Delaware LLC as an EU resident

[gnud]

I understand the US hasn't signed the CRS agreement, and is not planning to. The only information exchange happens due to the bilateral agreements of FATCA, and it's very minimal from the US side.

A Delaware LLC's real ownership doesn't have to appear in any public document or registry, but it's reported to the IRS on filings 5472 and 1120 and also the registered agent has to keep a contact person for the LLC, including his / her address. So the LLCs are not really anonymous, there are links to the ultimate beneficiary owner that can be exposed given the right conditions.

One way how it was achieved already is through John Doe summons where an LLC owner was regularly using a card of a company bank account in his country, which eventually led the local tax authorities to demand information about the "warm body" holding the card from the US which the IRS is obliged to provide based on the bilateral tax agreements.

Another way is a change of political situation and the US agreeing on the CRS or other form of information exchange.

However given the LLC never distributes draws, the owner never uses the card of the company account, and the information exchange situation doesn't change, can an EU resident own a Delaware LLC, receive revenue from US customers with 0% overall tax (as a non-US person with the LLC having a non-US sourced income since the work is being performed abroad and there's no dependent agent in the US), and never be exposed by the local authorities?

Asking for a friend, purely theoretically of course.

 

[marioIT]

IAmNotALawyer:
Purely theoretically could be tax evasion, of course, if you still live in your home country and you live/manage the US company from there, and can't prove substance in the USA if your home country finds/questions it ("place of effective management").
But you have to read the treaties between your country and the USA. Many EU countries handles this differently, but they are all aligning to the place of effective management.
Some countries do care a lot about this, some other as long as you pay it as income they're fine with it.
Some can beat you hard if they find this for many years.
If you form the LLC in your name, no matter where, once you file the 5472 the IRS will know everything about you already. The banks also will be forced to ask you, next 1 or 2 years, all details about the owner (the new Corporate Transparency Act) to write them to a new register (FinCEN).
EU is pressuring Sleepy Joe to renegotiate the reciprocal treaties, as a side issue US citizens abroad have to file everything with the IRS even if they don't live there anymore, and also EU banks see US citizens as terrorists pretty much nowadays

Even if it doesn't exchange your info automatically, sometime people do stupid things and they get caught.
Like "CEO of LLC" on their facebook with daily pictures in their home country, while claiming benefits, driving a Ferrari, house, pool etc.
Or even some idiot trying to claim back VAT in their EU country with the LLC. Yes, people do stupid things.
Or another company do bankruptcy fraud, they find fake invoices, and yours is in between... and the hole is big enough to start a request of information.

Also if you ask an EU accountant about forming an LLC to evade taxes, He should report you to the tax agency based on the new EU regulations as you're trying to evade tax.

This is the theoretical world, in real life everything can bend a bit.

 

[gnud]

I had no idea they're again pushing for the Corporate Transparency Act and the LLC register.

Looks like the only 2 choices the friend has is to form a legit company in a more tax efficient EU country with real key employees and offices to establish an economic substance there, or move.

Andorra looks more and more attractive ...

 

[marioIT]

Yeah they're pushing, especially the dems abroad. Not really sure they can do a lot in USA about FATCA reciprocity, there are still some national interests/citizen rights that come before everything else (healthcare is not one of them obliviously lol).
But I really doubt it will happen quickly.
About CTA, it was approved in january. Random result on google (no affiliation) with the actual status as too bored to type it all and lawyers explain it better than me:

Corporate Transparency Act and its impact on your business

On January 1, 2021, Congress passed the Corporate Transparency Act (the “CTA”), which requires all entities formed in or registered to do business in the

biztimes.com

if you can pay for REAL substance (managers/employees/office), you can do whatever you want even inside EU and play with the rules as you want.
But some countries will take you to court even when they know they're wrong. It costs nothing to them, it will cost a lot to you (time and money) even if you win.
If your country is THAT hostile, then just move away quickly before making any big money!

