European Nomad IT Contractor - residing in 'naughty' country + tax resident of nowhere - UK LLP -> US LLC setup

[MementoMori999]

Hi! I'm new here, amazing resource!

I currently reside in a cheap, low cost, low tax, 'dodgy/naughty' country in Eastern Europe (outside EU). I will either be a tax resident of said Eastern European country, or nowhere (as I travel often).

I do remote IT Contracting with end clients based in the EU and UK (estimated 100-150k EUR per year).

I am an EU citizen and not a tax resident of my home country.

I setup an Individual Entrepreneurship (1%) entity in GE, however a few EU and UK companies have viewed this and my location as 'dodgy' and refused to do business with me. Not to mention, I don't reside in GE (I didn't understand this when I set this up, even though I paid for advice).

First I found out about single member US LLC's, which sound like a good solution, however it seems EU/UK companies prefer to pay to EU/UK based companies (for their own comfort, familiarity and presumably VAT, etc).

So I then I looked to UK LLPs. My first thought was to setup a US LLC (anon state) and then a UK LLP. I'm unsure which partners to list, I could like myself (the individual) and my US LLC 50/50. Or I could create 2x US LLCs and list them 50/50.

I want to have the best reputation possible, so I was planning to make both the UK and US entities the same name. The business name is not anonymous and easily tied back to me ('I' am the business, e.g. 'Smith Consulting').

In regards to banking, I would setup a Wise based off the US LLC. I could also do the same with the UK LLP although someone mentioned I might have trouble given one of the LLP partners is a US LLC and this might look 'off' to an EMI?

My understanding is any revenue/income would pass through the UK LLP (0%) -> UK LLC (0%) -> Me (individual) in low tax country / no country

My questions:

1. Am I going about this the best way possible?
2. Should I look to do this anonymously or semi-anon somehow?
3. Will my maintenance on this setup be too high for a one man IT consultant?
4. What about my UK LLP partners?
5. Could I just have the UK LLP, and if so, who could I have as partners? (just list me and a friend in a 0% tax country?)

Thank you kindly!

 

[Marzio]

Your UK LLP will not solve the problem as companies house registry is public and anybody who will lookup your UK LLP will see that you are resident in a dodgy country.

Also, if you manage your UK LLP from Georgia it will be considerd tax resident in Georgia and you'll have to pay CIT on your income.

If your customers want to deal with a EU person then you have a couple of options:

1. Polish IP Box for programmers is 5% tax if you qualify (you work in IT so i presume you will qualify) and since you are EU citizen moving to Poland will be easy.

2. Bulgaria freelancer is 7.5% tax if i remember correctly

This thread is worth a read: Bulgaria vs Romania for a freelancer

 

[MementoMori999]

Your UK LLP will not solve the problem as companies house registry is public and anybody who will lookup your UK LLP will see that you are resident in a dodgy country.

Thanks for the reply.

What if I list myself as 'EU citizen of reputable country' residing at 'address in the same reputable EU country'? This will actually be the address/location where I will tell my end clients I work from.

I do actually use this address as my base, receive mail and work from there sometimes, but I don't live there long enough to be a tax resident of this high tax EU country.

My assumption is that listing that address in the UK Companies House may imply, but does not declare that I am a tax resident of that country.

Your UK LLP will not solve the problem as companies house registry is public and anybody who will lookup your UK LLP will see that you are resident in a dodgy country.

Or... what if the partners are 2x US LLCs? ('Smith Consulting' + 'Smith Group')

If the customer is from say the Netherlands or Sweden, I wonder if this is good enough. I heard that UK LLPs are known to be shading in the UK itself... but within the EU - do they know how to check?

 

[Marzio]

I think you are overcomplicating things.

Again, if customers want to deal with a EU person just give them what they want.

If the Poland and Bulgaria options aren't compelling then setup a OU company in Estonia.

In Estonia companies pay CIT only upon distribution so if you never distribute dividends you'll never pay CIT.

