Delaware company with a shareholder fiscally resident in Georgia (the country)

[khinkali]

@blizz yes people have FZ and VZ companies in Georgia and enjoy tax advantages.

People complain that FZ companies are very difficult to get banking for in Georgia.

VZ is a tax status for an otherwise normal IT company that sells mostly outside of Georgia. If it's genuinely a Georgian business (managed in Georgia, doing the work in Georgia) and exporting services then Georgian banking should be OK. If it's really a company for moving offshore money around then I would expect local bank accounts to be closed.

 

[Traveler]

The angle I'm unsure about is whether you can be taxed on the work but also generate profit. i.e. if your company charges $1000 per hour and pays you $100 per hour, I wonder if the $900 dividend is taxable or not.

Old thread, but this never got anyone's input so I figured I'd offer my 2 cents.

The issue that your proposed structure triggers is Georgia's "substance over form" legislation. So in case of a "thin" setup, the tax authorities can easily (and successfully) argue that the foreign entity serves no actual purpose other than that of avoiding taxation, at which point the foreign entity would be considered transparent, and all of its profit would be taxed as if it was flowing directly into Georgia. So at the very minimum, the foreign entity would need to have sufficient substance and not just be an empty shell.

 

[lage]

Hi,

I would like some opinions on this scheme
1. a Delaware LLC generates some income for consulting services executed for EU beneficiaries (companies)
2. the Delaware LLC is owned by a person who is fiscally resident in Georgia (the country, not the US state)

In my opinion:
- the Delaware LLC is able to provide the EU beneficiaries with a certificate of fiscal residence, so that the EU beneficiaries do not have to retain any tax at source
- the Delaware LLC will not pay any tax on the income generated abroad (outside the US)
- the shareholder will not pay any tax on dividends on the income generated abroad (outside Georgia)

Provided that the shareholder is truly a resident of Georgia, it seems the end result is 0 taxes everywhere in a fully legal manner (no problem in showing your name), without having to deal with blacklisted countries or dubious banking...

Is this scheme feasible or am I missing something?

You need to consider the following aspects:
Delaware company shall have a business substance, local director etc, otherwise it might be considered to be managed in Georgia. A company which is managed from Georgia is considered as a Georgian company (thus taxable in Georgia).
Also, if the shareholder Georgian tax resident actually does consulting services, the income might be requamified from passive income (dividend) into active income (consulting fee) thus taxable (at least partly) in Georgia.

You need to consider the following aspects:
Delaware company shall have a business substance, local director etc, otherwise it might be considered to be managed in Georgia. A company which is managed from Georgia is considered as a Georgian company (thus taxable in Georgia).
Also, if the shareholder Georgian tax resident actually does consulting services, the income might be requamified from passive income (dividend) into active income (consulting fee) thus taxable (at least partly) in Georgia.

Territorial taxation for individuals in Georgia - TPsolution

The article was initially published by Gela Barshovi on Forbes Georgia Foreigner source income is tax exempted for individuals in Georgia. What is the real meaning of “foreign source income”? Georgia territorial taxation Georgia applies so called “territorial taxation principle” for natural...

tpsolution.ge

In the above blog you can see that not every income received by a Georgian tax resident individual is exempted from tax (but some type of incomes really are exempted).