About Andorra raised deposit amounts to their most interesting citizenship a while ago.
And also it's on top of a mountain hard to reach in winter... at least that's what I hate about it.
But yeah, either micronations if you have the money or, since you're EU citizen, if you're cheap look at eastern europe (BG/RO comes to mind). There's still some good life/money to be done there before it catches EU idiocy levels.

 

[gnud]

Yeah I'm very sure the country where I live would take me to court even when the company has an economic substance in the country of incorporation, given how ferociously they invent new taxes, hunt down tax evaders and bully countries around the world.

In BG I can pay the full payroll even for a legit key employee, pay their corporate and dividend withholding taxes and I still would have left more. That is, if my country of residence would play fair.

Andorra's unattractiveness may be a blessing in disguise as it'll never be as in demand and exclusive as Monaco.

 

[gnud]

So I was thinking, if I become a resident of the UAE where there's no income tax, residency visa are apparently easy to get, and own an US LLC which is a pass-through entity and have a non-US sourced income, all its profit is passed to me personally as income, therefore there's no tax applied anywhere whatsoever, not in the US, not in the UAE. Correct?

 

[Willblack]

So I was thinking, if I become a resident of the UAE where there's no income tax, residency visa are apparently easy to get, and own an US LLC which is a pass-through entity and have a non-US sourced income, all its profit is passed to me personally as income, therefore there's no tax applied anywhere whatsoever, not in the US, not in the UAE. Correct?

Pretty much, yeah.

 

[TmeWalcO]

Yeah they're pushing, especially the dems abroad. Not really sure they can do a lot in USA about FATCA reciprocity, there are still some national interests/citizen rights that come before everything else (healthcare is not one of them obliviously lol).
But I really doubt it will happen quickly.
About CTA, it was approved in january. Random result on google (no affiliation) with the actual status as too bored to type it all and lawyers explain it better than me:

Corporate Transparency Act and its impact on your business

On January 1, 2021, Congress passed the Corporate Transparency Act (the “CTA”), which requires all entities formed in or registered to do business in the

biztimes.com

if you can pay for REAL substance (managers/employees/office), you can do whatever you want even inside EU and play with the rules as you want.
But some countries will take you to court even when they know they're wrong. It costs nothing to them, it will cost a lot to you (time and money) even if you win.
If your country is THAT hostile, then just move away quickly before making any big money!

About Andorra raised deposit amounts to their most interesting citizenship a while ago.
And also it's on top of a mountain hard to reach in winter... at least that's what I hate about it.
But yeah, either micronations if you have the money or, since you're EU citizen, if you're cheap look at eastern europe (BG/RO comes to mind). There's still some good life/money to be done there before it catches EU idiocy levels.

What's your take on Romania vs Bulgaria? Also, for someone with low income, do you think Georgia is a good option?

 

[FreedomSearcher]

So I was thinking, if I become a resident of the UAE where there's no income tax, residency visa are apparently easy to get, and own an US LLC which is a pass-through entity and have a non-US sourced income, all its profit is passed to me personally as income, therefore there's no tax applied anywhere whatsoever, not in the US, not in the UAE. Correct?

What's the US LLC even needed for, you could just use a UAE FZ LLC.

 

[gnud]

What's the US LLC even needed for, you could just use a UAE FZ LLC.

Access to US services and looking legit in front of clients. And a stable jurisdiction. If something goes to s**t in the UAE everything is fucked up with an UEA LLC. Maybe I’ll be banned to take out money, all contracts and subscriptions will have to be redone etc. With a US LLC I’ll simply pack my bags and move to a better place.

 

[DavidS]

US doesn't need to sign CRS, because they have FATCA which is the same thing.

I'm not sure if Delaware companies are reporting though. Technically US could just not report, because it is not in their interest ( they would lose offshore money and that sweet inheritance tax ).

 

[gnud]

US doesn't need to sign CRS, because they have FATCA which is the same thing.

