SW dev working as freelancer invoicing monthly one long term US client (LLC)

[asdf3467]

Hey y'all!

I'm a SW dev planning to work online for a longer term client that is a US LLC. I plan to invoice them monthly (for a total of $130K per year).
I'm an EU (hungarian) resident and my obvious option is to form a Hungarian company (LLC) where I'd also need to work for a minium wage and the rest I could take out as dividends.
All in all this would mean I pay around 30% of taxes on my salary plus dividends. While this works and is fully legal, I'm curious if this is an efficient way to do such freelance work.

I was also looking into forming a UK LTD as a foreign director and do B2B invoicing to the US LLC, paying CIT in the UK and tax on dividents in Hungary, but honestly I'm quite unsure if this is at all possible or legal, given I won't be an employee of the UK LTD yet will do the work as a SW dev. If this setup would work, it'd probably make my life easier as all administration is possible to do online while the Hungarian LLC is relatively admin heavy.

WDYT?

 

[LoveMyLife]

Setup with UK does not make any sense. You can have a Hungarian Kft and pay 9 % income tax. You do not have to be employed by your Kft. There is no law in Hungary which would require anything like that. You will pay 9 % Corporate tax of Kft in Hungary and 15% income tax on the whole dividend amount and 17.5% social contribution tax up to HUF 625,800 what is 2100 USD.

So when calculating from 130 K USD, you will pay: 11,700 USD on Corporate tax 17,745 USD on Dividend tax, 2,100 USD on Social insurance contributions. What is 31,545 USD. What is 24.27 %.

Whereas Hungary has very low CFC rules, I would consider to incorporate a Free zone company in the UAE, obtain residence permit there and you can save a lot of money..

 

[asdf3467]

Setup with UK does not make any sense. You can have a Hungarian Kft and pay 9 % income tax. You do not have to be employed by your Kft. There is no law in Hungary which would require anything like that. You will pay 9 % Corporate tax of Kft in Hungary and 15% income tax on the whole dividend amount and 17.5% social contribution tax up to HUF 625,800 what is 2100 USD.

So when calculating from 130 K USD, you will pay: 11,700 USD on Corporate tax 17,745 USD on Dividend tax, 2,100 USD on Social insurance contributions. What is 31,545 USD. What is 24.27 %.

Whereas Hungary has very low CFC rules, I would consider to incorporate a Free zone company in the UAE, obtain residence permit there and you can save a lot of money..

Thanks LoveMyLife, your comment is very insightful. I was actually not aware that it is allowed to form a Kft without any employees (since there's a need for the director).
I have a question though: if there's no employee in the Kft then who does the work? As in who creates value and how would I explain where the income comes from?
As a SW engineer my work is not selling SW or IP but rather SW development which would mean tax-authorities would rightfully ask me that if I don't work in the Kft how did the SW write itself?

The reason I asked about the UK LTD solution is because there afaik there's no requirement to employ the director and the director is allowed to do work and extract all income through dividends. Even though the overall tax burden would be higher, the administration would be much simpler (if I understand this correctly at all).

Re: UAE company. I'm not yet on the level to understand how that would work If I understand correctly you meant that I would need to relocate there to fully leverage all benefits a UAE company would bring? Note that I'm not super keen on relocating to UAE since I'm married and my wife has economic activity in Hungary. Maybe EU countries would work if there's such a huge advantage.

 

[Hephaestus]

asdf3467,

I am actually in exact same spot where you are, just with lower numbers, for kft's director you can choose 3 types of contracts and it also can be for 0Ft/month but soc.contribution need to be paid in all cases.
about UAE FZE + residence visa: it is very good deal, just need to expand my business, to lower the % rate for the yearly fee, but 2x1 day in dubai /year is very doable requirement.