Delaware LLC + holding company + EU sole proprietorship

[gnud]

I'm again here today with another setup.

I live in an EU country A.

Lets say there will be a Delaware LLC which will sign contracts with clients, collect payments etc. This LLC will be owned by a holding company incorporated in a low tax jurisdiction, ideally non-cooperating, like the Cayman Islands, or in Romania. The holding company will have a nominee director and there would be no draws made from the LLC to the holding company, it wouldn't even need a bank account ideally. At this point the company taxation will be 0 or close to 0. The LLC will outsource its work through freelancing sites and luckily the winner of the jobs will be always my sole proprietorship back home in EU country A, covering my living expenses. There will never be any direct transaction between the LLC and my sole proprietorship. After some years when it's time to cash out, I'd move to the UAE, change the ownership of the LLC to me directly, and pay myself draws.

Thoughts?

 

[Marzio]

I wonder how do you plan to open the bank account for the LLC. The bank will want to know who the UBO is.

 

[gnud]

I wonder how do you plan to open the bank account for the LLC. The bank will want to know who the UBO is.

US banks don't report this. And don't collect foreign tax IDs.

 

[gnud]

Anyway, in fact, there's no need to hide, I guess. Let's say the holding company will be incorporated in Romania, I will be the director. The company will have no income, will pay no salary or dividends. Its sole purpose will be to hold the LLC, it will be indicated as the owner of the LLC on the IRS forms. The LLC will outsource work through freelancing sites to my sole proprietorship.

Country A can appropriate the Romanian company for taxation all it wants, there's nothing to be taxed. And it can't touch the LLC because it's not being owned by me, and no work is being done in its name in Country A. In fact it won't even know about the LLC. There won't be any transaction directly between the LLC and me. And as far as I know CFC rules don't address sharing subsidiary ownership information.

I talked to a few Romanian tax advisors and accountants and they don't even know that an LLC is a pass-through entity. They all told me it's not supposed to be taxed in Romania unless it pays dividends to the parent. So even if country A appropriates the Romanian company, there's nothing to be taxed, since Romania doesn't consider an LLCs profit to be taxable apparently.

 

[Marzio]

You are making too many assumptions. One of them is that Romania sees the US LLC as an opaque entity.

Have you verified that?

US LLC is tax transparent from thw US side.

If also Romania sees the LLC as transparent you will have to declare money in Romania and pay taxes on that income.

Also, the romanian holding at least would need to pay for an accountant so it will need a bank account.

As soon as you will open the bank account CRS will kick in and notify country A.

 

[gnud]

You are making too many assumptions. One of them is that Romania sees the US LLC as an opaque entity.

Have you verified that?

US LLC is tax transparent from thw US side.

If also Romania sees the LLC as transparent you will have to declare money in Romania and pay taxes on that income.

Also, the romanian holding at least would need to pay for an accountant so it will need a bank account.

As soon as you will open the bank account CRS will kick in and notify country A.

It can notify country A all it wants if there won't be anything to be taxed.

Yeah I will verify if Romania really sees an LLC as an opaque entity. I've searched in Romanian with google translate and couldn't find anything. The Romanian tax advisors were surprised by the question too.

 

[Jerry1911]

See if you can get an official opinion from the Romanian tax authority in regards to the US LLC. (and if you do, feel free to share it here)

 

[Marzio]

Also why did you choose Romania as the place for the holding?

 

[gnud]

Also why did you choose Romania as the place for the holding?

3% revenue tax or 1% if you hire at least 1 employee

in case of need, easier to create an economic substance, can be made a legit company due to proximity, membership in the EU, and a low cost of labor, and doesn't attract attention like a tax haven jurisdiction

not sure if it's a good idea to hide a company in Panama when it's a prime target for attacks from high tax countries

Romania would be my go to choice for a legal almost 0% tax holding company, but I don't want to move there ...

 

[Marzio]

3% revenue tax or 1% if you hire at least 1 employee

Those are characteristichs of an operating company. For a holding company you are looking for participation exemption on dividends received from subsidiaries, tax free capital gains on selling of the shares in other companies, a vast network of double tax treaties and no withholding tax on dividends distributed from the holding. Romania could be a great operating company but it's not the best place for a holding.

 

[gnud]

Those are characteristichs of an operating company. For a holding company you are looking for participation exemption on dividends received from subsidiaries, tax free capital gains on selling of the shares in other companies, a vast network of double tax treaties and no withholding tax on dividends distributed from the holding. Romania could be a great operating company but it's not the best place for a holding.

As I wrote I'm not going to distribute any draws. I like to have a low cost an option if I need to make it an operating company, if there's a need to create an economic substance. For example if within a year some new information shows up that makes the original plan impossible.

