Well if it's really like this then Romania is a tax haven effectively since the LLC wouldn't be taxed neither in the US nor in Romania.
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Delaware LLC + holding company + EU sole proprietorship
- Thread starter gnud
- Start date
Well if it's really like this then Romania is a tax haven effectively since the LLC wouldn't be taxed neither in the US nor in Romania.
I'm not sure how this is confirming anything. Once a foreign company has a PE or a place of effective management in Romania it becomes a liable for CIT on profit derived from Romania. This is only about taxation of dividends received, but the profit of the sending company needs to be taxed first.
I mean is confirming that dividends received from subsidiaries in which the parent company holds at leat 10% of the shares are exempt from tax. If you said to the lawyer that the SRL will own the LLC then that's why he said that the the LLC will not pay any taxes in Romania.
Yeah? And what about the LLC's corporate taxation? It can't be taxed nowhere and just pay draws / dividends to the parent and it will be also exempt from taxes. Since it's ran from Romania it's liable for taxation in Romania, now the question is whether as a separate entity or through the parent, different rates would apply.
Got a reply from another lawyer:
As a general comment, non-residents having place of their effective management and control or having a permanent establishment in Romania, are taxed at the standard corporate tax rate of 16%. However, certain conditions have to be met by a non-resident before becoming subject to corporate taxation in Romania. Sometimes, the provisions of the Double Taxation treaties should also be considered.
Setting up a US LLC will not make things anonymous even it goes and setup a UK LTD you want camouflage the UBO that way. Explain how you want to do that @startfleetio
It looks like POEM rules take precedence over CFC rules in general under BEPS. So POEM rules apply first, company becomes a tax resident, company therefore cannot be a CFC of its local parent anymore since it's not foreign, it will be taxed as a separate entity.
So if an LLC subsidiary of a Romanian SRL is managed from Romania, it will be taxed as a separate entity. But will the 3% / 1% regime apply to it or the regular 16% CIT ... ?
In any case, having a subsidiary and a local parent and having them managed from the same place seems to be a useless combination. The subsidiary can just create a permanent establishment there and be managed from there and the result would be the same, minus the added complexity and cost of having to manage and setup the parent company.
The only advantage of having a Romanian parent and not holding an LLC directly is that it will be harder for the country of residency to consider the parent to be a CFC of the owner, since it's enough to create an economic substance in Romania to prevent it.
But even if the LLC is held directly and it's considered a CFC by the owner's country of residency, it can just create a permanent establishment and an effective place of management in Romania to prevent being liable for any taxation in his / her country of residency.
Now since the LLC would be considered a Romanian tax resident due to the POEM rules, it will be a tax resident of Romania.
The micro-enterprise regime seems to be applied automatically if turnover is less than 1M
The micro-enterprise tax is based on the turnover or net sales of a company. Instead of applying the 16% corporate tax, legal entities with a turnover not exceeding €1,000,000 are subject to a lower tax rate of 1% for companies with at least one employee, or 3% for companies with no employees.
www.dentons.com
So bringing it all together, the LLC would be liable for taxation in Romania, and if the revenue is less than 1M the micro regime would apply, i.e. it would only pay revenue tax of 3% / 1% .
A foreign company can even voluntarily declare its place of effective management in Romania and voluntarily become a tax resident, solidifying the fact and clearing any doubt.
If you want an LLC and enjoy Romanian tax rates, it's useless to create a SRL parent. If you just want to enjoy Romanian tax rates and don't insist on an LLC, a SRL is just enough.
If you want an LLC, enjoy Romanian tax rates and insure yourself against your country of residency, create a SRL parent with an economic substance (rent an office, hire someone).
Thanks everyone for your input.
So if an LLC subsidiary of a Romanian SRL is managed from Romania, it will be taxed as a separate entity. But will the 3% / 1% regime apply to it or the regular 16% CIT ... ?
In any case, having a subsidiary and a local parent and having them managed from the same place seems to be a useless combination. The subsidiary can just create a permanent establishment there and be managed from there and the result would be the same, minus the added complexity and cost of having to manage and setup the parent company.
The only advantage of having a Romanian parent and not holding an LLC directly is that it will be harder for the country of residency to consider the parent to be a CFC of the owner, since it's enough to create an economic substance in Romania to prevent it.
But even if the LLC is held directly and it's considered a CFC by the owner's country of residency, it can just create a permanent establishment and an effective place of management in Romania to prevent being liable for any taxation in his / her country of residency.
Now since the LLC would be considered a Romanian tax resident due to the POEM rules, it will be a tax resident of Romania.
