US LLC for European citizen and resident in Europe

[vicewasg]

Hi,

I'm launching an online business (Software as a Service) in the country that I'm natural and reside in. I've setup an US LLC in Delaware, my customers will be all from outside of the US, so I will not be taxed in the US.

The US LLC will be commanded from the country where I reside and my end customers will also be from my country of residence. Because of this fact, my country of residence will claim that I will have to pay taxes there.

I'm OK with that because I'm thinking to invest all the profits in launching the company. By other words, every penny that I make I will reinvest in marketing. Later I will search for another structure to return profits to me.

My question is: There is any problem that I'm not seeing with this strategy? The reason that I'm doing this is because it is much cheaper to have an LLC in the US than in my country of residence.

Can you give me some commentary on this?

Best Regards,

 

[Marzio]

There is any problem that I'm not seeing with this strategy? The reason that I'm doing this is because it is much cheaper to have an LLC in the US than in my country of residence.

You will need to register the foreign company in your country and pay social security.

 

[vicewasg]

You will need to register the foreign company in your country and pay social security.

Hi Marzio,

Thanks for the tip.

What is my best alternative to achieve something similar to this but without paying for social security. Any real alternative?

Thanks.

 

[Untangle]

You will need to register the foreign company in your country and pay social security.

If you draw wages only as far as I know?
Otherwise dividends only you should not need to register locally, just declare as foreign income?

 

[vicewasg]

If you draw wages only as far as I know?

I will not have any wage. I will be "sole proprietor not waged".

 

[Untangle]

Anyways OP you should be paying some local taxes anyway including some minimal wages combined with usually lower tax rate on dividends. You can not live in an EU and declare 0 taxes. You will attract a tax control at the very least.

 

[Marzio]

The only way to not pay social security is to not work for the company and be seen as an investor.

You achieve this by hiring at lest a director to prove that you are not working but if you are starting from scratch this is not an option because of the costs involved.

Depending on your country of residence another solution could be to register as a self employed and invoice the US LLC for the services you provide but you'll have to pay social security.

 

[vicewasg]

The only way to not pay social security is to not work for the company and be seen as an investor.

You achieve this by hiring at lest a director to prove that you are not working but if you are starting from scratch this is not an option because of the costs involved.

Depending on your country of residence another solution could be to register as a self employed and invoice the US LLC for the services you provide but you'll have to pay social security.

Thanks for the reply.

In the case of the US LLC generating minimal profit the European country will ask to pay the taxes generated by the LLC as "personal income tax" or "personal income tax + corporate income tax" ?

 

[Marzio]

This depends on your EU country because in some countries US LLC is seen as transparent so any income will be taxes ad personal income.

In other countries US LLC is seen as opaque and its profits as dividends so you'll pay capital gain taxes + personal income taxes.

US LLC could be a very good solution becuase it offers a lot of prestige and nearly all SaaS use this form of doing business but you have to plan in advance your tax residency first.

 

[vicewasg]

This depends on your EU country because in some countries US LLC is seen as transparent so any income will be taxes ad personal income.

In other countries US LLC is seen as opaque and its profits as dividends so you'll pay capital gain taxes + personal income taxes.

US LLC could be a very good solution becuase it offers a lot of prestige and nearly all SaaS use this form of doing business but you have to plan in advance your tax residency first.

If I want to live in Europe cheaply, what tax residency should I look for in advance? Romania, Bulgaria or there are other good hidden options?

 

[Marzio]

you'll pay capital gain taxes + personal income taxes.

Uhm i'm not entirely sure about this line because if you pay capital gain taxes + personal income taxes you'll pay taxes two times on the same capital but it could be if you invoice your US LLC as a freelancer and US LLC is seen as opaque in your country.

 

[vicewasg]

Uhm i'm not entirely sure about this line because if you pay capital gain taxes + personal income taxes you'll pay taxes two times on the same capital but it could be if you invoice your US LLC as a freelancer and US LLC is seen as opaque in your country.

In my country I only pay "capital gains tax" if I've a partner on the LLC and I can prove that the US LLC is not "commanded" from my country of residency. Otherwise I think the income generated from the US LLC will be taxed as personal income.

 

[Marzio]

In my country I only pay "capital gains tax" if I've a partner on the LLC and I can prove that the US LLC is not "commanded" from my country of residency.

If you can demonstrate that the LLC is not directed from your country then you don't need to register as a freelancer and you will only pay capital gain taxes but remember, only if your country sees US LLC as opaque and this could not be easy to discover.

 

[vicewasg]

If you can demonstrate that the LLC is not directed from your country then you don't need to register as a freelancer and you will only pay capital gain taxes but remember, only if your country sees US LLC as opaque and this could not be easy to discover.

In my country the US LLC is a fiscally transparent company, meaning that my country sees me as the LLC.

In Europe what are the countries that see the US LLC as opaque?

 

[Untangle]

Each EU country has its own view.
Here are some basic pointers for Belgium for example

https://www.taxpatria.be/faq/how-are-distributions-from-a-single-member-us-llc-taxed-in-belgium/

 

[vicewasg]

Each EU country has its own view.
Here are some basic pointers for Belgium for example

https://www.taxpatria.be/faq/how-are-distributions-from-a-single-member-us-llc-taxed-in-belgium/

Great that Belgium sees the sole proprietor of the US LLC as opaque. I would be an option, but for now I prefer a low tier country with a low cost for living there.

 

[Marzio]

In Europe what are the countries that see the US LLC as opaque?

This is the most controverse topic ever.

Even if you ask professionals, even they are not sure since US LLC is a hybrid with capital company elements and partnership elements so there is a lot of uncertainity around its treatment.

In Hungary there is no concept of transparent entities so a US LLC is treated as opaque.

Italy and Belgium take similar approach and probably France but i'm not sure.

The best option in EU could be US LLC + Portugal tax residency under NHR but it's a very very very grey area.

 

[vicewasg]

This is the most controverse topic ever.

Even if you ask professionals, even they are not sure since US LLC is a hybrid with capital company elements and partnership elements so there is a lot of uncertainity around its treatment.

In Hungary there is no concept of transparent entities so a US LLC is treated as opaque.

Italy and Belgium take similar approach and probably France but i'm not sure.

The best option in EU could be US LLC + Portugal tax residency under NHR but it's a very very very grey area.

I will search Italy and Hungary.

Some new information about Italy, Italian special tax regime for inbound – updates