US LLC - digital nomad tax

[artmiriam30]

Hello,

I have some questions related to my US LLC and would appreciate any thoughts of wisdom or referrals that you may offer. Thank you in advance.

Context:

*I am a digital nomad with no personal tax residence as of 2023 travelling to a different country every few weeks.
**I am a Romanian citizen with prior tax residence in Portugal 2022, and UK 2014-2021. I also have settled status in the UK.
***I don’t spend 183 days in PT and have no longer a place of abode there and I de-registered as a tax resident as of 1st Jan 2023. Also I spend fewer than 16 days in UK so I am automatically a tax non-resident there. With RO I cut tax ties since 2011 but I still have a RO ID and passport.
****I formed a US LLC since January 2023 (single-member disregarden entity, non-US citizen, no ETBUS)
*****I have been freelancing and invoicing a single client in the UK since Jan 2023, They required a bank account in Euro, so I set up one with Wise Belgium for the US LLC
******I have personal bank accounts in the UK, Portugal, and Romania each associated with a previous local address in the respective country.
*******I don’t own any residential property and don’t have other solid ties to any country (except bank accounts)
********My current freelance contract comes to an end in December 2023. I don't know yet what set up would be acceptable to my next clients/employer. It is possible that I may need to set up my tax residence in a European country from 2024 to secure my next stream of income.

Questions:

1) I am concerned that Wise does not have 100k deposit guarantee as it is not a real bank. What is the best way to transfer money out from the business Wise account into my personal bank accounts for CRS reporting purposes? Does it matter the country of my personal bank account where I transfer the money? (Should I avoid RO accounts because of citizenship ties, or Portugal because of latest tax residence ties?). Does it matter what amount I transfer? Should I not have more money in a personal account by 31st Dec 2023 than I had by 31st Dec 2022? Should I open a bank account in a territorial /non-CRS country – if so, where? Should I switch to a business bank account with Mercury or Airwallex so that I am subject to FATCA which only reports to the US?

2) What could be the potential issues about having a Wise Belgian account for the US LLC? Would my income be subject to CRS reporting because the business banking is based in Europe? Do I need to file the FBAR form and is the deadline 30 April 2024 same as for filling forms 5472, 1120?

3) What address should I declare on the 5472 form and for the beneficial owner forms that kick in from 2024? I would avoid RO because of citizenship ties. I would avoid PT because of prior residence ties. I would avoid UK because I am concerned about tax implications of my income being sourced there, even if by spending less than 16 days in the UK I am automatically a tax non resident. I am thinking of declaring a Czech friend's address or maybe an address in a territorial tax country would be handy but I have no real ties there.

4) Considering the changes in beneficial owner reporting from 2024, and the fact that I may need to set up a personal tax residence during 2024 (depending on what set up my next clients would accept), would it be wiser to take the money out of the US LLC, file all relevant compliance forms, and close my US LLC before the end of 2023? If so, what would be the process, timelines, and estimated costs?

Many thanks.

 

[Cloudbanck]

Lots of good questions here. I'll just tackle some.

1) To reduce the counterparty risk of Wise, and also the (probably higher) risk that they randomly close your account, Id recommend having multiple bank accounts for your US LLC. Having bank accounts in the US would be good. Mercury is well run, and have solid deposit gurantees from underlying banks, but they do since recently require that you have US "operations" meaning for example US clients and suppliers (which maybe you can arrange to have).
Also note that funds held by your US LLC in a US Bank are not subject to FATCA / FBAR reporting, but funds held by your US LLC outisde the US (at e.g. a Wise account) if above 10k USD at any point in the year are subject to FATCA.

Im not sure if Romania or Portugal could treat you as tax resident just for having a bank account there, wouldnt guess so. But anyway, you have lived in the UK, so I assume you had an address there. The UK definitely doesnt tax you just for having a bank account there - they have super clear days tests. So Id recommend to keep your personal bank account(s) in the UK, sort out to have bills in your name in your old UK address - you can use a mail forwarding service. Then you can even open new personal bank accounts with your UK address, with EMIs or UK high street banks.

3) As to what address to report on 5472, here it's best to have a non CRS (if possible), no tax or territorial tax country, and best to actually establish residency and spend some time there. So the usual suspects, Latam, Caribbean Islands, Gulf states, Sub Saharan Africa, Pacific islands etc. Then you can change to this address on the before-mentioned UK banks that allow it. Then the UK bank will see you live in country X, and if country X is CRS they will report there, but it doesnt matter so much since it s zero / territorial tax anyway, or if X is not a CRS country they will not report at all. Guess they might report to your country of citizenship (Romania), but that's not a problem since you are not a tax resident there.

And here the UK may be replaced by getting an address and bills in your name in a place like Ireland or Estonia that have clear tax residency rules and non aggressive tax agencies, but I thought the UK would be handy since you have lived there. Also the UK government systems are remarkably unsynced.

Also I should cover the case if you have a personal UK bank account in your UK address - then yes, the HMRC may see whats going on on that bank account - but you are clearly not a tax resident in the UK so there will be no tax or even tax return to fill in. Lots of brits living aborad still have bank accounts in a UK address and nothing happens.

 

[artmiriam30]

Hello,

Thanks a lot for taking the time and sharing your thoughts.

