Offshore Structure for Amazon.com FBA Business

[Luxxxtino]

Hi all,


Will be starting my next Amazon FBA company shortly after having my previous one acquired. We’ll manufacture in China and sell in the US only. This time I’ll be doing it as a UAE resident.


Currently thinking through the ideal company setup and am being advised to look at a US c-corp since a UAE FZ company would have 30% withholdings on revenue (no tax treaty with the US) and a US SMLLC risks the same fate due to my residency. Apparently some FBA sellers are avoiding the WTI but this is a grey area that my advisors are saying to steer well away from in the coming years. Trying to avoid a UK LTD as that was my prior country of residence and trying to relinquish all ties there, as well as the fact that in 3-4 years we intend to sell this company, at which point I’ll distribute a good portion of the proceeds as salary to myself to lower the tax burden, and I’m advised the UK is stricter when it comes to “abnormal salaries” compared with the US.


Curious as to what you guys would recommend in this situation, essentially looking to avoid withholding taxes while ideally also reducing the corporate tax burden. I know some people use HK companies for selling on Amazon but surely they also risk being subject to withholding taxes unless there’s some loophole there that I’m unaware of?

We have good reason to expect this to be valued at $5-10m within 4 years and hence will be happy to pay extra for a more thorough/complex setup if it ticks our boxes better in the long run.

Thanks!

 

[Gediminas]

Hi all,


Will be starting my next Amazon FBA company shortly after having my previous one acquired. We’ll manufacture in China and sell in the US only. This time I’ll be doing it as a UAE resident.


Currently thinking through the ideal company setup and am being advised to look at a US c-corp since a UAE FZ company would have 30% withholdings on revenue (no tax treaty with the US) and a US SMLLC risks the same fate due to my residency. Apparently some FBA sellers are avoiding the WTI but this is a grey area that my advisors are saying to steer well away from in the coming years. Trying to avoid a UK LTD as that was my prior country of residence and trying to relinquish all ties there, as well as the fact that in 3-4 years we intend to sell this company, at which point I’ll distribute a good portion of the proceeds as salary to myself to lower the tax burden, and I’m advised the UK is stricter when it comes to “abnormal salaries” compared with the US.


Curious as to what you guys would recommend in this situation, essentially looking to avoid withholding taxes while ideally also reducing the corporate tax burden. I know some people use HK companies for selling on Amazon but surely they also risk being subject to withholding taxes unless there’s some loophole there that I’m unaware of?

We have good reason to expect this to be valued at $5-10m within 4 years and hence will be happy to pay extra for a more thorough/complex setup if it ticks our boxes better in the long run.

Thanks!

Hey,

From tax-wise it would be much more effective to set up tax transparent US LLC (disregarded entity from tax perspective). But it might be more difficult to build a good banking relationship with such an entity.

Tax transparent US LLC might be owned by you as a Dubai resident. It is a slight risk that Dubai might tax all income as business income because US LLC will not have tax resident status in the US. And will not distribute dividends as a standard company, but would basically allocate you a part of the income. But still 9% tax is much better than facing a US profit tax plus dividend withholding tax.

UAE company might also be a member. Then it would pay a 9% tax (if small income relief (AED 3 000 000 per year) cannot be applied) or other tax incentives cannot be applied.

If for business/banking reasons US LLC is not an option, I suggest setting up a US company with a holding in a tax treaty partner country.

Cyprus and US have a very good treaty. The US will not be able to apply a 5% WHT rate. But keeping Cypriot holding can cost quite a lot since you would need to build substance (US will ask tax residency certificate of CY company before dividend distribution).

Another option might be to own a US company directly but limit profits to a minimum by concluding a joint venture agreement between US and Dubai company and allocating income to Dubai (as much as possible under transfer pricing guidelines).

It would save US profit tax plus withholding tax, so it is quite a large amount.

 

[Luxxxtino]

Hey,

From tax-wise it would be much more effective to set up tax transparent US LLC (disregarded entity from tax perspective). But it might be more difficult to build a good banking relationship with such an entity.

Tax transparent US LLC might be owned by you as a Dubai resident. It is a slight risk that Dubai might tax all income as business income because US LLC will not have tax resident status in the US. And will not distribute dividends as a standard company, but would basically allocate you a part of the income. But still 9% tax is much better than facing a US profit tax plus dividend withholding tax.

UAE company might also be a member. Then it would pay a 9% tax (if small income relief (AED 3 000 000 per year) cannot be applied) or other tax incentives cannot be applied.

If for business/banking reasons US LLC is not an option, I suggest setting up a US company with a holding in a tax treaty partner country.

Cyprus and US have a very good treaty. The US will not be able to apply a 5% WHT rate. But keeping Cypriot holding can cost quite a lot since you would need to build substance (US will ask tax residency certificate of CY company before dividend distribution).

Another option might be to own a US company directly but limit profits to a minimum by concluding a joint venture agreement between US and Dubai company and allocating income to Dubai (as much as possible under transfer pricing guidelines).

It would save US profit tax plus withholding tax, so it is quite a large amount.

Hi, not sure a SMLLC would work since all our inventory and sales will be in the US so all income will be considered ECI.

Agreed that a country with no/little WHT would be the only setup potentially better than a US C corp - will look into a Cyprus or Hong Kong company.

Thanks again