Maltese TradeCo and HoldCo - Non-Dom EU Resident

[aniglo22]

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?

An arm’s length transaction means charging the market value (the same amount you would charge an unrelated party).
However, it appears that you are eroding the tax base of the US corporation by not engaging in arm’s length transactions .

 

[aniglo22]

Also, the IRS is heavily understaffed, so you have to be either very suspicious or very unlucky to get audited.
Just because it worked for 7 years doesn’t mean it’s legal

 

[bulgarian]

I mean I've got 30+ people working in the BGCo to service the USCo, and it's a lot of routine media work. They're obviously getting BG salaries, not US. A US team would cost 2-3X as much.

 

[aniglo22]

I mean I've got 30+ people working in the BGCo to service the USCo, and it's a lot of routine media work. They're obviously getting BG salaries, not US. A US team would cost 2-3X as much.

Why do you even have an C-Corp ?

 

[bulgarian]

Credibility + a lot of Google/Amazon startup credits for servers and stuff (a few hundred K worth) that were never available to BG startups.

 

[aniglo22]

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?

But having no profits for seven years straight is still very suspicious and immediately raises BEPS concerns.

 

[aniglo22]

Credibility + a lot of Google/Amazon startup credits for servers and stuff (a few hundred K worth) that were never available to BG startups.

You wouldn't get the same Google/Amazon credits with an SMLLC ?

 

[bulgarian]

I understand completely and appreciate the input. It's a massive tax liability down the line if I continue.

So I guess the ideal structure is Malta TradeCo (this is where the money comes in from my clients) -> Malta HoldCo (5% tax) -> then I either distribute dividends to myself as a BG citizen (5%) or invest through BG LTD's (0%). Then if I sell the BG LTD, it's 0% (because there's no capital gains in Malta).

The catch is that, while I remain a BG citizen/resident, I need to have a Maltese director/office/agent/etc - which will cost me about 10K euros per year for both companies?

 

[aniglo22]

I understand completely and appreciate the input. It's a massive tax liability down the line if I continue.

So I guess the ideal structure is Malta TradeCo (this is where the money comes in from my clients) -> Malta HoldCo (5% tax) -> then I either distribute dividend to myself as a BG citizen (5%) or invest through BG LTD's (0%). Then if I sell the BG LTD, it's 0% (because there's no capital gains in Malta).

Just ditch the C-Corp .
Yeah this is better .

 

[bulgarian]

This has been incredibly helpful @aniglo22 - you're the best!

I know very little about Malta. Is this a safe destination to park my money and legally only pay 5% tax moving forward? Can the nominal director basically steal my money, and then move to Aruba or whatever to avoid liability, lol.

 

[daniels27]

An arm’s length transaction means charging the market value (the same amount you would charge an unrelated party).
However, it appears that you are eroding the tax base of the US corporation by not engaging in arm’s length transactions .

Well, the problem here is that there is a US-Bulgaria DTA, which in his case clearly states that his company is only taxable in Bulgaria. Hence, the whole thing would mainly be a massive mess without many consequences?

But then again, why not just use a US LLC owned by the Bulgarian company?

 

[bulgarian]

Well, the problem here is that there is a US-Bulgaria DTA, which in his case clearly states that his company is only taxable in Bulgaria. Hence, the whole thing would mainly be a massive mess without many consequences?

But then again, why not just use a US LLC owned by the Bulgarian company?

I thought I'd be raising money (and a C-Corp is better for that) but ended up bootstrapping and becoming profitable instead. So I just stuck with the good old C-Corp. But it appreas that it's time for it to go. As for Malta - the catch is that, while I remain a BG citizen/resident, I need to have a Maltese director/office/agent/etc - which will cost me about 10K euros per year for both companies?

 

[daniels27]

I thought I'd be raising money (and a C-Corp is better for that)

Yes, Delaware Corp. would be best in this case.

But it appreas that it's time for it to go. As for Malta - the catch is that, while I remain a BG citizen/resident, I need to have a Maltese director/office/agent/etc - which will cost me about 10K euros per year for both companies?

Well, but you have 30 employees in Bulgaria? Of course enforcement in Bulgaria is weak for some. But will this work?

