Maltese TradeCo and HoldCo - Non-Dom EU Resident

[bulgarian]

Hey everyone,

I'm in contact with a few law firms, but it's taking them forever to respond. I appreciate this community a lot, so I thought I'd ask for your advice/recommendations as well. I know my lawyers will tell me it's a solid plan because that's how they make money. I'd like to hear your unbiased opinion and personal experience. So here goes:

I am a Bulgarian resident with an annual service income of ~€2-3 million. I own a US C-Corp that provides services to media companies. They pay my US C-Corp. Then I pay my contractors from the US C-Corp and transfer the remainder (the profit) to a Bulgarian LTD. Then I pay myself from that Bulgarian LTD at a 14.5% effective tax rate.

The Bulgarian tax rate is good, but as I grew my business, the government harassment kept increasing. So I'd like the dual Maltese structure for asset/wealth protection as well. I own ~€8M in residential real estate in Bulgaria, and I don't think having 100% of my assets tied up here is a smart move. I'd like to lower my tax rate and diversify the risk. Maybe set up Bulgarian LTD's that hold real estate that are fully owned by my Maltese HoldCo? So, a two-tier Maltese corporate structure (HoldCo + TradeCo) to manage this income and for future investment might make sense, or am I missing something?

If you can also recommend a few legit law firms that have done this for you + give me a rough estimate of the maintenance costs (I'm hearing 10-15K euros per year atm), that would be greatly appreciated. Thank you!

 

[aniglo22]

Are you distributing dividends, or are you just billing your Bulgarian LTD for the profits?

You would also need to account for substance costs (employees, office, etc.) in Malta to make it work.

 

[daniels27]

If you can also recommend a few legit law firms that have done this for you + give me a rough estimate of the maintenance costs (I'm hearing 10-15K euros per year atm), that would be greatly appreciated. Thank you!

You can do this yourself. But honestly, an office and a director in Malte, you are relatively quickly at 10K per year.

 

[bulgarian]

Nah, I don't want to do it myelf. I make more by growing my business, plus I'd rather have a reputable law firm do all of it (office, director, accounting for substance). The HoldCo is for asset protection / family office in a way too.

Yes, the idea is US C-Corp -> Malta TradeCo -> Malta HoldCo (5% corp tax) -> dividend distribution to me in Bulgaria (another 5% tax); or skip the second 5% dividend and create a Bulgarian LTD owned by HoldCo to invest in real estate or stocks, effectively making my tax burden only 5%. *Then I can sell these Bulgarian LTD's (1 property per company) and the proceeds will go to HoldCo (0% capital gains)*.

And then I can do it all over again or distribute dividends to myself at 5%.

Am I missing something?

 

[aniglo22]

Nah, I don't want to do it myelf. I make more by growing my business, plus I'd rather have a reputable law firm do all of it (office, director, accounting for substance). The HoldCo is for asset protection / family office in a way too.

Yes, the idea is US C-Corp -> Malta TradeCo -> Malta HoldCo (5% corp tax) -> dividend distribution to me in Bulgaria (another 5% tax); or skip the second 5% dividend and create a Bulgarian LTD owned by HoldCo to invest in real estate or stocks, effectively making my tax burden only 5%. *Then I can sell these Bulgarian LTD's (1 property per company) and the proceeds will go to HoldCo (0% capital gains)*.

And then I can do it all over again or distribute dividends to myself at 5%.

Am I missing something?

Are you sure everything is fine on the U.S. side?
It seems to me like this could be considered base erosion on US side .
I don't know the exact structure, but I'm fairly certain that you will not satisfy the requirements of Treas. Reg. §1.482-9(b) , if the FRP bills the U.S. corporation for services on a non-arm’s length basis .

 

[bulgarian]

We have no US base of operation. It's a pass-through C-Corp in Delaware. No office, no representatives, nothing. We pay our franchise tax and that's it. I've had this setup for 5+ years but it was US -> BG, not US -> MaltaTrade -> MaltaHold -> BG

 

[daniels27]

We have no US base of operation. It's a pass-through C-Corp in Delaware. No office, no representatives, nothing. We pay our franchise tax and that's it. I've had this setup for 5+ years but it was US -> BG, not US -> MaltaTrade -> MaltaHold -> BG

You mean, you elected the C-Corp to be treated as a disregarded entity?

 

[aniglo22]

We have no US base of operation. It's a pass-through C-Corp in Delaware. No office, no representatives, nothing. We pay our franchise tax and that's it. I've had this setup for 5+ years but it was US -> BG, not US -> MaltaTrade -> MaltaHold -> BG

How can a C-Corp be a pass-through entity?

 

[bulgarian]

You mean, you elected the C-Corp to be treated as a disregarded entity?

Yes. BG entity invoices the US and we file an annual declaration to the IRS disclosing the connection between the 2 companies and clearly stating we have no US base of operations.

 

[aniglo22]

You mean, you elected the C-Corp to be treated as a disregarded entity?

This doesn’t make sense.
How can a corporation be treated as a disregarded entity

 

[bulgarian]

The C-Corp has no US nexus and no US shareholders, so it's been fine until now. But I was generating 3-5X lower amounts up until last year. So I guess the best course of action here is to eliminate the US company and make the Malta TradeCo sign a contract with the end clients?

 

[daniels27]

The C-Corp has no US nexus and no US shareholders, so it's been fine until now. But I was generating 3-5X lower amounts up until last year. So I guess the best course of action here is to eliminate the US company and make the Malta TradeCo sign a contract with the end clients?

Most likely yes.

 

[aniglo22]

The C-Corp has no US nexus and no US shareholders, so it's been fine until now. But I was generating 3-5X lower amounts up until last year. So I guess the best course of action here is to eliminate the US company and make the Malta TradeCo sign a contract with the end clients?

Are you perhaps confusing something?
A C-corporation cannot be classified as a pass-through or disregarded entity

 

[daniels27]

Are you perhaps confusing something?
A C-corporation cannot be classified as a pass-through or disregarded entity

I think he means that all profits will be passed on by invoicing to another company. Not pass-through taxation.

 

[aniglo22]

I think he means that all profits will be passed on by invoicing to another company. Not pass-through taxation.

But yeah this has to be done under arm's length and has to satisfy Treas. Reg. §1.482-9(b).

@bulgarian Are you sure that you have an C-Corp and not an SMLLC ?

 

[TheCryptoAnt]

A C-corporation cannot be classified as a pass-through or disregarded entity

I think this too? Only disregarded entities are considered pass-through

 

[aniglo22]

I think this too? Only disregarded entities are considered pass-through

An S-Corp is pass-through , but it's limited only to us residents/citizen .
But a C-Corp is not .

 

[bulgarian]

Yes, you guys are right. It's a C-corp (not a pass-through*). No US nexus, though, and I don't personally get paid through the USCo. The BG company invoices the US company for services. Then there's no profit left at the end of the year. I pay my accountant + a registered agent, and then I pay some Delaware Franchise Tax.

 

[aniglo22]

Yes, you guys are right. It's a C-corp (not a pass-through*). No US nexus, though, and I don't personally get paid through the USCo. The BG company invoices the US company for services. Then there's no profit left at the end of the year. I pay my accountant + a registered agent, and then I pay some Delaware Franchise Tax.

Are your transactions done under arm's length and do you satisfy Treas. Reg. §1.482-9(b) ?

 

[bulgarian]

I'm not a tax professional - I trusted my accountant with it and I've had zero issues in the past 7 years of doing this. But the numbers were lower. Am I correct in assuming that I've got a bomb under my seat with the current US C-Corp structure?