At the same time salaries paid to non resident employees (like you) are tax free and taxed where you are resident but...if you are resident of nowhere you don't pay taxes LOL

Speak with @Don for everything Estonia.

 

[Don]

I think you are overcomplicating things.

Again, if customers want to deal with a EU person just give them what they want.

If the Poland and Bulgaria options aren't compelling then setup a OU company in Estonia.

In Estonia companies pay CIT only upon distribution so if you never distribute dividends you'll never pay CIT.

At the same time salaries paid to non resident employees (like you) are tax free and taxed where you are resident but...if you are resident of nowhere you don't pay taxes LOL

Speak with @Don for everything Estonia.

Yes, Marzio is right.
There are setups with Estonia that can provide a 0% overall tax (e.g., salary paid to non-residents).
In the same way, you can open a branch office of a foreign entity in Estonia. Perhaps this could be a more affordable way to solve the US LLC or UK LLP issue.
It is a relatively affordable setup and easy to manage with an Estonian digital ID available for non-residents (aka e-residency).
Branch/PEs of non-residents are taxed only on profits distributed from income derived from Estonian sources.

The problem with US SMLLC and UK LLP is that these are tax-transparent entities which are not tax residents in the country of incorporation by default. This can cause issues such as withholding taxes to the payer.

 

[Marzio]

you can open a branch office of a foreign entity in Estonia

Why would you choose to open a branch office of a foreign entity instead of forming a OU?

Which foreign entity do you have in mind? US LLC?

 

[MementoMori999]

I think you are overcomplicating things.

Again, if customers want to deal with a EU person just give them what they want.

If the Poland and Bulgaria options aren't compelling then setup a OU company in Estonia.

In Estonia companies pay CIT only upon distribution so if you never distribute dividends you'll never pay CIT.

At the same time salaries paid to non resident employees (like you) are tax free and taxed where you are resident but...if you are resident of nowhere you don't pay taxes LOL

Speak with @Don for everything Estonia.

Thanks... I will look into Estonia.

Unfortunately, for employers in the UK/Ireland, countries like Poland/Bulgaria/Estonia are also considered a little 'dodgy'.

The other thing they don't like is if I say I am based in Country A (e.g. Ireland) but ask them to pay my company in Country B (e.g. Estonia). Then I'm also using Wise it's to pay into a Belgian Bank account...

I guess I could say I'm located in Estonia... they are uncomfortable with this but it's still workable for them.

As an IT Contractor, they seem to be very inquisitive to all of this if there are multiple things that 'don't match' (fall outside the cookie cutter of Company Location + Remote Working Location + Bank Account Location all being the same like for 99% of their workers) it raises red flags for them.

This is why I was going for the UK/US setup. If I was a dropshipper or something it would be easier.

Is there a solution that meets these requirements?

 

[Don]

Why would you choose to open a branch office of a foreign entity instead of forming a OU?

Which foreign entity do you have in mind? US LLC?

In such a case, it works out as a territorial tax, as Estonia will not tax the worldwide income of a foreign entity.
Non-residents' branches/PEs are taxed only on profits distributed from income derived from Estonian sources.
Both what OP suggested, US LLC or UK LLP with a branch office in Estonia, could work too.

Some people have expressed concerns that some tax-free salaries paid from OÜ could be requalified as directors' salary/dividends. This is not possible with foreign entity branches in Estonia for work performed abroad.

The other thing they don't like is if I say I am based in Country A (e.g. Ireland) but ask them to pay my company in Country B (e.g. Estonia). Then if I'm using Wise it's to pay into a Belgian Bank account.

You can also open an Estonian IBAN account.

 

[MementoMori999]

Ok, interesting, thank you.

So, do you mean an Estonian branch office of a foreign entity (either me the individual OR a single member US LLC)?

Is this foreign entity anonymous to the public? (or at least its address?)

Also, what about Irish LPs or other EU countries LLP / partnerships / pass through equivalents? Do they result in employers wanting to withhold tax?