Have you checked this one

D

Thread 'Tax Residency for Companies and Individuals: Permanent Establishments, Place of Effective Management, CFC and Certificates'

Jun 14, 2025

There already have been many discussions about how to stop paying taxes. We then often discuss that avoiding CFC rules and getting some mighty certificates won't do the job. But that's not how the magic works.

This summary won't necessarily apply to US citizens as they are subject to taxation no matter where they live. For those concerned, they need to file annually and pay taxes on their world-wide income while accounting for tax credits for taxes paid abroad, the foreign-sourced income exemption (FSIE), foreign bank account reporting (FBAR) and for high-earners also alternative minimum...

• daniels27
• Replies: 7
• Forum: Tax, Accounting, Licensing & Legal

• 

 

[bulgarian]

Yes, Delaware Corp. would be best in this case.


Well, but you have 30 employees in Bulgaria? Of course enforcement in Bulgaria is weak for some. But will this work?

Have you checked this one

D

Thread 'Tax Residency for Companies and Individuals: Permanent Establishments, Place of Effective Management, CFC and Certificates'

Jun 14, 2025

There already have been many discussions about how to stop paying taxes. We then often discuss that avoiding CFC rules and getting some mighty certificates won't do the job. But that's not how the magic works.

This summary won't necessarily apply to US citizens as they are subject to taxation no matter where they live. For those concerned, they need to file annually and pay taxes on their world-wide income while accounting for tax credits for taxes paid abroad, the foreign-sourced income exemption (FSIE), foreign bank account reporting (FBAR) and for high-earners also alternative minimum...

• daniels27
• Replies: 7
• Forum: Tax, Accounting, Licensing & Legal

• 

I'll keep the BulgarianCo and the employees or incorporate a new LTD that is owned by the Maltese HoldCo and transfer all the workforce there.

 

[daniels27]

I'll keep the BulgarianCo and the employees or incorporate a new LTD that is owned by the Maltese HoldCo and transfer all the workforce there.

You mean, the will work in Malta?

 

[bulgarian]

You mean, the will work in Malta?

No, they will continue to be in Bulgaria and hired by the BG company. So the Maltese company will hire the BG one for services. And then all the tax will be paid in Malta anyway (for the 5% gain). Is this not a sound plan?

 

[daniels27]

No, they will continue to be in Bulgaria and hired by the BG company. So the Maltese company will hire the BG one for services. And then all the tax will be paid in Malta anyway (for the 5% gain). Is this not a sound plan?

I guess as both is EU, you won't have big transfer pricing issues. But still, your setup may get contested in the sense that they claim that all profit arises in Bulgaria. And at the amounts you quote in your first post, we are not talking about little amounts. You will most likely at least need some management in Malta for it to work.

 

[ilke]

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?

Sort of yes. You cannot just move funds like that because of transfer pricing and the correctly suggested arm's length pricing principles (as covered by @aniglo22)

You could set up a US SMLLC with the Bulgarian company member – all funds go into the Bulgarian company without US taxation and this is legally compliant. But the current structure is not because you are most probably billing more than a market-defined rate.

I guess as both is EU, you won't have big transfer pricing issues. But still, your setup may get contested in the sense that they claim that all profit arises in Bulgaria. And at the amounts you quote in your first post, we are not talking about little amounts. You will most likely at least need some management in Malta for it to work.

Yes, this is a good point. Having the Bulgarian PE means the Malta company will not change much unless the primary domicile of activities is moved there.

@bulgarian could maybe consider an Estonian OU doing business via a Bulgarian branch, that way it is only 10% CIT and no WHT on distributions.

 

[daniels27]

Sort of yes. You cannot just move funds like that because of transfer pricing and the correctly suggested arm's length pricing principles (as covered by @aniglo22)

I think we once had guys like @Hydrox here who were running a US LLC and reporting all income in Germany as self-employment income. I think in this case, we are in about the same case. While technically wrong, it is still very close to what should be done legally. Due to the DTA US-Bulgaria, all income in the US is actually taxable in Bulgaria. While technically he would have to register the US company in Bulgaria and only pay taxes there, he did it a bit differently. I guess in an audit, it will be some long discussions and then they will accept it being done that way. Or what do you think on that?

 

[AndyAresa]

...

The Bulgarian tax rate is good, but as I grew my business, the government harassment kept increasing. ...

Hello bulgarian, could you give some details on government harassment? i am considering establishing a base in Bulgaria for residence and business and wonder what to expect from the government.