this jurisdiction, since the income is received in Singapore it will be taxed).
I also considered a Florida/Wyoming/Nevada/Delaware LLC due to the walkthrough tax aspect but I don’t know if it is a good idea since there is some reporting to do on annual basis plus there a (I know – rather small) chance of blacklisting and also I think opening a bank account for it might be an issue (please correct me if I’m wrong).

What do you think?
Which country for corporate or other vehicle would you suggest?

 

[Artemis Eleutheria]

Any transparent entity will do ... preferably set up onshore, ie not in a tax haven. Canadian LP, US LLC, UK partnerships, etc.

Do yourself a favour and get some real advice before proceeding though as both banking and fiscal residence certificates, if needed, may become stumbling blocks. At least if you are looking at serious $.

On the other hand, attacks by the taxman are not necessarily avoided by abiding to the various and self-contradictory laws our dear rulers have put in place to fleece us.

 

[BTCNG]

Any transparent entity will do ... preferably set up onshore, ie not in a tax haven. Canadian LP, US LLC, UK partnerships, etc.

Do yourself a favour and get some real advice before proceeding though as both banking and fiscal residence certificates, if needed, may become stumbling blocks. At least if you are looking at serious $.

On the other hand, attacks by the taxman are not necessarily avoided by abiding to the various and self-contradictory laws our dear rulers have put in place to fleece us.

Thanks!
Can someone shed light on pros and cons for each of these :
Canadian LP
US LLC
UK partnerships

In terms of:
A. Easy set up.
B. Easy bank account opening in the same jurisdiction.
C. Annual statements/returns and legal stuff
D. Inexpensive.

Which of these will be easier to manage and handle?

Also, for LLC - which jurisdiction will be the best (Florida/Wyoming/Nevada/Delaware).

As Im not going to face any fear in my home country, I prefer the most hassle-free setup.

 

[Artemis Eleutheria]

You need specific advice as relates to your situation to minimize risk. You are unlikely to want to share that what is required here... and ill adviced to accept any advice dished out here on an open forum

 

[BTCNG]

You need specific advice as relates to your situation to minimize risk. You are unlikely to want to share that what is required here... and ill adviced to accept any advice dished out here on an open forum

I perfectly agree!
However, before I approach a professional and get a paid advice I always prefer to study the materials and hear other opinions. This forum holds very experienced and wise people, so I will appreciate any ideas and guidance on my questions.

 

[Outlander]

I considered a tax haven (like BVI, Cayman etc.) but with the new regulation of the economic substance for these companies and threats to blacklist them, I’m not sure it will be so wise.

The Economic Substance Act applies for certain categories of activities only, e.g. insurance, banking, holdings, shipping, etc. It doesn't apply to e-commerce, for example.

I considered Singapore but I discovered that if proceed from clients will be paid directly to the bank account I will open for the company in Singapore will be subject to tax (even though the income is from outside of this jurisdiction, since the income is received in Singapore it will be taxed).

True, but a Singapore company can open a bank account elsewhere (e.g., Hong Kong) without much trouble. Why do you have to have the account and the company in the same jurisdiction? This shouldn't be a stumbling block.

I also considered a Florida/Wyoming/Nevada/Delaware LLC due to the walkthrough tax aspect but I don’t know if it is a good idea since there is some reporting to do on annual basis plus there a (I know – rather small) chance of blacklisting and also I think opening a bank account for it might be an issue (please correct me if I’m wrong).

I don't know about blacklisting of US states but that would be laughable at best. US is an economic superpower and what applies to them, doesn't apply to others. It's politically unwise to strangle US companies and the association of hypocritical tax regulators knows that very well.

 

[KJK]

Move out of your country Or at least mention what that country is! At least from your post it seems you're not US citizen which is good.

Without that, giving advice may not be very useful for you. Forming company is probably the easiest (or at least the first) step but not the only step.

 

[Debrog]

Are you from a certain country in North Africa ? It's the only one I can think about where offshore profits are exempted from tax (Exportation de service)

 

[BTCNG]

Move out of your country Or at least mention what that country is! At least from your post it seems you're not US citizen which is good.

Without that, giving advice may not be very useful for you. Forming company is probably the easiest (or at least the first) step but not the only step.

Yep,
No US, nor EU.

