Cheapest 0% Tax Route with Substance?

[Marzio]

Barbados - Individual - Income determination

Detailed description of income determination for individual income tax purposes in Barbados

taxsummaries.pwc.com

I'm reviving this thread because of my lightbulb moment today.

Picture this, you form a US LLC, form a Barbados branch, get employed by the branch and become ordinarly resident in Barbados (no minimal stay required).

Your branch pays 5.5% down to 1% taxes depending on your revenue.

If your revenue is $500K you are already paying 3%

You send profits back to US LLC

Your single member US LLC is 100% owned by a Nevis holding company.

Your Nevis holding company distribute dividends to you in Barbados tax free.

With this setup you get everything, nearly 0% taxation, asset protection and freedom of movement.

 

[inector]

Your Nevis holding company distribute dividends to you in Barbados tax free.

The Nevis holding would require a substance in this case. Otherwise considered as a Barbados company?

With this setup you get everything, nearly 0% taxation, asset protection

Sounds about right, and if US LLC is planning to have clients in US - then UK LLP can be used instead.

and freedom of movement

Only with substance in Barbados as well then.

 

[Marzio]

The Nevis holding would require a substance in this case.

I'm not familiar with Nevis but since it's not an operating company i guess substance requirements should be light.

if US LLC is planning to have clients in US - then UK LLP can be used instead.

That's right

Otherwise considered as a Barbados company?

You must receive dividends from another company in CARICOM to make this work, not from a Barbadian company

Only with substance in Barbados as well then.

If you are ordinarly resident in Barbados you only need to have available a permanent accomodation to be considered tax resident, regardless of days spent.

Barbados - Individual - Residence

Detailed description of individual residence rules in Barbados

taxsummaries.pwc.com

 

[bubbledouble]

The Nevis holding would require a substance in this case. Otherwise considered as a Barbados company?

But any offshore or onshore company need substance today if in need to use the company for something useful, don't you think so ?

 

[daniels27]

But any offshore or onshore company need substance today if in need to use the company for something useful, don't you think so ?

No, absolutely not. There are many cases where the is no requirement to have substance.

First of all, the economic substance rules are only for companies doing certain activities which are suitable to reduce taxes of another company elsewhere. If you operate a standalone company and do honest business, you won't have to worry about it. This goes for all sort of setting products or services. (You cannot buy products from or sell services to another of your company. But I am talking about standalone companies.)

Then, there are many digital nomads which are not subject to taxes anywhere on the planet and won't need to prove that the Nevis company is managed from Nevis. This problem only arises when you have some country wanting taxes somewhere.

 

[bubbledouble]

what about banking, don't even EMI's ask for substance now a days for the company ?

 

[Don]

Barbados - Individual - Income determination

Detailed description of income determination for individual income tax purposes in Barbados

taxsummaries.pwc.com

I'm reviving this thread because of my lightbulb moment today.

Picture this, you form a US LLC, form a Barbados branch, get employed by the branch and become ordinarly resident in Barbados (no minimal stay required).

Your branch pays 5.5% down to 1% taxes depending on your revenue.

If your revenue is $500K you are already paying 3%

You send profits back to US LLC

Your single member US LLC is 100% owned by a Nevis holding company.

Your Nevis holding company distribute dividends to you in Barbados tax free.

With this setup you get everything, nearly 0% taxation, asset protection and freedom of movement.

Since this topic is about the cheapest setup we should not disregard costs. What do you think would be the costs of such setup?

1) cost of legal setup
2) cost of obtaining and maintaining residence permits
3) cost of establishing tax residency somewhere (if desired)
4) cost of substance, including the below:

• Local resident director/partner of the structure (could be covered of ubo appoints himself (assuming points 2-3 will be met)
• Company with corporate tax residence somewhere
• Physical address for the company
• Registered employees/staff
• Accounting records maintained locally and the accounting work performed by local accountants;
• Operative local bank accounts
• Relevant assets located in (i.e., staff, equipment, and all other necessities which are normally required for doing business);
• The substantial involvement of local staff in the operations of the entity;
• An independent local email address and/or website;
• An independent telephone line.

