Looking for a pass-through company US LLC/UK LLP alternative, but in EU

[Bl4ckJackk]

Hello everyone, I have a following situation:

I am an IT freelancer with multiple clients. I have a chance to have a 0% total tax setup. Simply put I would reside in a non-EU country with territorial taxation and create a pass through-entity to invoice clients from other countries. There is no issue from the country of residence, if the income comes from outside and the money does not come into a local bank account, the country does not care - 0% tax.
Similarly for the pass through entity, let's say US LLC, if the owner is a non-resident and the clients are not in the US, no ETBUS, no IRS problems. And from what I understand even if some clients are in the US, probably not ETBUS as well.
But the bigger problem is with my clients (currently all of them are from the EU). One of them has no problem being invoiced by my US LLC. But the other one does. To paraphrase their concerns: "We have no problem with any entity established in the EU because in the case of a possible litigation, even if this has never happened to us yet, we would be sure that EU law would allow us to hold your EU company liable. If the company is in the US, we do not really know the processes and do not want to risk it."
So I would like to ask if there is any EU state that offers a pass-through structure, like a US LLC or UK LLP? I think a more stable country would be better, but honestly anything in the EU will do. Now I have not yet asked my client about the UK LLP option. Since it is not in the EU anymore, but it used to be, it is still europe, it is still first world, so maybe they might be fine with that and it would become the simplest option. Who knows, maybe they did business with someone from there before brexit?
If there are no simple pass-through structures outside US and UK (which is hard to believe), I guess a decent strategy would be a company in a jurisdiction with very low tax overall, like the classical Romania micro-company or some non-dom scheme in Cyprus. With these options I guess only the total costs of having a setup and a lawyer in there would come into consideration.
I would expect to make under EUR 100k in profit annually from the EU entity, but I cannot know if more of my future clients would have a problem with the US structure and I would have to use the EU entity for them as well.
There was also an option of invoicing the EU company from my passthrough company from US to extract profits, but apparently this would be subject to transfer pricing so I cannot really get 100% out, but still not a bad option to decrease the tax for the EU entity more, if there is one.

So to summarize:

- Do you know about any purely pass-through structures that can be established in the EU?
- If there are none, what would be some good options with minimal tax that would fall under local taxation, but would be cheap and easy to setup and maintain, such as RO micro-company or Cyprus non-dom company?
- Is invoicing this structure from a US LLC a good idea? Due to transfer pricing, what do you think I could expect to get away with?
- And the goal would be to have very little management fees and accounting overhead. The US LLC setup is fairle simple and cheap and outside of that I owuld just need a similar service for the EU structure. My country of residence itself requires no reporting or filing.

Thanks for any insights and feel free to ask for any details.

 

[JustAnotherNomad]

Pretty much all countries have general partnerships, but they don't offer limited liability directly. The Netherlands has CV, Sweden has KB, Germany has KG, and so on. You need at least two partners, one would have unlimited liability - you could probably use your US LLC for this, and then yourself as the second partner with limited liability (liable only for the capital you contributed to the partnership).
Banking and receiving a VAT ID could be a problem, I guess.

You could consider setting up an Estonian limited liability company. Profits are not taxed until distributed. You can take money out tax free using invoices from your US LLC and/or as a salary, subject to transfer pricing restrictions. Transfer pricing restrictions for salaries should be rather weak if you have a well-designed employment contract.
There's also a Lithuanian small partnership (MB), which despite the name, is a limited liability company, not a partnership. The MB allows you to pay a "management fee" of up to EUR 100k per year as a business expense, on top of any salaries or invoices. So then you could take some money out via invoices (easily staying below the transfer pricing thresholds), and up to 100k in management fees.
I'm not sure about the running costs for accounting and such though.

The advantage with using a limited liability company instead of a general partnership is that you should able to get a VAT ID rather easily, as well as a tax residency certificate. The latter could be important if your EU client is audited. Without a tax residency certificate, your clients could have trouble claiming your invoices as a deductible business expense. This is rarely checked, but something to keep in mind. This is especially important if you are tax resident in a country that is blacklisted as a tax haven by your client's government (Panama could be a candidate for this).

Oh, I almost forgot - Ireland has LLP's as well. Maybe that could be an option, too.

 

[Onassis]

- Do you know about any purely pass-through structures that can be established in the EU?

K/S in Denmark

Lithuanian small partnership (MB), which despite the name, is a limited liability company, not a partnership

Is this the Lithuanian equivalent of German UG?

 

[JustAnotherNomad]

Is this the Lithuanian equivalent of German UG?

I'm not sure. Maybe? It's a "small limited liability company" - isn't that what a UG is? But I think the UG is otherwise identical with the GMBH, only with lower minimum share capital?
The "big" limited liability company is the UAB in Lithuania. But I don't know if there is a difference in terms of minimal share capital. The UAB cannot claim the "management fee", as far as I know.
@Gediminas may know more about this.

I can imagine that if you use a "nonresident partnership" from any country, you will have real issues getting a VAT ID, which could be a major roadblock. And a TRC will be impossible to obtain because the partnership won't be a tax resident.
So using a limited liability company seems like a much better option for this. In Estonia, you should be able to do the accounting in English, so maybe you could even do it yourself. I've heard it's rather simple, and everything can be done online (with e-residency). But as far as I know, the Estonian government asks a lot of personal information for e-residency, much more than you may want to share. And it has to be renewed every couple years, for which they will ask the same questions. Not sure about Lithuania, I would guess you'd need an accountant as the forms would probably be in Lithuanian.

 

[Bl4ckJackk]

Pretty much all countries have general partnerships, but they don't offer limited liability directly. The Netherlands has CV, Sweden has KB, Germany has KG, and so on. You need at least two partners, one would have unlimited liability - you could probably use your US LLC for this, and then yourself as the second partner with limited liability (liable only for the capital you contributed to the partnership).
Banking and receiving a VAT ID could be a problem, I guess.