Same country bank account is not a must. It just that the account will be reported to anyone even if it will considered as Passive NFE.

 

[Tax Cow]

Canada LP/LLP is priced at a premium yet it has no local banking options for non-resident businesses. Absence of proper filing requirements is not quite enough to incorporate there. If someone knows of high rep banking options for a Canada LP/LLP in or out the country, I'd be glad to accept your PM.

When compared to US, you could argue that Canada has a little edge when it comes to reputation (esp. in EU), but you do not have to incorporate your US LLC in Delaware. Instead, open your US LLC in Alaska to avoid the negative tax haven associations. Alaska has the same tax benefits for non-resident businesses but the media has not ruined its' reputation.

If you're up for an annual fee which can range from $25 to $4,500, depending on your LLC's income, and a little more stringent filing requirements, I'd even recommend to incorporate your non-resident US LLC in New York. Nobody will assume New York can be just as slutty when it comes to tax incentives

1. Canada LP/LLP -> Trash due to lack of quality banking as of 2019. Over-priced 4/10 pu**y that wants to be paid like it's 8/10.
2. US LLC Delaware -> OK in terms of tax and banking, but is well known as the biggest slut in town. Do not use unless you need to raise capital, and if you do need to raise capital, then you incorporate as INC. Overall, worth the money - 7/10
3. US LLC Alaska -> Same as Delaware but this state is known as a good loyal housewife. 9/10
4. US LLC New York - Even more of a good house wife impression than Alaska but there's a price premium. If it's a 500K+ p.a business, go for NY LLC. Would rate it 9/10

 

[BTCNG]

Much appreciated!
So, LLC it is.
Couple of clarifications, if I may ask :
1. If the business is anyway not paying taxes in the US, what difference does it make if it is a 500k, 100k or 1M (regarding you last comment). Pricy is pricy, isn't it?
2. What are the annual filing/returns requirements of these LLC's? I saw in the forum its forms called 5472 and 1120. Are there any other things? Can I do all myself online?
3.What are the chances to open a bank account in the US for them and in which banks it would be easier? Does it better to take an advisor for it or do it by myself (I understand that anyway I need to travel there). Will it be easier to open a bank account in Alaska if the LLC is established in Alaska?
4. Is EIN a must for opening a bank account?
5. If there will be any kind of legislation against LLC in the US, what difference will it make between Alaska, New York or Delaware? I guess it will affect all the LLC industry, wont it?

 

[Tax Cow]

I agree, as of 2019, New York LLC is arguably the best offshore business jurisdiction.

A. The best reputation any US state has to offer
B. USD Banking is easy. BoA, Wells Fargo, TD etc. - all are available. Only problem is the absence of multi currency banking - for which you must either have a 7-figure turnover, or find a bank outside the US. This issue is not limited to New York LLCs or resident/non-resident status. US banks just are not known for quality multi currency banking services.
C. No CIT/PIT (on federal or state level) if no ECI is derived from the US and the member of LLC is a non-U.S person

You still pay $25 - $4,500 p.a government fee, depending on a series of tests and circumstances (consult a lawyer for details, it will be a 30 minute consultation), but even the maximum of 4.5K p.a is a great deal considering the benefits.

 

[Tax Cow]

Your questions

1) If it's a serious non-resident LLC with respectable profit, i.e. $500K per year, it's well worth to pay more and go for the best reputation the US has to offer instead of going for the cheaper or less stringent watering holes which carry an inferior reputation.

2) There's a little more filing. You should consult a CPA that works specifically with non-US persons. Even if you do nothing yourself, annual filing expenses are likely to remain under $1,000. If price is a concern, let your CPA do the first few years for you and provide you copies. Study the copies and if you understand what's going on, you can do the upcoming years yourself. Beware that US can impose fines for wrong or missing filings, so be sure you know what you're doing before you file on your own.

3) New York has better banking options than Alaska. Your odds and outcome is the best if you travel to state of incorporation, and open your account with a local branch. Not all banks have presence in Alaska where as virtually all big banks have presence in New York. Big banks are relevant because they work with non-resident business owners. Small banks are paranoid and/or lack competence to deal with compliance. Subject to banks' internal policy, you may be able to open an account for your LLC in another US state, but even then, most banks require a mailing (mail forwarding) address in the state where the bank branch which opened your account is located - it's another layer of complexity you want to avoid.