The micro-enterprise regime seems to be applied automatically if turnover is less than 1M
The micro-enterprise tax is based on the turnover or net sales of a company. Instead of applying the 16% corporate tax, legal entities with a turnover not exceeding €1,000,000 are subject to a lower tax rate of 1% for companies with at least one employee, or 3% for companies with no employees.
Global tax guide to doing business in Romania
Global tax guide to doing business in Romania
So bringing it all together, the LLC would be liable for taxation in Romania, and if the revenue is less than 1M the micro regime would apply, i.e. it would only pay revenue tax of 3% / 1% .
A foreign company can even voluntarily declare its place of effective management in Romania and voluntarily become a tax resident, solidifying the fact and clearing any doubt.
If you want an LLC and enjoy Romanian tax rates, it's useless to create a SRL parent. If you just want to enjoy Romanian tax rates and don't insist on an LLC, a SRL is just enough.
If you want an LLC, enjoy Romanian tax rates and insure yourself against your country of residency, create a SRL parent with an economic substance (rent an office, hire someone).
Thanks everyone for your input.
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Also, how to establish a foreign company in Romania exactly?
Only renting an office at a business center and voluntarily registering the company for tax residency seems to be enough, since all work will be outsourced, only management will be performed.
No need to setup a representative office, branch or any other entity.
In fact, setting up a branch and operating it like that is not beneficial, the standard CIT of 16% will apply.
Profits derived by the branch are taxed at the standard CIT rate of 16%.
Only renting an office at a business center and voluntarily registering the company for tax residency seems to be enough, since all work will be outsourced, only management will be performed.
No need to setup a representative office, branch or any other entity.
In fact, setting up a branch and operating it like that is not beneficial, the standard CIT of 16% will apply.
Profits derived by the branch are taxed at the standard CIT rate of 16%.
Romania - Corporate - Branch income
Detailed description of corporate branch income tax rules in Romania
taxsummaries.pwc.com
I think I finally got it.
1) Have an US LLC to sign contracts with US clients and to be able to access US service providers without restrictions.
2) Make it a subsidiary of a Romanian SRL.
3) Manage it all from Romania from the SRL's office, creating a place of effective management of the LLC in Romania
4) The US considers the LLC non-ETBUS, therefore no tax is due in the US
5) A foreign company with a PE in Romania (the LLC) would be liable to pay the standard CIT of 16% as a separate entity even though it's a subsidiary of a Romanian SRL parent
6) The micro-enterprise regime doesn't apply to non-Romanian entities, but does by default to Romanian entities if their revenue is less than 1M EUR
7) Therefore outsource the work of the LLC to the SRL, shifting all profits on the SRL
8) Nothing would be taxable on the LLC side, all profit would be taxable on the SRL side, benefiting the micro-enterprise regime of 3% / 1% tax rate
9) Lend the after-tax capital of the SRL to the LLC interest free, so that the LLC can use it and reinvest with the US service providers
10) Create an economic substance in Romania for the SRL, your EU country of residency can't consider it a CFC. Even if it does, no work or management is performed on its territory, therefore no profit can be attributed to it, all taxation happens in Romania. The LLC is not owned by you so it can't be considered a CFC.
11) Outsource work from the SRL to your local sole proprietorship in your country of residency with minimal payments. Only work, no management, so that it can't be seen as a dependent agent. For every managerial work travel to Romania, collect evidence to be able to prove the place of effective management to be in Romania. Optionally do it through freelancing sites to minimize chances of tax authorities bothering you.
12) Put whatever your can to expenses of the sole proprietorship to achieve zero or minimal taxation at home.
13) Enjoy near 3% / 1% taxation overall while living wherever you want, legally
Thoughts?
As a bonus, once the LLC returns the money to the SRL, you can move to Malta and take it all out in dividends tax free, without paying the Romanian standard 5% rate, as a non-dom with withholding tax exclusion. No need to move to the UAE.
1) Have an US LLC to sign contracts with US clients and to be able to access US service providers without restrictions.
2) Make it a subsidiary of a Romanian SRL.
