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Broker account + offshore company

MrXY000

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Hi Everyone, newbie here ;)

I'm hoping someone can help me with a question I have about taxes and a broker account. Currently I have an Interactive Brokers account that I opened in my name but where I am tax resident doesn't have a double taxation agreement with the US so when I receive dividends from US companies (and other countries) they withhold 30% at source.

What are my options in terms of setting up an offshore structure/company so that I don't have to pay any of these taxes and I receive the full amount for the dividend? Are there any options?

If you need any further info let me know if it will help.

Thank you,
BW
 
If I'm not wrong, there is no legal way to do it when it comes to US stocks. Maybe you could lower the amount but you won't be able to reduce the tax amount to 0%. Like always with the US is better to pay a tax advisor
 
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Some countries have lower dividend withholding taxes. ie: UK has 15% but where I am its 30% so there must be a way to set your broker account up offshore to reduce this
 
Use Ireland-domiciled ETFs or invest in stocks from other countries.
If you absolutely want to invest into individual stocks, maybe look into a Cyprus investment company.
But in all cases there will still be 15% US withholding tax.
Also you’ll want to read up on US estate tax. That’s even worse.

https://www.bogleheads.org/wiki/Nonresident_alien's_ETF_domicile_decision_table
https://www.bogleheads.org/wiki/Non-US_investor's_guide_to_navigating_US_tax_traps
https://www.bogleheads.org/wiki/Nonresident_alien_with_no_US_tax_treaty_&_Irish_ETFs
 
Just look at what countries has a reduced withholding rate and then look at costs and complexity on setting up a company in those countries.
China and Russia has 10% rate, but obviously not tempting to setup a company there. UK as mentioned have 15% rate and is a cheap and easy place to set up a business. Also Estonia has 15%. Bulgaria 10%.

A Cyprus company need to be tax resident, not offshore to get the reduced rates.
 
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A Cyprus company need to be tax resident, not offshore to get the reduced rates.

Isn’t that the case for all of them? Usually you can’t use treaty benefits without tax residency?

The advantage with Cyprus is that - if I’ve understood correctly - Cyprus doesn’t charge any tax on dividends received or paid by Cypriot companies. So except for the 15% US dividend withholding tax, there’s no other tax to be paid, except for wherever you receive those dividends.
If you use a company in Estonia, there would be 20% Estonian corporate income tax on top of the 15%. I’m not sure about UK and Bulgaria.
 
Here you can see the withholding tax rates for all countries the US has a tax treaty with:
https://www.irs.gov/pub/irs-utl/Tax_Treaty_Table_1_2019_Feb.pdf
Interestingly, Romania and Bulgaria also have 10%. But I still believe it would result in more tax to be paid than with a Cyprus company - unless you can avoid the taxes there. Haven’t done the math though. Maybe you could use the company in Bulgaria as an “investment agent” for a company in a low-tax country, like a payment processor? So it would only hold the stocks “on behalf of” the company in the other country?
 
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Very curious myself, I plan on opening an account with IB to trade full time and was wondering what the best country of residence would be. So trading from a company in Cyprus would be 100% tax free?
 
We’re only talking about US stocks here.
The sale is never taxed in the US if you’re not a US tax resident. Even if there is no tax treaty.

But for US-sourced dividends, there is withholding tax. With Cyprus, it’s 15%. However, if you live in a country without a US tax treaty, it’s 30%.
Depending on where your tax residency is, there may or may not be additional tax on top of the 15%. But if there’s a treaty, you’ll likely get credit for what you’ve already paid in US withholding taxes. So if your country charges 20% tax on dividends and the US has withheld 15%, then you just pay another 5%.
And if a company received the dividends and pays them out to you personally, the whole thing starts over with potential withholding taxes and so on.
The advantage with Cyprus - as far as I’ve understood - is that companies can receive and redistribute dividends tax-free. So you could live in a country without a US tax treaty and use the Cyprus company to bring the taxes on US-sources dividends down to 15% instead of 30%. But of course running such a company isn’t free, and you would need a local office and director etc. to be able to use treaty benefits.
And all of this is only relevant for dividends.
 
There is no withholding tax on dividends distributed by a Bulgarian company?
There is a 5% dividend withholding tax, however, it doesn't apply when receiving dividends from another company since they are already taxed at the source.
 
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