1) My clients require a Euro account hence the only option I found was Wise BE for the LLC. If someone is aware of other US banks opening Euro accounts for the US LLC (preferably remotely), please share. If I open multiple bank accounts for the US LLC do I need to use all of them for invoicing? Or could I just invoice in Euro using the Wise BE account and then convert the money and transfer it to another USD bank account ? If Mercury requires clients, address or operations in the US, wouldn't this create an ETBUS link making the US LLC taxable in the US? Are US LLC funds held in my Wise Belgium account subject to FATCA reporting, or rather to CRS reporting (given that the Wise account is in Europe and my declared address on the compliance forms would also be in Europe - unless I manage to get residence in a non CRS country). And what is the deadline for filing the FBAR form for the non-US bank account income?

2) I still have banking in the UK and use bank statements as proof of address. And I can retain permanent residence status without being a tax resident in the UK (by spending fewer than 16 days there). I wonder if I should also switch my RO and PT bank account address to the UK address. My only concern about linking my UK residence to the US LLC income is that the clients I invoice are UK based and I am not sure if income is ever taxable at the source unless taxed somewhere else (if I was based in the UK, taxes would be retained there under an umbrella solution inside IR35).

3) Any idea what non-CRS country would be easiest and fastest to establish residency in (without being a tax resident there)? And in which non-CRS countries one can easily open a personal bank account? In fact, what is meant by establishing residence? The 5472 / 1120 and beneficial owner forms do not require a proof of the address reported, right? So can one just report the address of their short term rental flat in one of the non-CRS countries they are visiting at the time they file the LLC forms ? Or would a PO box suffice? I don't have any bills on my name in any country at the moment - where are those needed? I understand that any update on the beneficial owner (such as a change of address) needs to be reported and that there are big potential fines for misreporting any information in those forms, but how is this checked in practice? And how could this work out for a perpetual traveler who may be changing airbnbs every week?

 

[Cloudbanck]

Hello,

Thanks a lot for taking the time and sharing your thoughts.

1) My clients require a Euro account hence the only option I found was Wise BE for the LLC. If someone is aware of other US banks opening Euro accounts for the US LLC (preferably remotely), please share.

Levro.com is US and multi-currency for example.

If I open multiple bank accounts for the US LLC do I need to use all of them for invoicing?

No

Or could I just invoice in Euro using the Wise BE account and then convert the money and transfer it to another USD bank account ?

You can but then you depend on Wise. The point is to be ok even if your Wise account gets closed.

If Mercury requires clients, address or operations in the US, wouldn't this create an ETBUS link making the US LLC taxable in the US?

Having an office or employees in the US creates ETBUS/ECI. Just having clients and suppliers in the US doesn't. See startfleet.io

Are US LLC funds held in my Wise Belgium account subject to FATCA reporting, or rather to CRS reporting.

Both I think. (Not entirely sure about CRS)

3) Any idea what non-CRS country would be easiest and fastest to establish residency in (without being a tax resident there)?

Most of the world is CRS, see https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/crs-by-jurisdiction/

But potential candidates that are not: Paraguay (have to visit to get residency, but easy to get temporary), Palau (e-residency can be obtained online), El Salvador (got to stay long time to get residency though), Philippines, Vietnam, Bosnia, Serbia, Senegal, The Gambia (possible to get residency same day), Ivory Coast, Namibia (territorial tax), Dominican Republic, Benin, Guinea, Uzbekistan, Belarus (sanction issues).

But you can pick a low/no tax CRS country too, like the UAE. Yes they might get reports from your bank accounts, but personal tax is zero anyway (and ok corp tax is 9% above 100k usd in the UAE)

And in which non-CRS countries one can easily open a personal bank account? In fact, what is meant by establishing residence?

You don't have to open a personal bank account there, and in most of these countries banks aren't that great anyway.
But you can use the address in weird non-CRS country to open a bank account at a decent bank/EMI like Xapo or open an offshore/expat UK bank account with this address. Or as mentioned change to this address at existing UK bank accounts.

The 5472 / 1120 and beneficial owner forms do not require a proof of the address reported, right?

No they don't, but who knows if the IRS starts checking. Possibly best to have some proof.

Or would a PO box suffice?

Nope

I don't have any bills on my name in any country at the moment - where are those needed?

When opening bank or broker or crypto accounts. Or sometimes when changing address at accounts. And if US authorities would ask.

I understand that any update on the beneficial owner (such as a change of address) needs to be reported and that there are big potential fines for misreporting any information in those forms, but how is this checked in practice?

I don't think it is checked in practice. What the US really cares about is whether you are in the US or not, and are a US person or not, not which foreign country you are in. For example for form W-8BEN you explicitly don't have to fill in a new one if you switch between foreign countries.
However, I'd say better to be safe here, and have proper documentation for the address you tell US authorities, like residency in this country, utility bills and stuff.

Also , any non-US high tax country will care. You can't tell the US you live in say Paraguay, and then spend like 5 months in France. Note that the form asks for all countries you are tax resident in.

And how could this work out for a perpetual traveler who may be changing airbnbs every week?

Well, you pick a place where you stay a bit longer, and rent long term there. Or you buy a property - that makes it much easier with bills and showing residency.