 

[pieceofmind]

A lot things have been pointing me to Barbados and liking its idea. It's solid treaty network and even 15% withholding from US is actually unique, instead of 30% like most strategic tax regions. However, note that they just increased their CIT to 9% for businesses over $1mil for 2024+, instead of 5% -> 2%. Might not affect many but concerning things are moving in that direction there.

 

[Marzio]

Since this topic is about the cheapest setup we should not disregard costs. What do you think would be the costs of such setup?

1) cost of legal setup
2) cost of obtaining and maintaining residence permits
3) cost of establishing tax residency somewhere (if desired)
4) cost of substance, including the below:

• Local resident director/partner of the structure (could be covered of ubo appoints himself (assuming points 2-3 will be met)
• Company with corporate tax residence somewhere
• Physical address for the company
• Registered employees/staff
• Accounting records maintained locally and the accounting work performed by local accountants;
• Operative local bank accounts
• Relevant assets located in (i.e., staff, equipment, and all other necessities which are normally required for doing business);
• The substantial involvement of local staff in the operations of the entity;
• An independent local email address and/or website;
• An independent telephone line.

I honestly didn't look in depth into costs but forming a US LLC is dirt cheap, you will hire yourself as the local resident director of the branch using a virtual office in Regus Barbados s registered address so substance is already there or nearly there.

There's no need to have a bank in Barbados, you could use a US bank account and transfer money into Barbados only when you have to pay taxes.

I expect the costs of forming a branch and accoungint to be on par with other countries.

they just increased their CIT to 9% for businesses over $1mil for 2024+, instead of 5% -> 2%

That's unfortunate.

Do you happen to know if 9% is fixed or regreessive taxation?

PwC is still showing the old tax rates.

 

[Don]

A lot things have been pointing me to Barbados and liking its idea. It's solid treaty network and even 15% withholding from US is actually unique, instead of 30% like most strategic tax regions. However, note that they just increased their CIT to 9% for businesses over $1mil for 2024+, instead of 5% -> 2%. Might not affect many but concerning things are moving in that direction there.

An Estonian company in partnership as a managing partner with another entity or person could be more tax efficient + offer relatively cheap substance.

The partnership is tax transparent and can provide anonymity:
1) Estonian company doesn't get exposed to immediate tax from the profits of the partnership since it pays tax only on the distribution of dividends
2) The other entity can be a hybrid structure like US or SVG LLC, in which case taxation only happens at the individual level of the owner. If the person is not exposed to taxation at a personal level, then the total effective tax can potentially be even 0%. Or you can do something like Georgia Individual Entrepreneur and pay 1% tax on turnover up to 165k USD income per year, or in UAE ~102k USD per year tax free, Or even combine them.

Interestingly, taxation in UAE, even if the tax applied is 0%, could be beneficial in that even filing all that paperwork could provide added value. This can potentially open more possibilities for tax residencies abroad without needing to pay more tax, as such profits could be exempt from tax based on some treaties / or tax laws, as taxed at 0% is different from not subject to tax.

We can tick all the boxes:
1) anonymity
2) asset protection
3) no CRS/FATCA/CARF (possible even to keep your profits stashed as BTC, or set up some separate vehicle for managing investments)
4) reputable structure
5) decent banking/payment processing

 

[Marzio]

The partnership is tax transparent and can provide anonymity:

Are you talking about an Estonian partnership with OU as managing partner and US LLC as limited partner?

 

[Don]

Are you talking about an Estonian partnership with OU as managing partner and US LLC as limited partner?

OÜ is one option to use as managing partner.

Estonia has overall 5 company structures incl EU company (Societas Europaea) + 4 local ones. And then you have associations and cooperatives.

I was referring to type of partnerships available that are not considered limited.

Estonian limited partnership(LP) is very different from UK LP since the Estonian one is actually a company so its treated differently from tax and tax treaty perspectives.