Optimizing tax for mobile app development business (Delaware Offshore)

[avalanche]

I'm a citizen of Russia, living in the Philippines for more than 1 year. My business is developing mobile apps.

I have an idea to open an offshore Delaware LLC with the purpose of optimising my tax (preferably down to 0%).
Philippine alien residents do not have to pay any tax on foreign income, so this part is covered.

My business model is developing mobile apps and releasing them with an EU publisher. Every month publisher would transfer me Developer Fee in EUR (e.g part of revenues received from the sales of the mobile app on AppStore and GooglePlay). Publisher (separate EU entity) is selling to worldwide audience (including US)

What I would like to know is:

• Is there really no auditing requirements for such Delaware company?
• Is there any % tax on income received as Delaware LLC from a publishing company based in France?
• What sort of costs (incl. tax) I should expect to pay? annually / one-time
• What sort of dangerous traps I should look out for if I set my LLC with given business model in Delaware? All income will be transferred from EU countries only.
• Do you know any US banks with good online service that could work with my business model?

Would appreciate any help.

 

[avalanche]

Additional info:
I would be the only shareholder / sole owner of my Delaware LLC. I'm also not planning to live in the US

 

[avalanche]

Guys if you know anything more suitable for my business model, please suggest

 

[avalanche]

Update:
Now I figured Delaware is too complicated and dangerous tax-wise for my business. I'm also looking at Estonia at the moment. Do you guys think it is possible to have a setup with total tax below 6% in Estonia? (given I'm not tax resident of Estonia and I'm paying myself salary).

If total tax below 6% in Estonia not possible, what other countries and setups could be good for my all-digital app development business model? The setup should be viable for $100k-$500k annual net revenue.

Actually, I'm totally confused with all the options. Is that really that difficult nowadays to not give taxman half of your hard-earned money?

 

[Martin Everson]

If your Russian then the US is no place to do business right now. Also don't entwine your tax affairs with the U.S at any cost. People wanting to go offshore and then going to US have mostly lost their minds.

Estonia don't tax you on income that is not distributed. Hence your company is tax free until you pay yourself a dividend. You can pay yourself a small salary offshore from an Estonian company and keep the rest of the funds within the company tax free. Now any CFC rules in Philippines in regards to ownership of foreign corporation you will need to examine this yourself.

 

[avalanche]

If your Russian then the US is no place to do business right now. Also don't entwine your tax affairs with the U.S at any cost. People wanting to go offshore and then going to US have mostly lost their minds.

Estonia don't tax you on income that is not distributed. Hence your company is tax free until you pay yourself a dividend. You can pay yourself a small salary offshore from an Estonian company and keep the rest of the funds within the company tax free. Now any CFC rules in Philippines in regards to ownership of foreign corporation you will need to examine this yourself.

Thank you for your reply! And thanks for warning me regarding US.

Based on info I managed to find, Philippines does not have any CFC rule at the moment. So I think this part is covered.

Regarding Estonia:

1. Would it be safe to make my salary $5k-$10k/mo and send it to local personal LHV bank account?
2. I also heard there are some tax traps in Estonia for e-Residents:
   • Do I have to pay any social tax or any other tax if I'm not residing in Estonia?
   • In the contract I'm licensing my app to a publisher in another EU country and I'm receiving monthly Developer Fees as commission from worldwide sales. Is my contract VAT-able?

 

[Martin Everson]

Would it be safe to make my salary $5k-$10k/mo and send it to local personal LHV bank account?

If you have an account at LHV or they accept you to open one then yes why not. However I would advise getting paid in a currency other than USD.

Do I have to pay any social tax or any other tax if I'm not residing in Estonia?

See below

https://www.xolo.io/faq/category/sa...pay-myself-a-salary-operating-outside-estonia

In the contract I'm licensing my app to a publisher in another EU country and I'm receiving monthly Developer Fees as commission from worldwide sales. Is my contract VAT-able?

Is the publisher in other EU country VAT registered and will you be be VAT registered? You need to talk your case over with a specialist in licensing.

 

[rowena]

What is the purpose of Estonian company? Eventually you need to pay %20 tax for your company profit. Am I missing something?

 

[avalanche]

What is the purpose of Estonian company? Eventually you need to pay %20 tax for your company profit. Am I missing something?

I want to cash out via salary (supposed to be 0% tax) because I'm the only employee of the company.

 

[rowena]

We are in the same business (app sales). Let's say your company will receive 50k eur per month from google so total will be 600K eur in a year. Can you withdraw this money via 50K eur per month salary ? Is that works?

 

[avalanche]

If you have an account at LHV or they accept you to open one then yes why not. However I would advise getting paid in a currency other than USD.



See below

https://www.xolo.io/faq/category/sa...pay-myself-a-salary-operating-outside-estonia


Is the publisher in other EU country VAT registered and will you be be VAT registered? You need to talk your case over with a specialist in licensing.

Publisher has VAT number and they are based in France at the moment. They will only pay in EUR.

Regarding LVH, they do not support USD completely. Only EUR.

Thanks for info from Xolo!

