What structure to wrap UAE residency (and reduce US taxes)

[JustAnotherNomad]

I’m currently strongly considering moving to the UAE. As in, yes, actually move there. I will still be a nomad, but it seems like a nice place to have as a base with direct flights pretty much evergwhere.

Anyway. I have European clients who would be scared about dealing with UAE companies because then they’d be supporting the violation of human rights or whatever.
So I can’t use a UAE company to bill them.
I would also need access to banking in local European currencies, not just EUR/USD.

I have thought about several alternatives:
- US LLC
- UK Ltd.
- Ireland Ltd.
- Partnership (Canada LP, UK LLP, some other random European country)

I would of course prefer if there were as simple accounting requirements as possible. The company itself should also be cheap to set up as it would be great to have separate companies for separate ventures.

US LLCs would probably even get me access to US banking, which would be nice for brokerage accounts and rewards credit cards.

But then there is the issue of estate tax and withholding tax on dividends as there is no DTA between the USA and the UAE.
So one would probably be better off not using a US broker and not holding individual US stocks, but rather Ireland-domiciled ETF’s.
Receiving USD also isn’t much of a priority for me at the moment, but that might very well change in the future.
US LLCs are also a bit of a hassle regarding VAT in Europe as one might need a VAT representative, even when one only has B2B transactions.
So maybe a European entity would be better? But probably come with more complex accounting requirements?

Or I could simply use the US LLC for operative business only and invest into the stock market as an individual?

Or... I could have a trust or foundation or investment company own an LLC or own the shares directly?
I might also want to invest in real estate worldwide eventually.

I don’t have a lot of money to invest yet, so it probably won’t matter much right now anyway. I’d just like to keep things flexible from the start and not make things difficult for myself further down the road.

One more thing: What if a client is audited?
Can they demand a tax residency certificate for my company? Could that be an issue? It would of course be a complete disaster if they can’t get my invoices accepted as a business expense. So it’s important that this won’t be an issue.

Any suggestions?

 

[Marzio]

I would probably go with a Canadian Extra Provincial Corporation

 

[JustAnotherNomad]

Thanks. It’s actually the first time I’m hearing about that. Can you give me some more information? Why that and not something else?

 

[Marzio]

Because Canada is the perfect "wrap" around a UAE company.

You'll avoid the 5472 form that is mandatory for US LLC and you'll avoid entirely the question if any of your US income in considered Effectively Connected Income (ECI) or not.

I don't know about you but knowing that i don't have to deal with the IRS gives me peace of mind

Read here.

 

[Marzio]

If you need to operate in EUR then it's probably better to use a UK LLP registering you and your business as partners.

 

[JustAnotherNomad]

But... why? Why not a Canadian LP then? I don’t see the advantage? Probably there would also be public records somewhere showing the ownership?

 

[Marzio]

Because with a company and not a partnership is easier to open a bank account in Canada.

Also in British Columbia there is no resident director requirement and the public registry isn't available online without having to jump through a number of hoops meaning that it isn't crawled by Google and the other search engines.

 

[JustAnotherNomad]

But it’s not a Canadian company? It’s just a registered branch of a foreign company?
Why would I mind dealing with the IRS if it’s perfectly clear I don’t have any ECI?

 

[Marzio]

The EPC it's sort of a branch but clients will not see MYOFFSHORECORP FZE Vancouver Branch, they will, see MYCANADIANCORP Inc.

I don't know what you are planning to do in US, i only gave you my input on what i would do.

I just know that i prefer to file an annual report in Canada than dealing with anything US related.

Everybody is going the LLC route and everybody has the same problems with banks and payment processors like Stripe and Paypal.

With a canadian corp you are flying well under the radar.

It's around 380 CAD to register a BC company and around 45 CAD to file the annual report (to renew the company for another year). On top of that you will need an address, that will cost you around 100 CAD annually.

 

[JustAnotherNomad]

The EPC it's sort of a branch but clients will not see MYOFFSHORECORP FZE Vancouver Branch, they will, see MYCANADIANCORP Inc.

Have you actually checked that? I know that some other countries at least require you to do business as something like “Mycanadiancorp EPC” if not “Myoffshorecorp EPC”, making it obviously that it’s not a regular company.

I find almost no information at all about these entities. Do you have practical experience with them?

 

[Marzio]

Have you actually checked that?

I actually asked an agent in Vancouver and he gave me that answer but i have no direct experience with EPC. I trust his answer was correct because your EPC's name needs to be different from other federal corporations so i guess you could call the EPC however you like.

