Residence in Monaco + US LLC

[Don]

Can you please share legislation where it defines PE?

Monaco:

Ordonnance Souveraine n° 3.152 du 19 mars 1964 instituant un impôt sur les bénéfices [Legimonaco]

Italy:

Italy - Corporate - Corporate residence

Detailed description of corporate residence rules in Italy

taxsummaries.pwc.com

(sorry not a reference to law, but Ill trust it is correct info on PWC website)

EDIT:
Monaco applies a profits tax, which was introduced in 1964 in accordance with the tax treaty with France. The tax is limited in scope in that it applies only to (a) companies conducting commercial or industrial activities to the extent at least 25% of their turnover is derived from outside Monaco, as well as to (b) companies whose activity consists of the receipt of intellectual property income.

The concept of permanent establishment itself is not defined under domestic law, which uses a limited territoriality principle. A non-resident company is deemed to have a taxable presence in Monaco if it has a business establishment in Monaco, meaning either:

• A complete commercial cycle (such as the purchase and resale of goods); or
• The conduct of business through a dependent agent, if such agent either has and habitually exercises the authority to conclude contracts on behalf of the foreign principal or maintains a stock of goods for delivery on behalf of the non-resident in Monaco.

In either case, the non-resident is taxable only if it falls within the limited scope of tax.

Note that establishing a branch requires prior approval from the Monegasque authorities. Ordinarily, the activities of a branch would be considered commercial in nature.


PE RISK by activity:

ACTIVITY	POTENTIAL PE RISK
	High	Moderate	Remote
Market Research (through fixed place of business)			X
Solicitation (through fixed place of business)		X
Procurement (through fixed place of business)		X
Provision of Services (differ depending on the services rendered)	X
Secondment of Personnel	X
Commissionaire and Similar	X
Post-restructuring low-Risk Activity		X
Ownership, Rental/Operation of Real Estate		X

 

[baltic7]

Monaco:

Ordonnance Souveraine n° 3.152 du 19 mars 1964 instituant un impôt sur les bénéfices [Legimonaco]

Italy:

Italy - Corporate - Corporate residence

Detailed description of corporate residence rules in Italy

taxsummaries.pwc.com

(sorry not a reference to law, but Ill trust it is correct info on PWC website)

EDIT:
Monaco applies a profits tax, which was introduced in 1964 in accordance with the tax treaty with France. The tax is limited in scope in that it applies only to (a) companies conducting commercial or industrial activities to the extent at least 25% of their turnover is derived from outside Monaco, as well as to (b) companies whose activity consists of the receipt of intellectual property income.

The concept of permanent establishment itself is not defined under domestic law, which uses a limited territoriality principle. A non-resident company is deemed to have a taxable presence in Monaco if it has a business establishment in Monaco, meaning either:

• A complete commercial cycle (such as the purchase and resale of goods); or
• The conduct of business through a dependent agent, if such agent either has and habitually exercises the authority to conclude contracts on behalf of the foreign principal or maintains a stock of goods for delivery on behalf of the non-resident in Monaco.

In either case, the non-resident is taxable only if it falls within the limited scope of tax.

Note that establishing a branch requires prior approval from the Monegasque authorities. Ordinarily, the activities of a branch would be considered commercial in nature.


PE RISK by activity:

ACTIVITY	POTENTIAL PE RISK
	High	Moderate	Remote
Market Research (through fixed place of business)			X
Solicitation (through fixed place of business)		X
Procurement (through fixed place of business)		X
Provision of Services (differ depending on the services rendered)	X
Secondment of Personnel	X
Commissionaire and Similar	X
Post-restructuring low-Risk Activity		X
Ownership, Rental/Operation of Real Estate		X

With substance this is 0 problems.

 

[scooterguy]

Monaco:

Ordonnance Souveraine n° 3.152 du 19 mars 1964 instituant un impôt sur les bénéfices [Legimonaco]

Italy:

Italy - Corporate - Corporate residence

Detailed description of corporate residence rules in Italy

taxsummaries.pwc.com

(sorry not a reference to law, but Ill trust it is correct info on PWC website)

EDIT:
Monaco applies a profits tax, which was introduced in 1964 in accordance with the tax treaty with France. The tax is limited in scope in that it applies only to (a) companies conducting commercial or industrial activities to the extent at least 25% of their turnover is derived from outside Monaco, as well as to (b) companies whose activity consists of the receipt of intellectual property income.

The concept of permanent establishment itself is not defined under domestic law, which uses a limited territoriality principle. A non-resident company is deemed to have a taxable presence in Monaco if it has a business establishment in Monaco, meaning either:

• A complete commercial cycle (such as the purchase and resale of goods); or
• The conduct of business through a dependent agent, if such agent either has and habitually exercises the authority to conclude contracts on behalf of the foreign principal or maintains a stock of goods for delivery on behalf of the non-resident in Monaco.

