Most "flexible" country for holding company

[kekmaw]

What would be the best country to set up a holding company based on the following:

1. Holding Company must be located in a country that has a 0% tax treaty with the US regarding royalties.
The holding company owns several US LLCs (LLC A, LLC B, LLC C and so on) that only earn royalties and they have no other operations in the US or anywhere so they are tax transparent and the income flows directly to the Holding Company.

2. To utilize the tax treaty, the Holding Company must have Permanent Establishment in that country as well.

3. UBO lives in a 0% tax personal income/capital gains country with a tax treaty with the Holding Company jurisdiction.

There are a few places that come to mind that would be suitable for this. Let's say UBO lives in the UAE to keep it simple where there is no personal income tax or capital gains tax.

Cyprus at 12.5% corporate tax rate sounds like the lowest one (correct me if I'm wrong).
Georgia could be suitable too at 15% but with the added benefit that only distributed profits are taxed.

The kicker though, is that, let's say the Holding Company is making significant profits and the 12.5 or 15% tax rate is still more than what UBO is comfortable with paying so UBO will form a consultancy company in a tax-free jurisdiction (not important where for this discussion) that will provide services to the Holding Company (or directly to the LLC's if that's better) to lower the overall profits of the Holding Company. Transfer Pricing etc would be taken into consideration, everything would be done at arms length etc...

Now based on this, where and why would you form the Holding Company to optimize tax and simplicity?

 

[Marzio]

where and why would you form the Holding Company to optimize tax and simplicity?

The most simple solution is to move your a*s to Georgia and personally own all LLC's.

Georgia is a territorial taxation country and foreign income is tax exempt.

The real question here is "what kind of royalties are you receiving?"

Depending on the nature of those royalties Georgia's revenue service could claim that those royalties are not foreign income but local income.

For example Amazon royalties vs Youtube royalties.

Both are royalties but Amazon royalties are truly foreign sourced while Youtube couldn't be seen as foreign because videos has to be scripted, recorded and edited.

Unless you can prove work is not performed in Georgia those royalties could become quickly local sourced income taxed at 15%

 

[JustAnotherNomad]

By owning the US LLCs through a company, there may be branch profit tax in the US. I'm not sure if that applies to royalties as well, but it's something you may want to double check.
Most US tax treaties have limitations on benefits clauses, so it may not be sufficient to have a PE in that country, but the UBO would also have to be tax resident in that country. Otherwise you can't use the treaty.
Marzio's idea sounds like a better approach. Downside: Risk of US estate tax (but probably negligible if there are no US-based assets).

 

[kekmaw]

The most simple solution is to move your a*s to Georgia and personally own all LLC's.

Georgia is a territorial taxation country and foreign income is tax exempt.

The real question here is "what kind of royalties are you receiving?"

Depending on the nature of those royalties Georgia's revenue service could claim that those royalties are not foreign income but local income.

For example Amazon royalties vs Youtube royalties.

Both are royalties but Amazon royalties are truly foreign sourced while Youtube couldn't be seen as foreign because videos has to be scripted, recorded and edited.

Unless you can prove work is not performed in Georgia those royalties could become quickly local sourced income taxed at 15%

You're right that this would be the easiest solution and it's likely the best solution for what is trying to be achieved here.

The only problem I have with it is that, I don't want to live in Georgia. The great thing is that they have the HNWI program that looks simple and straightforward to get but then based on what I read in other threads here on the forum, you run a risk of becoming a tax resident in another country if you spend time there (even if it's less than 183 days etc) which would suck and sounds like quite a risk. I know the easy solution to this is to just spend a few months here and there but that is only fun for so long. If I could spend 5 months in Portugal and 5 months right across the border in Spain every year and not risking becoming a tax resident in either this would be great though. Maybe that can still be done as long as the ties to Georgia is stronger, despite actual time spent there would be less? Not sure but would like to hear your thoughts on that.

By owning the US LLCs through a company, there may be branch profit tax in the US. I'm not sure if that applies to royalties as well, but it's something you may want to double check.

Interesting about the US branch tax. If I understand it correctly according to PWC, if there's a treaty, this could be mitigated (if it was the case that this would trigger a branch tax).

Most US tax treaties have limitations on benefits clauses, so it may not be sufficient to have a PE in that country, but the UBO would also have to be tax resident in that country. Otherwise you can't use the treaty.
Marzio's idea sounds like a better approach. Downside: Risk of US estate tax (but probably negligible if there are no US-based assets).

Now this part would be hard to get around then I suppose. :/ I'm not too read up on this stuff but from what I understand the Georgian tax treaty is one of the most flexible ones. So maybe it's still an option there but could be worse with other options like Cyprus, Ireland etc...

 

[burden]

You may take a flight to Georgia and speak with some local accounting firms that may shad some light on your whish of setup.

 

[Marzio]

The great thing is that they have the HNWI program that looks simple and straightforward

Georgia recently updated his HNWI program.

They added an additional criteria: ownership of assets in Georgia with a value of at least 500k USD.

Not sure but would like to hear your thoughts on that.

If you want to spend that much time in Spain and Portugal you are at risk of creating a permanent establishment in those countries and still you didn't answer the most important question: what type of royalties are you receiving because if you are actively working to generate those royalties you run the risk of creating a permanent establishment before 183 days.

Georgian tax treaty is one of the most flexible ones

I know you don't want to hear that but Georgia's DTT is the best for your situation because combine both a US treaty without any limitation on benefits AND a territorial taxation.