4) Yes, get your business EIN before you attempt to open a business account.

5) Most states have harmonized their LLC laws with the federal law. There are state-by-state variances to charging order protections, filing fees, and filing requirements (i.e. annual, biennial). But most importantly, there are variances in reputation, and variances in availability of quality banking services.

The federal laws covering LLCs are unlikely to change that much. But if they do, they will affect all states. LLC is a very popular small business form and no politician in their right mind would suggest to outlaw them.

As some US states are struggling financially, it's quite possible we'll see attempts, not by the fed, but by individual states to squeeze a little more out of LLC owners, resident or not. The state of Nevada recently did that. In that regard, Alaska has a little advantage over New York because they run a budget surplus which in effect is an insurance policy against more state fees

 

[BTCNG]

Well understood!
What would you say about incorporating LLC in the state of Florida.
I understood that there is no personal income tax there (which kind of give you a future assurance if things change).
It is also ranked high here :

2024 State Business Tax Climate Index

In recognition of the fact that there are better and worse ways to raise revenue, our Index focuses on how state tax revenue is raised, not how much. The rankings, therefore, reflect how well states structure their tax systems.

taxfoundation.org

What is your view about it?

PS - New York is ranked rather low...

 

[Tax Cow]

@BTCNG

This business climate index was clearly put together with US tax payers and local businesses in mind. It has no relevancy for us. Are you a US person, or do you have ECI in US? Or do you want to invest in US real estate? Then your best set up would be radically different indeed.

As a non-US person with no ECI, you get very similar pros and cons in most states. This makes the states' reputation and banking options alongside state fees and filing requirements the most relevant deciding factors. Tax rates do not matter at all. Florida seems like another solid choice.

 

[BTCNG]

So Flroida LLC seems the best for me as it looks.
To clarify - in case the LLC is going to get income from abroad (meaning not from the USA) for cunsultancy that was done from outside the USA (meaning - no relation to the USA whatsoever - of me as I'm not a US citizen or US resident, of the place of doing the business, and of the income), but only relation to the USA is the fact it is USA LLC (for example in Florida) and that the clients will actually pay to a US bank account of this LLC, will these incomes be totally exempt from US taxes (Federal and Local, in case it is in Florida)?

 

[Tax Cow]

@BTCNG

Yes.

Furthermore, there's a lot of misconception of what "US source income" and ECI mean. You can sell to US clients (physical goods and services), and not pay CIT or PIT in US.

US Source Income != US Client Pays You

Both, tax lawyers and CPAs frequently get it wrong.

 

[Artemis Eleutheria]

Canada LP/LLP is priced at a premium yet it has no local banking options for non-resident businesses. Absence of proper filing requirements is not quite enough to incorporate there. If someone knows of high rep banking options for a Canada LP/LLP in or out the country, I'd be glad to accept your PM.

I would say the Ontaria LP with a US bank account would seem to be a better solution. No filing risks, account outside CRS. Transferwise will even set up your US account without going there . I think ML BofA in NYC is still playing ball with Canada, although they have shut down most of their offshore clients by now.

 

[Tax Cow]

I would say the Ontaria LP with a US bank account would seem to be a better solution. No filing risks, account outside CRS. Transferwise will even set up your US account without going there . I think ML BofA in NYC is still playing ball with Canada, although they have shut down most of their offshore clients by now.

I like all here except the Transferwise part. If BoA or other real banks in the US are known to accept this, then CA has just grown itself a much bigger pair of tits. Seems like it's still 50/50, not 95/5 in odds of opening? Do you have a little more information about the requirements to be given a serious consideration with a Canada LP?

Then the only issue with Canada LP would be the risk that at one point we lack the means to prove funds are from legitimate sources (assuming we opt for comfort and not file). Since I frequently run into AML checks due to cross-border investment activities, I generally file even when there is no requirement so that I'm covered for any source of funds harassment by the FIs.

 

[Artemis Eleutheria]

The main risks from my point of view is that the Taxmen anywhere along the chain may choose to take you to the cleaners by ignoring the legal niceties, or "piercing the corporate veil", "judging the setup a sham" or however they will name it.

ML BofA has take out the dirty laundry over the last few years ...including yours truly, so I would concur in the 50-50 assessment.