You could consider setting up an Estonian limited liability company. Profits are not taxed until distributed. You can take money out tax free using invoices from your US LLC and/or as a salary, subject to transfer pricing restrictions. Transfer pricing restrictions for salaries should be rather weak if you have a well-designed employment contract.
There's also a Lithuanian small partnership (MB), which despite the name, is a limited liability company, not a partnership. The MB allows you to pay a "management fee" of up to EUR 100k per year as a business expense, on top of any salaries or invoices. So then you could take some money out via invoices (easily staying below the transfer pricing thresholds), and up to 100k in management fees.
I'm not sure about the running costs for accounting and such though.

The advantage with using a limited liability company instead of a general partnership is that you should able to get a VAT ID rather easily, as well as a tax residency certificate. The latter could be important if your EU client is audited. Without a tax residency certificate, your clients could have trouble claiming your invoices as a deductible business expense. This is rarely checked, but something to keep in mind. This is especially important if you are tax resident in a country that is blacklisted as a tax haven by your client's government (Panama could be a candidate for this).

Oh, I almost forgot - Ireland has LLP's as well. Maybe that could be an option, too.

Thank you for the insights, from what I've gathered the Lithuanian option probably sounds the best. I have not found any info on the "Management fee" so far, so will have to research that more. I don't really understand how the transfer pricing could be set, I think it depends a lot how I would define the services, so if I say that the US LLC is lending out my programming services to be resold in the EU I could see the fair split to be anywhere from 80/20 to 95/5 in favor of the US LLC invoicing, but who knows. This could enable me to extract tax free far more than I would probably need, I would imagine the maximum I would ever make with this company is like 200K EUR.
The costs for Lithuania MB I found are roughly 1500 EUR for setup and first half year of running and then 1500 EUR every year running costs, not that good but also not that bad. Roughly what I pay for accounting where I am now.. so..
Also the site says that under 300k profit (or turnover?) the corp tax is 5% which is like nothing. The dividend tax upon withdrawal would be 15%, and I do not know if there is a way to circumvent this but it would be small amounts anyway.
Also if there were no problems with VAT and bank accounts as a non EU resident, and the clients would have nothing to complain about, then it sounds really like the best solution (besides the fact that Lithuania does not really sound reputable).
It is a shame though that there is nothing completely pass-through in the EU. At least that is the way I understand it?

 

[Marzio]

Do you know about any purely pass-through structures that can be established in the EU?

Cyprus LLP but it's like an unicorn, i never seen on in my life.

Ireland has LLP's as well

I think IE LLP can be only used by specific businesses like lawyers (but i could be wrong)

 

[JustAnotherNomad]

Also the site says that under 300k profit (or turnover?) the corp tax is 5% which is like nothing. The dividend tax upon withdrawal would be 15%, and I do not know if there is a way to circumvent this but it would be small amounts anyway.

Check if the withholding tax is reduced under a tax treaty. For example, if the MB is owned by a UAE company, I don't think there is any withholding on dividends.

It is a shame though that there is nothing completely pass-through in the EU. At least that is the way I understand it?

What? I just listed tons of options for you.
Set up a Dutch CV or similar partnership from any other country, make your US LLC the general partner (full liability) and yourself the limited partner (limited liability). Then you have pass-through entity.
I'm not even sure if you have to file returns in the Netherlands in that case (or wherever you set up the partnership).
But the problem is that you won't be able to get a TRC for the company, and even getting a bank account or VAT ID could be tricky (not 100% sure). It's the same issue with your US LLC, but there a VAT ID at least won't be expected since the company is not from the EU. So I would check this part first...

 

[Bl4ckJackk]

Check if the withholding tax is reduced under a tax treaty. For example, if the MB is owned by a UAE company, I don't think there is any withholding on dividends.



What? I just listed tons of options for you.
Set up a Dutch CV or similar partnership from any other country, make your US LLC the general partner (full liability) and yourself the limited partner (limited liability). Then you have pass-through entity.
I'm not even sure if you have to file returns in the Netherlands in that case (or wherever you set up the partnership).
But the problem is that you won't be able to get a TRC for the company, and even getting a bank account or VAT ID could be tricky (not 100% sure). It's the same issue with your US LLC, but there a VAT ID at least won't be expected since the company is not from the EU. So I would check this part first...

Thanks, I'll be sure to check that out. As I said, the client said that "any EU structure will do". So I do not know what their opinion on the TRC is. VAT registration is probably a given. Bank account could just be EMI I believe, no problem there.
I wrote to some professionals about the MB option so I will see what they think.
Btw. Lithuanian MB can be owned by physical persons only. My personal residence would be Paraguay, so it would not surprise me if there would be WHT of 30%+ between Lithuania and PG upon distribution.

 

[Spinat]

Cyprus LLP but it's like an unicorn, i never seen on in my life.

What do you think is so special with it?

 

[Marzio]

What do you think is so special with it?

It's not special per se, it's a normal LLP but i never seen one compared to the many UK LLP i see used around.

 

[MementoMori999]

Hi @

I am an IT freelancer with multiple clients. I have a chance to have a 0% total tax setup. Simply put I would reside in a non-EU country with territorial taxation and create a pass through-entity to invoice clients from other countries. There is no issue from the country of residence, if the income comes from outside and the money does not come into a local bank account, the country does not care - 0% tax.

Hi @Bl4ckJackk

I am in the same situation as you, EU clients want to pay into EU entities but I have 0% personal income tax - I posted my question here.

FYI I think they would be fine with a UK LLP.

Can you share what did you go for in the end?

Thanks!