In either case, the non-resident is taxable only if it falls within the limited scope of tax.

Note that establishing a branch requires prior approval from the Monegasque authorities. Ordinarily, the activities of a branch would be considered commercial in nature.


PE RISK by activity:

ACTIVITY	POTENTIAL PE RISK
	High	Moderate	Remote
Market Research (through fixed place of business)			X
Solicitation (through fixed place of business)		X
Procurement (through fixed place of business)		X
Provision of Services (differ depending on the services rendered)	X
Secondment of Personnel	X
Commissionaire and Similar	X
Post-restructuring low-Risk Activity		X
Ownership, Rental/Operation of Real Estate		X

Do you mean that PE risk exists in Monaco nevertheless when you have a structure like the one OP is after?

 

[baltic7]

Do you mean that PE risk exists in Monaco nevertheless when you have a structure like the one OP is after?

No. In no case with a structure like the one I am looking for.

Corporate tax in Monaco only applies in 2 circumstances:

1. Companies incorporated in Monaco that have more than 25% of income from outside Monaco. Note:*I am not going to use any Monegasque company to do business.

2. Have a complete business cycle (buy and sell products in Monaco) or conclude contracts through a dependent agent (a representative office in Monaco). Note:*I will not buy or sell anything in Monaco, nor will I use a representative office in Monaco to enter into any contract.

In any case, I have already commented throughout the thread that I am going to create a substance outside of Monaco, so there is no interpretation of any law on PE.

 

[scooterguy]

No. In no case with a structure like the one I am looking for.

Corporate tax in Monaco only applies in 2 circumstances:

1. Companies incorporated in Monaco that have more than 25% of income from outside Monaco. Note:*I am not going to use any Monegasque company to do business.

2. Have a complete business cycle (buy and sell products in Monaco) or conclude contracts through a dependent agent (a representative office in Monaco). Note:*I will not buy or sell anything in Monaco, nor will I use a representative office in Monaco to enter into any contract.

In any case, I have already commented throughout the thread that I am going to create a substance outside of Monaco, so there is no interpretation of any law on PE.

Why is this substance necessary then? In the case that substance is necessary, isn't there a risk of it being challenged?

 

[saintjohnny]

Why is this substance necessary then? In the case that substance is necessary, isn't there a risk of it being challenged?

Agreed.

Don't see the point of a complicated setup here. A US LLC will work just fine as it's a pass through entity. Monaco is a 0% tax country, so I seriously doubt a Monaco court will deem a single-member US LLC as a resident corporation liable for Monegasque corporate taxation. There are no rulings or interpretations of a transparent entity in Monaco, AFAIK.

Just move and enjoy your new, happy and productive tax-free life in the SoF.

P.S. Baltic, enhorabuena, ya nos veremos por allí.

 

[jkl197]

Yes, should be fine.


Monaco does not lift a single finger to go after people who live in Monaco, meet the minimum capital requirements, and generally don't cause a nuisance. You're joining many other people who, much like you, are still involved in the day to day of their businesses, which could in theory trigger tax residence in Monaco.

You might want to hire someone and/or appoint a nominee director to establish a least a tiny bit of substance outside of Monaco for the business. Not so much for Monaco's sake as for your own sake, in case banks or others start asking questions about where the company is managed.


It's very easy. You can do it yourself mostly online, but most people have a lawyer or PA in Monaco handle as much of the process as possible.

with Monaco residency, could he consider a Uk or Dutch LLP instead of US LLC ?

 

[jafo]

Dutch LLP

I don't know about the others but stay as far away as you can from ANYTHING related to the Dutch government!

Search on OCT about Dutch (Netherlands) tax authorities (belastingdienst)

 

[Sols]

with Monaco residency, could he consider a Uk or Dutch LLP instead of US LLC ?

Sure, partnerships also work if there's another party involved.

There's also no need to put everything in one company. You can have a parent company in one jurisdiction (with zero tax) and a payment agent in another (with better PSP access).

 

[Marzio]

Don't see the point of a complicated setup here. A US LLC will work just fine as it's a pass through entity.

Agreed.

Since US LLC is a pass through entity and resident individuals are not subject to personal income tax in the Principality of Monaco, anything that comes from US LLC will be treated as personal income so no tax is due.

 

[scooterguy]

Agreed.

Since US LLC is a pass through entity and resident individuals are not subject to personal income tax in the Principality of Monaco, anything that comes from US LLC will be treated as personal income so no tax is due.

Are you telling me that if I get residence in Monaco I can just freelance, sell paintings, etc. without a company whatsoever and pay 0% tax?

 

[Don]

Agreed.

Since US LLC is a pass through entity and resident individuals are not subject to personal income tax in the Principality of Monaco, anything that comes from US LLC will be treated as personal income so no tax is due.