I'm not sure if Delaware companies are reporting though. Technically US could just not report, because it is not in their interest ( they would lose offshore money and that sweet inheritance tax ).

foreign-owned LLC owners have to submit IRS forms 5472 and 1120 every year identifying them with their local tax id, moreover those FATCA agreements typically contain automatic information exchange of investment bank account information for individuals and all bank accounts of other entities, information which is collected by the IRS through the EIN number and then the IRS form 5472 links it all to you ...

since the EU dropped the threat to put the US on a list of non-cooperating jurisdictions I'd say they really do exchange all this information, essentially as if the US is a part of the CRS

 

[DavidS]

since the EU dropped the threat to put the US on a list of non-cooperating jurisdictions I'd say they really do exchange all this information, essentially as if the US is a part of the CRS

Are you sure though? Because if that was true, certain people would be in deep, deep s**t. Yet they are not.

 

[gnud]

Are you sure though? Because if that was true, certain people would be in deep, deep s**t. Yet they are not.

I'm very sure of that. Now sure about the circumstances of those certain people.

 

[DavidS]

I'm very sure of that. Now sure about the circumstances of those certain people.

It makes no sense for USA to report FATCA info. They would lose offshore money for what? It's not like anyone will hold a gun to their head if they don't report automatically.

 

[gnud]

It makes no sense for USA to report FATCA info. They would lose offshore money for what? It's not like anyone will hold a gun to their head if they don't report automatically.

The EU dropped the threat so the US had to satisfy their demands. Around the same time the IRS has started to collect all this information about foreign owners.

A very simple leverage is for the EU would be to say they also wouldn't report info on US citizens to the US. Simple as that I'd say.

 

[ElBotellon]

Access to US services and looking legit in front of clients. And a stable jurisdiction. If something goes to s**t in the UAE everything is fucked up with an UEA LLC. Maybe I’ll be banned to take out money, all contracts and subscriptions will have to be redone etc. With a US LLC I’ll simply pack my bags and move to a better place.

On top of all those valid reasons there is also another one. If you have an LLC and only you as owner everything relies on your personal tax certificate. With a corporate owner in UAE you can get a tax certificate for the entity and another one for you. If they claim your personal residence they won't necessarily involve the LLC because you may be resident due to ties in your original country but take key decisions for the LLC & the UAE company outside from your country.

Now, while the LLC (as disregarded entity and managed from nonresident outside from US) is NEVER a fiscal resident of the US and cannot access tax treaties (indeed you rely on ETBUS and other principles which are internal regulations of the US tax system, non treaties), a UAE country can and the UAE have done multiple DTAs around the globe which can protect more than just relying on the internal legislation of a state (which tipicalli is pro domo sua).

so in a nutshell i would do something like

You (tax resident in UAE or territorial taxation country) --> UAE Free Zone (tax resident in UAE) --> US LLC (non tax resident US, no access to treaties)

 

[liquidtension]

I understand the US hasn't signed the CRS agreement, and is not planning to. The only information exchange happens due to the bilateral agreements of FATCA, and it's very minimal from the US side.

A Delaware LLC's real ownership doesn't have to appear in any public document or registry, but it's reported to the IRS on filings 5472 and 1120 and also the registered agent has to keep a contact person for the LLC, including his / her address. So the LLCs are not really anonymous, there are links to the ultimate beneficiary owner that can be exposed given the right conditions.

One way how it was achieved already is through John Doe summons where an LLC owner was regularly using a card of a company bank account in his country, which eventually led the local tax authorities to demand information about the "warm body" holding the card from the US which the IRS is obliged to provide based on the bilateral tax agreements.

Another way is a change of political situation and the US agreeing on the CRS or other form of information exchange.

However given the LLC never distributes draws, the owner never uses the card of the company account, and the information exchange situation doesn't change, can an EU resident own a Delaware LLC, receive revenue from US customers with 0% overall tax (as a non-US person with the LLC having a non-US sourced income since the work is being performed abroad and there's no dependent agent in the US), and never be exposed by the local authorities?

Asking for a friend, purely theoretically of course.

Could you elaborate please on company card activity? How is that being monitored?