Complicated setup for two offshore companies of different activites but one funds the other

[armag]

• Let's say you're a citizen and (tax) resident of some /removed/ country.
• You work remotely as a software consultant (independent contractor) for a Canadian company and receive your compenstation (less than $20k USD annually) from /removed/ to your home country (which has 30%+ taxes) on your own personal bank account.
• You'd like to save on taxes, and are considering forming an LLC in a different country to receive the compenstation and leave it there
• You'd like to also try your hand at business, trying to launch a lot of SaaS products and e-commerce, targeting US and EU customers. Most will be failures, but possibly one could be a success and generates revenue.
• You want to use the consulting fees you're paid, to fund those business attempts, whether paying for services or marketing or so, or giving salaries to offshore employees in different countries (mostly home country)

Questions:

1. What structure would you choose to do this? Types of corporations?
2. Jurdisticions of choice? Banking options?
3. Things to look out for? Any thoughts at all?
4. Possible mistakes?

I know for example that as a non-resident alien in the US you can form an LLC and not pay any taxes as long as it's a non-US source of income. US LLCs are also very cheap to form and upkeep annually.
I also know that the US is arguably one of the best places to form a company to get business banking and open payment processor accounts like Stripe.
However, opening both countries in the US is likely to overcomplicate taxes, possibly pierce the corporate veil, and more.
Hence, maybe the consulting company outside the US, and the business company in the US? But where?

Thanks in advance!

 

[Cloudbanck]

I think you can have both the consulting and the business company set up as US LLCs. Shouldnt be a problem from the US side as long as you dont have an office / employees / dependent agents in the US or spend too much time in the US. Plenty of US banking options, like Mercury (but recently they check if you have US clients or US providers).

A UK LTD could also work if you register it as offshore (if not UK corp tax applies). UK and US (and I think Canada) have the advantage that it s easy and cheap to set up a company there, unlike say Dubai or island tax havens.

Or a UK or Canada LLP could also work, but there you need a partner (which can be another company) - these are pass-through like a US LLC.


But the interesting bit here is how tax applies for your country. I assume they on paper have rules for local residents owning foreign companies, but it's very likely that they are not enforced. With a US LLC you have to tell US authorities every year where you are a tax resident - and will the country get this information and act on it - probably not, but who knows? It is a risk.

An idea here would be to establish residency in a Sub-Saharan African country. Then use the Sub-Saharan country as your tax residence, and you really remove the risk of the country authorities going after you.

 

[armag]

I think you can have both the consulting and the business company set up as US LLCs. Shouldnt be a problem from the US side as long as you dont have an office / employees / dependent agents in the US or spend too much time in the US. Plenty of US banking options, like Mercury (but recently they check if you have US clients or US providers).

A UK LTD could also work if you register it as offshore (if not UK corp tax applies). UK and US (and I think Canada) have the advantage that it s easy and cheap to set up a company there, unlike say Dubai or island tax havens.

Or a UK or Canada LLP could also work, but there you need a partner (which can be another company) - these are pass-through like a US LLC.


But the interesting bit here is how tax applies for your country. I assume they on paper have rules for local residents owning foreign companies, but it's very likely that they are not enforced. With a US LLC you have to tell US authorities every year where you are a tax resident - and will the country get this information and act on it - probably not, but who knows? It is a risk.

An idea here would be to establish residency in a Sub-Saharan African country. Then use the Sub-Saharan country as your tax residence, and you really remove the risk of the country authorities going after you.

Thanks for the reply.

I don't believe there's any risk of the home country finding out nor enforcing anything related to any country outside. Also, they have a double-taxation treaty with the US if that's any relevant.

Also, regarding banking, how would it look like moving funds between companies? Especially for the two US LLC option, specifically intermingling of funds and piercing the corporate veil?
Is it as simple as sending from one business account to the other?
Would I still be able to get zero taxes on the consulting LLC?
Would I be able to file the taxes myself?
Would paying out to myself (from the consulting LLC) to a personal bank account like Wise be of any issue?

For the US + UK option, which would be for the consulting and which for the businees?

 

[Cloudbanck]

Also, regarding banking, how would it look like moving funds between companies? Especially for the two US LLC option, specifically intermingling of funds and piercing the corporate veil?