Do you think it would be okay to use two US LLCs in this case since OP already uses one for IP holding?
e.g., US SM LLC 1 (IP holding) invoices the US SM LLC 2 (operating company).
In theory, such transactions could establish an economic nexus and expose the structure to sales tax, so it might be better to use structures in two jurisdictions in such a case.
Post the South Dakota v. Wayfair, Inc. decision, states can assert an economic nexus for sales tax purposes based on economic activity alone, without physical presence. If the transaction between the two LLCs meets a state's economic threshold for sales, it could establish a sales tax collection obligation.

US SM LLC is best for operating a company, and far from optimal for holding. Assets in situ in the US at the time of death are subject to a 40% inheritance tax, with only a $60,000 exemption threshold. Yes, using a foreign company or trust will plan for this, but those cause other problems, e.g. trusts become taxable after the death of settlors.

 

[Marzio]

Are you telling me that if I get residence in Monaco I can just freelance, sell paintings, etc. without a company whatsoever and pay 0% tax?

I can give you a counterexample that will make things more clear.

In Cyprus any income received from US LLC is taxed at personal income tax rates so why this shouldn't be the case in Monaco?

Do you think it would be okay to use two US LLCs in this case since OP already uses one for IP holding?

I would probably transfer IP to a non US limited partnership.

 

[baltic7]

I am 29 years old. Right now leaving an inheritance is not the biggest of my worries (I'm not even married and have children).

There is no point in using 2 US LLC.

In fact, the only setup I need to do is to have a EUR and CHF bank account for the LLC in Delaware. Because 90% of the billing is in those currencies. Only 10% is invoiced in USD or other currencies.

I spoke yesterday Monday with a Swiss bank and they told me that there is no problem due to the type of business it is, as long as it meets the minimum deposit conditions.

Sure, partnerships also work if there's another party involved.

There's also no need to put everything in one company. You can have a parent company in one jurisdiction (with zero tax) and a payment agent in another (with better PSP access).

Currently this is how I have it structured.

The company in Estonia has all the operational power. It is not even a subsidiary of the LLC.

The LLC, for a small fee, transfers the rights to the Estonian company. The fee does not represent even 1% of the billing, it is something symbolic. So it is not seen as a structure to evade taxes.

I configured it that way because I was clear that if the business went well, the Estonian company was only temporary.

Now it's just the same structure, but all the billing goes to the LLC. However, the LLC will pay a second company for some operational services.

Example: LLC pays a company in Europe for call center and IT services.

Are you telling me that if I get residence in Monaco I can just freelance, sell paintings, etc. without a company whatsoever and pay 0% tax?

Is there any type of tax in Monaco for freelancers?

 

[Marzio]

90% of the billing is in those currencies

Be aware that if you use US Stripe to get paid in EUR and CHF you will pay 2.9% + 1.5% for international cards + 1% conversion fee.

 

[baltic7]

Be aware that if you use US Stripe to get paid in EUR and CHF you will pay 2.9% + 1.5% for international cards + 1% conversion fee.

I had overlooked this detail, I didn't think the commission was so high. Thank you very much.

Would a UK LLP work for payments in EUR and CHF? Or are the commissions different in the UK from a company in the EU?

Because then I could use an US LLC for payments in USD and a UK LLP for payments in EUR/CHF

I just saw it. UK has higher fees for EU payments than a US account.

 

[Marzio]

Or are the commissions different in the UK from a company in the EU?

It's not looking good for UK Stripe either

I guess you have a couple of options:
1. ask your Swiss bank if they will be able to provide you with a merchant account. You will probably be able to get better rates.

2. use a UK LLP with Mollie and have your clients pay you with SEPA because SEPA, at least in EU, will be soon replacing cads.

Ensuring euro money transfers arrive within ten seconds | News | European Parliament

On Wednesday, MEPs adopted new rules to ensure transferred funds arrive immediately into the bank accounts of retail customers and businesses across the EU.

www.europarl.europa.eu

 

[baltic7]

It's not looking good for UK Stripe either

I guess you have a couple of options:
1. ask your Swiss bank if they will be able to provide you with a merchant account. You will probably be able to get better rates.

2. use a UK LLP with Mollie and have your clients pay you with SEPA because SEPA, at least in EU, will be soon replacing cads.

Ensuring euro money transfers arrive within ten seconds | News | European Parliament

On Wednesday, MEPs adopted new rules to ensure transferred funds arrive immediately into the bank accounts of retail customers and businesses across the EU.

www.europarl.europa.eu

Very valuable information. I'm going to explore these options.

Thank you so much.

 

[TheCryptoAnt]

But the government of Spain, for Spanish residents, if they move to jurisdictions classified as tax havens and that do not have a double taxation agreement with Spain, forces them to pay taxes during the first 5 years in Spain that they reside in the tax haven.

Only if you move directly from Spain to said tax heaven FYI

 

[baltic7]

Only if you move directly from Spain to said tax heaven FYI

Exact. Thanks for qualifying it.