You accept your responsibility to prove that the employee salary payments have been reported to the tax authorities in your actual location of operations

I prefer not to report anything in the Philippines (they would never know anyways, unless somebody tells them).
Is Xolo acting like a snitch and there are better service providers? Is Estonian gov actually forcing business owneres to report their salary in their countries?

 

[avalanche]

We are in the same business (app sales). Let's say your company will receive 50k eur per month from google so total will be 600K eur in a year. Can you withdraw this money via 50K eur per month salary ? Is that works?

*highfive* Yes it should work fine based on my data so far. I would reduce this salary down to 10K eur to be safe

 

[Martin Everson]

What is the purpose of Estonian company? Eventually you need to pay %20 tax for your company profit. Am I missing something?

In my case the use of a EU Estonia company as a tax shelter makes long term sense not withstanding any changes in Estonia tax law. For my EU income and investments the compounding effect with the absence of period taxation allows maximum growth of my investments all in a tax complaint way.

Not everyone would understand this as peoples brains are wired to think in terms of earn money get it into any account in their name and spend it...lol. At some point in life when you reach a certain age, have family clever compliant tax planning is needed.

P.S I live in a tax free country too but understood from a very early age never to keep money, property of assets in your own name.

 

[avalanche]

In my case the use of a EU Estonia company as a tax shelter makes long term sense not withstanding any changes in Estonia tax law. For my EU income and investments the compounding effect with the absence of period taxation allows maximum growth of my investments all in a tax complaint way.

Not everyone would understand this as peoples brains are wired to think in terms of earn money get it into any account in their name and spend it...lol. At some point in life when you reach a certain age, have family clever compliant tax planning is needed.

P.S I live in a tax free country too but understood from a very early age never to keep money, property of assets in your own name.

never to keep money, property of assets in your own name.

Isn't it risky in a sense you can lose everything one day?

 

[Martin Everson]

I prefer not to report anything in the Philippines (they would never know anyways, unless somebody tells them).

Thats not really a smart strategy is it....lol.

Is Xolo acting like a snitch and there are better service providers? Is Estonian gov actually forcing business owneres to report their salary in their countries?

Yes they will fulfill their obligations under law. Every company and country will as part of global fight against tax evasion and as part of DTA, CRS, FATCA and many other cross border mechanisms to fight tax evasion share information. You not noticed the world has changed?

 

[Martin Everson]

Isn't it risky in a sense you can lose everything one day?

All my major assets are held via multiple Trusts and Foundations. If you get hit by a bus tomorrow the tax authority you spent your life avoiding will take the money via inheritance tax or the money is stuck in limbo when no Will or no next of kin exists etc. You can also get sued tomorrow and everything can get taken from you...lol. I am setup for the future so I can sleep at night and so can my kids and future generation.

P.S Nothing other than spending money is kept in 106 bank/EMI accounts around the world in my name and that income comes mostly from investments via the trusts.

 

[avalanche]

Thats not really a smart strategy is it....lol.




Yes they will fulfill their obligations under law. Every company and country will as part of global fight against tax evasion and as part of DTA, CRS, FATCA and many other cross border mechanisms to fight tax evasion share information. You not noticed the world has changed?

Salary earned from working abroad

Is salary earned from working abroad taxed in the Philippines? If so, how?
Citizens who are working abroad are generally considered non-resident citizens of the Philippines and hence are exempt from Philippine income tax on salary earned from working abroad as well as other income from foreign-sources. An alien individual, whether resident or not of the Philippines, is taxable only on income from sources within the Philippines; hence, aliens are exempt from Philippine income tax on salaries earned from working abroad.

Source: Income Tax

How would I even report this income? Attorneys in Philippines might be saying different things without coming to consensus. Aliens are not supposed to pay any tax on foreign income.

 

[avalanche]

All my major assets are held via multiple Trusts and Foundations. If you get hit by a bus tomorrow the tax authority you spent your life avoiding will take the money via inheritance tax or the money is stuck in limbo when no Will or no next of kin exists etc. You can also get sued tomorrow and everything can get taken from you...lol. I am setup for the future so I can sleep at night and so can my kids and future generation.

P.S Nothing other than spending money is kept in 106 bank/EMI accounts around the world in my name and that income comes mostly from investments via the trusts.

You have quite heavy setup Can't imagine how difficult it could be to manage and watch all this.

 

[avalanche]

Source: Income Tax

How would I even report this income? Attorneys in Philippines might be saying different things without coming to consensus. Aliens are not supposed to pay any tax on foreign income.

However I guess I should not cash out via salary in the meanwhile... Too risky

 

[Martin Everson]

Source: Income Tax

What the KPMG memo is saying is regarding citizens who "work abroad" i.e not resident in Philippines for tax purposes. You live in Philippines and assume will work from there unless you travel out of Philippines to conduct the works. You have to pay tax on worldwide income. What is your actual residency status over there or are you guessing? Do you i.e spend less than 180 days there in a tax year?

You have quite heavy setup Can't imagine how difficult it could be to manage and watch all this.

To be honest watching all the setup is a first world problem. Having something to watch is better than having nothing to watch.