There could be other options but things get more complicated because all involve forming a company somewhere.

 

[kekmaw]

Georgia recently updated his HNWI program.

They added an additional criteria: ownership of assets in Georgia with a value of at least 500k USD.

Not a problem.

If you want to spend that much time in Spain and Portugal you are at risk of creating a permanent establishment in those countries and still you didn't answer the most important question: what type of royalties are you receiving because if you are actively working to generate those royalties you run the risk of creating a permanent establishment before 183 days.

It's passive royalties and it's royalties that Georgia would see as passive as well so I'm not worried about that part. As in any business though, to create those assets that generate the passive income, requires active work though but that active work would be created by another company like the consultancy company I mentioned in my example. It could be the Holding Company too for that matter.

However, I do have staff and the creation of these assets isn't active work from my end.

I know you don't want to hear that but Georgia's DTT is the best for your situation because combine both a US treaty without any limitation on benefits AND a territorial taxation.

There could be other options but things get more complicated because all involve forming a company somewhere.

I agree with you, it's a very clean way of doing it and it's something I'm quite likely to do but I would have to do more research on how I can protect myself from not becoming a tax resident in the other countries where I would spend most of my time in. Because that is really the thing I'm most worried about here. Now that I spend 5 months in Portugal and 5 months in Spain was just an example, I don't know if I would but I would like to have the option to do so.

 

[Marzio]

the creation of these assets isn't active work from my end

If it's not a problem complying with the HNWI requirements and you don't actively work while outside Georgia you should be fine even if you spend time in Spain and Portugal.

 

[kekmaw]

If it's not a problem complying with the HNWI requirements and you don't actively work while outside Georgia you should be fine even if you spend time in Spain and Portugal.

Do you know what happens if you trigger tax residency in two countries?

For example, you have the HNWI status from Georgia but you're also a tax resident (per the new rules) in the UAE.

In this case, UAE doesn't have income tax so in that regard it wouldn't matter. However, would I still be able to a Georgian tax resident through the HNWI at the same time and therefore utilize the tax treaty they have with the US?

Also, does the US care at all if I have multiple tax residences like this?

 

[Marzio]

Do you know what happens if you trigger tax residency in two countries?

It will happen what's written in the relative tax treaties.

For example, you have the HNWI status from Georgia but you're also a tax resident (per the new rules) in the UAE.

You most likely will be considered UAE tax resident as HNWI status is valid for Georgia but not necessarily for other countries.

If you trigger tax residency in other countries you will be considered tax resident there, that's why you want to be sure to not do stupid things like buying a house in Spain.

However, would I still be able to a Georgian tax resident through the HNWI at the same time and therefore utilize the tax treaty they have with the US?

What counts is which tax id you put in W8-BEN form.

If you don't put the UAE one how US knows that you are also UAE tax resident?

Be sure to confirm all with somebody that understands HNWI.

The guy who wrote the HNWI article i linked earlier is a good start.

 

[kekmaw]

It will happen what's written in the relative tax treaties.



You most likely will be considered UAE tax resident as HNWI status is valid for Georgia but not necessarily for other countries.

If you trigger tax residency in other countries you will be considered tax resident there, that's why you want to be sure to not do stupid things like buying a house in Spain.



What counts is which tax id you put in W8-BEN form.

If you don't put the UAE one how US knows that you are also UAE tax resident?

Be sure to confirm all with somebody that understands HNWI.

The guy who wrote the HNWI article i linked earlier is a good start.

Thank you, that makes sense.

Do you know if you even have to declare foreign income in your Georgian taxes filings if they obviously aren't taxed?

Because if that doesn't have to be done, I have no idea how anyone would even know about this income.

The US LLC's are registered in a state where the shareholder's identity is protected publicly.
If I don't have to declare the income in Georgia and obviously I won't file taxes in any other country either, even if it were to come to that some random country would want to tax me, they probably wouldn't have any idea about the business or its income either.

Just thinking worst case issues here in advance.

that's why you want to be sure to not do stupid things like buying a house in Spain.

Bonus question about this one: What if the house is owned by a holding company (be the company located in Spain or elsewhere) and it could even own several properties for Airbnb rental purposes. Still a bad idea?


Thanks for your answers, very helpful.

 

[Marzio]

Do you know if you even have to declare foreign income in your Georgian taxes filings if they obviously aren't taxed?

Obviously Georgia's revenue service needs to verify if what you claim is really foreign sourced income so you'll have to declare everything in Georgia.

if the house is owned by a holding company

If the house is owned by a holding company, you aren't the owner of the house.

You and the company are different entities.

Unless you are a Spanish citizen that owns a house in Spain through a Spanish holding you should be fine.

 

[EliasIT]

Personally there was nothing better for me then Switzerland. Everything went out much better than expected. It is a pleasure to work with it and regardless where I say I represent my AG it gives my credit a higher ranking.

 

[inector]

Personally there was nothing better for me then Switzerland. Everything went out much better than expected. It is a pleasure to work with it and regardless where I say I represent my AG it gives my credit a higher ranking.

How did you set up your Swiss AG? Any company you used / any guide?

 

[EliasIT]

Yes we used different agents which I found in the resource database! For privacy reasons I will not reveal it here, no need to get the spotlight on that agent I use

But you can good ones in the mentor group gold resource database as mentioned
https://www.offshorecorptalk.com/resources/categories/swiss-company-service-providers.18/