3) Manage it all from Romania from the SRL's office, creating a place of effective management of the LLC in Romania
4) The US considers the LLC non-ETBUS, therefore no tax is due in the US
5) A foreign company with a PE in Romania (the LLC) would be liable to pay the standard CIT of 16% as a separate entity even though it's a subsidiary of a Romanian SRL parent
6) The micro-enterprise regime doesn't apply to non-Romanian entities, but does by default to Romanian entities if their revenue is less than 1M EUR
7) Therefore outsource the work of the LLC to the SRL, shifting all profits on the SRL
8) Nothing would be taxable on the LLC side, all profit would be taxable on the SRL side, benefiting the micro-enterprise regime of 3% / 1% tax rate
9) Lend the after-tax capital of the SRL to the LLC interest free, so that the LLC can use it and reinvest with the US service providers
10) Create an economic substance in Romania for the SRL, your EU country of residency can't consider it a CFC. Even if it does, no work or management is performed on its territory, therefore no profit can be attributed to it, all taxation happens in Romania. The LLC is not owned by you so it can't be considered a CFC.
11) Outsource work from the SRL to your local sole proprietorship in your country of residency with minimal payments. Only work, no management, so that it can't be seen as a dependent agent. For every managerial work travel to Romania, collect evidence to be able to prove the place of effective management to be in Romania. Optionally do it through freelancing sites to minimize chances of tax authorities bothering you.
12) Put whatever your can to expenses of the sole proprietorship to achieve zero or minimal taxation at home.
13) Enjoy near 3% / 1% taxation overall while living wherever you want, legally
Thoughts?
As a bonus, once the LLC returns the money to the SRL, you can move to Malta and take it all out in dividends tax free, without paying the Romanian standard 5% rate, as a non-dom with withholding tax exclusion. No need to move to the UAE.
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If you are the only person involved in all that convoluted structure you are running very high risk of fines (depending on how aggressive is the tax administration of the country where you live). First of all it's a prime example of what the general anti-abule rule is trying to avoid: artificial formations only created to lower your tax rate.
There are other problems tho.
If you outsource the work from the SRL to you, you are risking of creating a PE in your country.
I mean in case of an audit the tax administration will see a lot of invoices for work done for a foreign company. They'll say "lets check who that foreign company is" and since Romania has a public register they will immediately discover that you are behind the SRL and at that point you are fucked (if you haven't declared your foreign company to tax administration).
Do not forget CRS.
As soon as you'll open bank account in Romania, your country of residency will know that you have a foreign account there because you are the ultimate beneficial owner of the SRL.
Yes, that's why I wrote your sole proprietorship can't be seen as a dependent agent. If no managerial decisions, agreements or contracts are concluded by the sole proprietorship, it's not a dependent agent acting on behalf of the SRL.
My country of residency can be notified through the CRS, if the SRL has a substance in Romania, it can't be considered a CFC. Moreover, if I gain a second residency in Romania, no CRS reporting will be done.
The GAAR is absurd. Basically what it says is that even if one plays by the rules, if the tax administration doesn't like the outcome they'll say their own rules don't apply in this case. So they always steal your money and there's nothing you can do about it. What about the rule of law ...
My country of residency can be notified through the CRS, if the SRL has a substance in Romania, it can't be considered a CFC. Moreover, if I gain a second residency in Romania, no CRS reporting will be done.
The GAAR is absurd. Basically what it says is that even if one plays by the rules, if the tax administration doesn't like the outcome they'll say their own rules don't apply in this case. So they always steal your money and there's nothing you can do about it. What about the rule of law ...
Well if you gain tax residency in Romania and live in another country could work because Romania will not report to anybody since you are tax resident there. I would still use a nominee shareholder service to hide your name from the public register and i would never ever invoice your company.
Given that I can't rely on the rule of law being upheld by these money grabbing leeches, I see the only solution being actually moving to a low tax country, and simply having just the LLC (to access American services) and a holding company (to hide the country of residency on W-8BEN-E from clients). The LLC's profits would be taxed there as it'd have a place of effective management and a PE there, and I'd be able to pay myself directly from the LLC. The holding company can be incorporated in the UK as a respectable jurisdiction that doesn't see the LLC as a pass-through entity, and there's be nothing to be taxed as it'd have no revenue or profit.
So Hungary, UAE, etc., not Romania (the LLC's CIT would be 16%).
So Hungary, UAE, etc., not Romania (the LLC's CIT would be 16%).
Why are you worried about hiding the country of residency? Do you think they will care to know that a french guy is maneuvering the LLC?
I don't want to sign a new W-8BEN and notify clients each time I decide to move to a new place.
Also some clients adjust payouts to the COL in the place of residency.
If you manage yourself in whatever country then management and control is exercised from that country. This can lead, depending on how the law is written in the country of the entity, lead to you as a manager being taxed in the country where you are a resident for tax purposes.
Some countries don’t allow for this to happen however it then depends on your residency country on if this is being accepted or not. (Most likely not). The only way to then mitigate this tax liability is via double taxation treaties which in effect is nothing more than an agreement on how gets what portion from the tax.