 

[JustAnotherNomad]

Or... I could have a trust or foundation or investment company own an LLC or own the shares directly?
I might also want to invest in real estate worldwide eventually.

Very few comments here. And no suggestions regarding trusts or foundations either?
Come on guys, I know someone has to have the answer to this...

 

[jazzybell]

Because Canada is the perfect "wrap" around a UAE company.

You'll avoid the 5472 form that is mandatory for US LLC and you'll avoid entirely the question if any of your US income in considered Effectively Connected Income (ECI) or not.

I don't know about you but knowing that i don't have to deal with the IRS gives me peace of mind

Read here.

I'm just wondering, can you share more details about how Canadian Extra Provincial Corporation should be set up, as a holding company owned by FZCO?
If you are dealing with US clients as Canadian inc and effective management is in UAE, I suppose IRS can count you as UAE based and apply 30% WHT to you, as there is no DTT between UAE and USA, isn't it?
I suppose to have FZCO to deal with US clients straight but my CPA told me when you file W8 as FZCO every US company should withhold 30%, basically it's -30% on gross income, which I would like to reduce. Any suggestions?

 

[Marzio]

An EPC is not a distinct company, it's essentially a FCZO branch and can't be used to reduce US witholding taxes. What kind of payments are you receiving from US?

 

[jazzybell]

An EPC is not a distinct company, it's essentially an FCZO branch and can't be used to reduce US withholding taxes. What kind of payments are you receiving from the US?

B2B payments from US companies for IT software development.
So, if I got everything right if there is FZCO in the structure = WHT 30% should be paid.

Any other suggestions, e.g. Cyprus, where should I look at? As I can see DTT was signed by the US only with Cyprus and Malta as low-tax jurisdictions.

 

[Marzio]

if I got everything right if there is FZCO in the structure = WHT 30% should be paid.

If you don't have any US presence and work is performend outside US i don't it's the case.

 

[JackAlabama]

The EPC it's sort of a branch but clients will not see MYOFFSHORECORP FZE Vancouver Branch, they will, see MYCANADIANCORP Inc.

I don't know what you are planning to do in US, i only gave you my input on what i would do.

I just know that i prefer to file an annual report in Canada than dealing with anything US related.

Everybody is going the LLC route and everybody has the same problems with banks and payment processors like Stripe and Paypal.

With a canadian corp you are flying well under the radar.

It's around 380 CAD to register a BC company and around 45 CAD to file the annual report (to renew the company for another year). On top of that you will need an address, that will cost you around 100 CAD annually.

No problems at all with a US LLC. Stripe Paypal and whatnot is easy to setup remotely.

I'm just wondering, can you share more details about how Canadian Extra Provincial Corporation should be set up, as a holding company owned by FZCO?
If you are dealing with US clients as Canadian inc and effective management is in UAE, I suppose IRS can count you as UAE based and apply 30% WHT to you, as there is no DTT between UAE and USA, isn't it?
I suppose to have FZCO to deal with US clients straight but my CPA told me when you file W8 as FZCO every US company should withhold 30%, basically it's -30% on gross income, which I would like to reduce. Any suggestions?

Thats not how this works.

Your USA LLC is a disregarded entity, it is considered being you. You need just to assess your usa presence, otherwise your LLC becomes a corp.
You should read up on this or talk to some incorp agent, there are some here.

 

[Marzio]

No problems at all with a US LLC. Stripe Paypal and whatnot is easy to setup remotely.

The setup is not where i see the problem. The problems come later when Stripe or PayPal will ask an utility bill or something that you can't provide because you don't a presence there.

But obviously if he don't use Stripe or PayPal to get money from clients, if he is confortable filing form 5472 and he is ok with pening a US bank account by going there in person a US LLC with a single member FCZO could be an option.

 

[JackAlabama]

The setup is not where i see the problem. The problems come later when Stripe or PayPal will ask an utility bill or something that you can't provide because you don't a presence there.

But obviously if he don't use Stripe or PayPal to get money from clients, if he is confortable filing form 5472 and he is ok with pening a US bank account by going there in person a US LLC with a single member FCZO could be an option.

No absolute need to go there in person. There are plenty of online options to start out with.

These providers can always bite you no matter what you do, especially if your business is not boring enough.

 

[Marzio]

There are plenty of online options to start out with.

I know, you can use Mercury and the usual suspects but you have probably noticed a theme in my thinking. I prefer to do the initial effort to make the business easier going forward.