US LLCs are disregarded/pass-through so there is no corporate veil at least in terms of taxes. But I dont know the consequences of sending funds from one US LLC to another US LLC when the same person owns both. If you send funds to yourself it's a distribution, not sure you can make distributions to another US LLC.

Do you need two companies by the way? Might be simpler with just one, and that one will have US clients making it easier with US Banks.

Is it as simple as sending from one business account to the other?
Would I still be able to get zero taxes on the consulting LLC?
Would I be able to file the taxes myself?

You don't have to file taxes for the US, just two forms per LLC every year where you tell US authorities where you are tax resident, and how much money you took out and put into your US LLC basically.

Would paying out to myself (from the consulting LLC) to a personal bank account like Wise be of any issue?

That should be fine, it is a straight forward distribution.

For the US + UK option, which would be for the consulting and which for the businees?

Do your clients have any preference? If not, Id just optimise for lowest cost, lowest paperwork, lowest tax, best banking access. And optimal might be a single US LLC for both. Or two US LLCs if you have some good reason to keep them separate.

 

[JustAnotherNomad]

What you are trying to do is probably not legally possible. Your home country would probably want to tax that income.
I believe similar questions about Morocco have come up before, you may want to use the search function.

Assuming that you still want to move ahead (for example because enforcement is very lax in practice and you don't care), then a company in Estonia might make sense.
The income of that company is not taxed until distributed, so you can simply invest the profits into other businesses tax-free. Estonia only imposes tax on profit distributions.
If you pay out a salary from an Estonian company, the salary is not taxed in Estonia, only where you live.
You may have some protection against the taxman in your country if you can convince them that the company isn't managed from your country.

Alternatively, you can use a US LLC, but then any income from the US LLC would be your own income, so the risk is slightly greater.
Then again, you may be able to better manage the liability risk.

 

[armag]

Do you need two companies by the way? Might be simpler with just one, and that one will have US clients making it easier with US Banks.

I don't need two companies really, my thinking was just to make it easier to file and deal with taxes, and keep liability separate.

You don't have to file taxes for the US, just two forms per LLC every year where you tell US authorities where you are tax resident, and how much money you took out and put into your US LLC basically.

Even if the LLC is generating revenue from US clients? That's my reason for separation basically, since I'm not required to file for taxes for the consulting gig I have, but would have to do so for a business with US clients

That should be fine, it is a straight forward distribution.

What about consulting LLC > personal account > business LLC?

Do your clients have any preference? If not, Id just optimise for lowest cost, lowest paperwork, lowest tax, best banking access. And optimal might be a single US LLC for both. Or two US LLCs if you have some good reason to keep them separate.

I don't have any clients yet for the business LLC, but the thing is, I'll be prototyping/trying a lot of different ideas, maybe generating a very tiny revenue and possibly negative/no profit (some might have profit), and I want to be able to freely make sales to US and EU clients, without something coming back to bite me in the a*s.

Your home country (Morocco?) would probably want to tax that income.
I believe similar questions about Morocco have come up before, you may want to use the search function.

tried the search bar with my country and didn't find anything helpful for my case unfortunately.

(for example because enforcement is very lax in practice and you don't care)

You may have some protection against the taxman in your country if you can convince them that the company isn't managed from your country.

Basically the situation is, I don't have to worry about the taxman in my country, as long as I'm not receiving any money into my bank account from internationally.

Alternatively, you can use a US LLC, but then any income from the US LLC would be your own income, so the risk is slightly greater.
Then again, you may be able to better manage the liability risk.

Sorry, can you elaborate on this?

 

[Cloudbanck]

I don't need two companies really, my thinking was just to make it easier to file and deal with taxes, and keep liability separate.


Even if the LLC is generating revenue from US clients? That's my reason for separation basically, since I'm not required to file for taxes for the consulting gig I have, but would have to do so for a business with US clients

Yes, no US tax even if you have US clients, as long as you dont have dependent agents/employees or an office in the US, and dont spend too much time in the US.

See
https://startfleet.io/guide/us-llc-for-non-residents-guide
https://globalisationguide.org/us-llc-non-resident/