FWIW in the UK this is a big issue with what they call ‘IR35’ - some laws to make sure UK tax resident IT contractors pay the same rates of tax as normal employees.

The UK gov places the burden on checking all this to the employers, with heavy fines for non compliance. It naturally makes employers overzealous and they want to know what you had for breakfast even though I’m not from the UK and none of this applies in any way…

 

[Don]

Ok, interesting, thank you.

So, do you mean an Estonian branch office of a foreign entity (either me the individual OR a single member US LLC)?

Branch office of a foreign company (e.g., US LLC)

Is this foreign entity anonymous to the public? (or at least its address?)

Branches are exempt of UBO reporting

Also, what about Irish LPs or other EU countries LLP / partnerships / pass through equivalents? Do they result in employers wanting to withhold tax?

FWIW in the UK this is a big issue with what they call ‘IR35’ - some laws to make sure UK tax resident IT contractors pay the same rates of tax as normal employees.

The UK gov places the burden on checking all this to the employers, with heavy fines for non compliance. It naturally makes employers overzealous and they want to know what you had for breakfast even though I’m not from the UK and none of this applies in any way…

It might be better for IR35 purposes to use a foreign entity that has tax residency somewhere outside the UK, so if needed you can provide them the tax residency certificate of the company.
You can also setup Estonian company that manages an unincorporated partnership with yourself as a Georgian sole proprietor.
This way Estonian entity is just used for banking, and VAT, but pays out all the profits to you as a sole proprietor in Georgia, where you pay 1% tax.

 

[ActionMan]

Set aside considerations of the U.S. and the U.K. for the moment, and focus on Estonia. If your U.S. LLC functions as a holding company or owns significant shares in other companies, it may lead to complexities with the IRS. Moreover, the UK LLP approach also presents certain bureaucratic hurdles. While having a public registry in the UK isn't inherently problematic, it could complicate your particular situation.

Establishing a branch office in Estonia or creating an OU (Osaühing) there might be advantageous. By forming an OU, you could allocate about 40-50% of your profits as a personal salary. If you have a trustworthy partner or friend, you might even be able to receive up to 80% of your profits tax-free. In cases where an Estonian branch is more appropriate, that would be the preferable choice. For holding company structures (the holding that will make you open an Estonian branch), Dubai or Labuan might be effective. With such a setup, you could potentially achieve a 0% overall tax rate.

 

[MementoMori999]

Agree - simple is best!

An Estonian branch office sounds like a great solution.

Do other EU countries (e.g. Ireland) have the same concept? With no local taxation (i.e. territorial taxation in effect) of non-resident branch employees? I ask about Ireland as it's a powerhouse at the moment.

I looked into Ireland.

It does seem to operate in the same way. US LLC + Irish branch company. If 100% of branch company revenue (not sourced in Ireland) is paid out to a non-resident single employee as a salary, then it appears there is no tax to payable in Ireland.

Of course, the purpose of the structure may be challenged, however it's (genuinely) required to do business in the EU as EU customers ask for it.

So, that's the theory - is it this simple in practice?

I assume it's not as sophisticated as UK or US with multiple providers offering cheap and quick company formation. Are there other problems I can't see?

EDIT: I looked into Ireland.

It does seem to operate in the same way. US LLC + Irish branch company. If 100% of branch company revenue (not sourced in Ireland) is paid out to a non-resident single employee as a salary, then it appears there is no tax to payable in Ireland.

Of course, the purpose of the structure may be challenged, however it's (genuinely) required to do business in the EU as EU customers ask for it.

So, that's the theory - is it this simple in practice?

I assume it's not as sophisticated as UK or US with multiple providers offering cheap and quick company formation. Are there other problems I can't see?

EDIT: Please ignore the duplicate text, editing issues.