The above doesn’t matter so much if you live in a low or preferably a no tax country.
In addition to all that has been said, don’t forget the EU in general. I am not aware of any cases at the moment but there have been some rulings in the past that basically bypass local legislation regardless of what that local legislation says.
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Hello Gnud, I am thinking about a similar setup.
You might be overcomplicating or I might be over simplifying, i decided to chime in to see if we can get more clarity on this!
You can check my post here:
From what i understand the IRS and the american bank (and even much less EMI accounts) will not report anything to your country of personal residency because the US is not on the CRS.
And even if you draw a lot of money to your personal account in your country of residence, the receiving bank cant also report anything if is less than 10k and sent from a personal account.
(LLC Business EMI » Personal EMI) » personal bank account in EU or wherever.
Your personal bank and tax authority in the country of residence dont have any way to find out that an LLC exists. All the bank sees is you receiving transfers from another personal account in your name, there is nothing to report. It´s you moving personal money from you to you.
To be even more safe, just aquire tax residency in a territorial tax country with no CRS, and preferably one that will very unlikely enforce POEM/PE.
They only have a chance to enforce it if you voluntarly let them know you own a LLC. Because for these type of countries will be even more difficult to find out about it, and you can then argue that it is foreign income.
To be even more safe, you can just be a tax resident but operate the business from somewhere else without becoming tax resident in that place and without loosing your official tax residency.
The cheapest and easiest countries for that purpose that I have found were Georgia and Paraguay the latter even less likely to POEM / PE.
I think theoretically this is the cheapest and easiest setup and if really needed you could even keep and use your personal bank account in EU, but of course would be safer to have instead a personal bank acount in the country of tax residency. And probably never pay any tax if no POEM/PE is enforced, a problem could arise only IF and WHEN they do it, by that time hopefuly the business is grown and mature with more resources and one can then change it to a top tier place like Dubai, Hong kong etc
Hope this helps and let me know what you think!
You might be overcomplicating or I might be over simplifying, i decided to chime in to see if we can get more clarity on this!
You can check my post here:
From what i understand the IRS and the american bank (and even much less EMI accounts) will not report anything to your country of personal residency because the US is not on the CRS.
And even if you draw a lot of money to your personal account in your country of residence, the receiving bank cant also report anything if is less than 10k and sent from a personal account.
(LLC Business EMI » Personal EMI) » personal bank account in EU or wherever.
Your personal bank and tax authority in the country of residence dont have any way to find out that an LLC exists. All the bank sees is you receiving transfers from another personal account in your name, there is nothing to report. It´s you moving personal money from you to you.
To be even more safe, just aquire tax residency in a territorial tax country with no CRS, and preferably one that will very unlikely enforce POEM/PE.
They only have a chance to enforce it if you voluntarly let them know you own a LLC. Because for these type of countries will be even more difficult to find out about it, and you can then argue that it is foreign income.
To be even more safe, you can just be a tax resident but operate the business from somewhere else without becoming tax resident in that place and without loosing your official tax residency.
The cheapest and easiest countries for that purpose that I have found were Georgia and Paraguay the latter even less likely to POEM / PE.
I think theoretically this is the cheapest and easiest setup and if really needed you could even keep and use your personal bank account in EU, but of course would be safer to have instead a personal bank acount in the country of tax residency. And probably never pay any tax if no POEM/PE is enforced, a problem could arise only IF and WHEN they do it, by that time hopefuly the business is grown and mature with more resources and one can then change it to a top tier place like Dubai, Hong kong etc
Hope this helps and let me know what you think!
Thanks!
The IRS will in fact report it to your country of residency as reported on the form 5472 as a foreign-owned LLC.
Also for opening a brokerage account in the US a tax id of the authorized person opening the account is required. A foreign tax id, in case of a non-ETBUS LLC.
The indication that this reporting is going on is that the EU dropped the threat to put the US on a non-cooperative jurisdiction list back in 2019.
So the only solution seems to be to have two tax residencies, two tax ids, without the 2 jurisdictions knowing about each other. Ideally under 2 different citizenships. One back home, one outside the EU, where you declare the LLC. Within the EU, tax residency informations seem to be shared now: https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/tax/lu-dac6-eu-exchange-information.pdf
Is it legal? Probably not, since you have an obligation to report all your companies and assets held abroad in your home country. Is it discoverable? Probably not, unless you keep receiving money from abroad and have no source of income back home.
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Isn‘t form 5472 only for transactions with a foreign party (if the LLC is owned by more than 25% by a foreign party?)
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