I wrote yesterday to the ANAF for their opinion on LLCs, lets see.

 

[startfleetio]

Those are characteristichs of an operating company. For a holding company you are looking for participation exemption on dividends received from subsidiaries, tax free capital gains on selling of the shares in other companies, a vast network of double tax treaties and no withholding tax on dividends distributed from the holding. Romania could be a great operating company but it's not the best place for a holding.

Romania actually has quite favorable laws for holding company

 

[Marzio]

Romania actually has quite favorable laws for holding company

I don't see anything special in romanian holding companies but hey if you consider the fact that OP said that he will eventually move to UAE, Romania has a 3% withholding tax on dividends distributed to UAE so 1% tax on income + 3% on withholding tax = 4% tax total which is more than fair.

A better solution would be to use a UK holding which treats a US LLC like an opaque entity meaning that dividends distributed from US LLC to UK LTD will be tax free and UK LTD has zero withholding tax on dividends meaning that you could operate tax free.

Of course you wlll need UK nominee shareholder + nominee director to make that work but we are talking about 0% tax.

 

[gnud]

I don't see anything special in romanian holding companies but hey if you consider the fact that OP said that he will eventually move to UAE, Romania has a 3% withholding tax on dividends distributed to UAE so 1% tax on income + 3% on withholding tax = 4% tax total which is more than fair.

A better solution would be to use a UK holding which treats a US LLC like an opaque entity meaning that dividends distributed from US LLC to UK LTD will be tax free and UK LTD has zero withholding tax on dividends meaning that you could operate tax free.

Of course you wlll need UK nominee shareholder + nominee director to make that work but we are talking about 0% tax.

An UK holding company is an interesting option, but in case of need I can't move to the UK and create an economic substance there cheaply.

btw. what good for is a nominee director and a nominee shareholder when I will still have to own at least 50% of the company, which makes it vulnerable to the CFC rules?

 

[Marzio]

btw. what good for is a nominee director and a nominee shareholder when I will still have to own at least 50% of the company, which makes it vulnerable to the CFC rules?

If you still want to own at least 50% what's the point of using nominees then? By using nominees you don't show up anywhere.

Cheap and 0% tax don't go hand in hand.

 

[startfleetio]

I don't see anything special in romanian holding companies but hey if you consider the fact that OP said that he will eventually move to UAE, Romania has a 3% withholding tax on dividends distributed to UAE so 1% tax on income + 3% on withholding tax = 4% tax total which is more than fair.

A better solution would be to use a UK holding which treats a US LLC like an opaque entity meaning that dividends distributed from US LLC to UK LTD will be tax free and UK LTD has zero withholding tax on dividends meaning that you could operate tax free.

Of course you wlll need UK nominee shareholder + nominee director to make that work but we are talking about 0% tax.

Yes we normally advise clients to use the US LLC + UK LTD method as well. It is one of the best and most versatile structure out there

 

[gnud]

If you still want to own at least 50% what's the point of using nominees then? By using nominees you don't show up anywhere.

Cheap and 0% tax don't go hand in hand.

ok. How do you control the holding company then? How do you ensure that they won’t transfer all the subsidiary’s capital to them?

Sorry but I thought you need to have some kind of a control over the holding company even if it has a nominee director and shareholder.

 

[Marzio]

How do you ensure that they won’t transfer all the subsidiary’s capital to them?

A nominee shareholder is someone that “lends his name” to you to act as the registered owner of shares in a company, when in truth, he only holds the shares for your benefit.

Those are professionals, often times lawyers.

Do you really think they will risk their license to move your money without authorization?

And even in that case money will still be in the holding and not in their bank account.

But if you really want to be 110% sure all banks today use in some way or another a form of verification for every transfer, mostly a confirmation SMS.

You just need to have access to that phone number and no transfer ever will happen.

There are other way but this is not the place to talk about it.

 

[gnud]

A nominee shareholder is someone that “lends his name” to you to act as the registered owner of shares in a company, when in truth, he only holds the shares for your benefit.

Those are professionals, often times lawyers.

Do you really think they will risk their license to move your money without authorization?

And even in that case money will still be in the holding and not in their bank account.

But if you really want to be 110% sure all banks today use in some way or another a form of verification for every transfer, mostly a confirmation SMS.

You just need to have access to that phone number and no transfer ever will happen.

There are other way but this is not the place to talk about it.

Alright, thanks for the info.

 

[leaveNet]

Yes we normally advise clients to use the US LLC + UK LTD method as well. It is one of the best and most versatile structure out there

Do you mean for anonymous setups? It sounds like there's way more that's speaks for such a setup.