Update: Hmmm.... I found this. It seems a bond is required if a company does not an EU/EEA resident director:

From one Irish online company formational website - "All companies registered in Ireland are required to have at least one director who is resident in one of the European Economic Area (EEA) member states. Where all the directors of the company are resident outside of EEA member states, the company is required to have a non-resident insurance bond in place, under the requirements of the Companies Act, 2014. The bond is made to the value of €25,000"

This one example provider will provide the bond for you + set everything up for 2.4k EUR.

But apart from increased costs (as expected), it seems possible.

 

[BlackJack]

I currently reside in a cheap, low cost, low tax, 'dodgy/naughty' country in Eastern Europe (outside EU).

Can u share which one?

 

[MementoMori999]

Can u share which one?

I would rather not, sorry. But it’s a very sanctioned country at the moment. It’s not too hard to guess but please keep it to yourself.

What setup did you go with? I see you are in the same situation in a previous thread.

 

[Rome]

Your UK LLP will not solve the problem as companies house registry is public and anybody who will lookup your UK LLP will see that you are resident in a dodgy country.

Also, if you manage your UK LLP from Georgia it will be considerd tax resident in Georgia and you'll have to pay CIT on your income.

If your customers want to deal with a EU person then you have a couple of options:

1. Polish IP Box for programmers is 5% tax if you qualify (you work in IT so i presume you will qualify) and since you are EU citizen moving to Poland will be easy.

2. Bulgaria freelancer is 7.5% tax if i remember correctly

This thread is worth a read: Bulgaria vs Romania for a freelancer

How so? Georgia does not have worldwide taxation

 

[Rome]

How so? Georgia does not have worldwide taxation

Sorry, I understand that the UK LLP is taxed by Georgia as the place of management and control.
What if the UK LLP had substance in the UK? Can George still tax the LLP?

 

[Marzio]

What if the UK LLP had substance in the UK? Can George still tax the LLP?

UK LLP with susbstance in UK = UK taxes

 

[MementoMori999]

Update. I’ve got a potential Irish client. Looking more into setting up an Irish company, bank account and paying the 12.5%.

It appears it’s payable even if the work is not performed there. Ireland seems much more locked down (but gets a better rep in exchange).

I’ve lost 2 clients previously with talk of Estonia, Georgia, etc. I do have a Dutch umbrella pass through option (@ 2.5%) but even that might raise alarms. These payroll people are super conservative and don’t know what they’re talking about really. Anything outside of the cookie cutter freaks them out.

12.5% is still pretty low esp given Dubai is 9% now. Not totally happy with it but it seems like the only workable thing for now.

I might also try my luck and offer the UK LLP. I assume I can use a virtual office for my member address, right?

Kinda brings me back to my original thought - UK LLP with me (resident of nowhere) + US LLC as partners

 

[DomOCT]

I assume I can use a virtual office for my member address, right?

Yes.

If possible, avoid using US LLCs as UK LLP partners. If you need a tax transparent EU front, look into setting up a Cyprus LP. It would also allow you to easily obtain an EU VAT ID if required.

 

[MementoMori999]

Actually, I think I just worked it out

So, we have:
Irish end client
Irish company (mine to create) - functions similar to a payroll/umbrella company
Independent contractor (me) of Irish company, tax resident of nowhere (or a no or low tax jurisdiction)

Then, the process:

1. Contractor (me) timesheets Irish Payroll company for hours worked
2. Irish Payroll company invoices Irish end client
3. Irish end client pays invoice
4. Irish Payroll company receives payment
5. Irish Payroll company disperses payment to Independent Contractor (minus 3% service fee - market rate for a payroll service)
6. Independent contractor (me) responsible for any and all personal income tax liability on this 97%

Irish Payroll company profits are only the 3% service fee - which is taxed at 12.5%


Basically I'll just set myself up something akin to a 1 person Umbrella company. Note - None of the umbrella companies I've spoken to in Ireland will work an overseas employee/contractor, they say it's because their insurance won't cover them. They all want to hire you as an employee and withhold tax, but legally I can't see why they couldn't do this... seems to just be company policy.

Does that sound OK?