American Online Marketer, D.R. Resident & Setting Up Business In Estonia - HELLO ALL :D

[Lee]

Happy Saturday to all and thanks for taking the time to read this. I'll try to be brief.

My name is Lee, a husband and father of 2.

I'm sick of paying U.S. taxes, I'm a full-time online marketer and I'm looking to set up my business in Estonia through Xolo on the Leap plan.

I've been living in the Dominican Republic as a resident for 5+ years without even visiting the States.

My questions for those with the knowledge:

Does this sound like ONE OF the better low-tax options for my situation?

Any PRO TIPS that a rookie like me might overlook when trying pay as few taxes as possible? (dividends vs salary, etc.)

THANK YOU.

 

[Silvio]

Setting up a business is easy, getting banking is hard especially as an American.
If I were you I would renounce my citizenship as without it opening any bank account will be like crawling on broken glass, many banks probably will decline you because it's not worth the headache for them to deal with the FACTA bulls**t.
Estonia is very overrated, it has no advantages over a normal UK LLP. Most Estonian banks will not touch an Estonian company run by a non-resident director, especially the director is US-based or god-forbid DR.
If I were you I would forget about Estonia and opt for UK LLP. Don't fall for all this "e-residency" BS, they can talk all about it but if you can't actually bank in Estonia then what's the point.
If you want to avoid taxes start by leaving the US officially, get yourself a good citizenship someplace and set up solid foundation. As long as you are an American there is no legal way to avoid taxes except living in PR.

 

[Lee]

Thanks for that. I'm looking to get citizenship in the DR next year so I can stop renewing residency year after year.

I've been planning on dual citizenship so that I never have to go back to the U.S. if i don't want to, but still have the priviledges of a U.S. passport. I'd have to thoroughly investigate all implications of denouncing U.S. citizenship.

I'd LIKE to avoid all U.S. taxes, but I don't need to completely avoid taxes though.

My goal is to minimize as much as possible in the situation I'm envisioning. Once I know what circumstances this would present, I can decide yay or nay. Yet, I'm taking note of options that people-in-the-know mention if I end up unsatisfied with the result of the situation I have in mind, even when fully optimized.

I know that you're right about the tax benefits of renouncing, there's no doubt in that. But taxes aren't the only thing of importance in making a decision like that.

If I need to pay some taxes in order to have 2 passports instead of one, that's the cost of convenience as I see it.

My business has very low overhead, I monetize online and sell digital information goods that I create, so I don't see a need to take out a loan. Although Xolo can get an Estonian bank account for me if I travel to Tallin once, I don't need that. I'll use transferwise.

So, even though my scenario might not be as advantageous as the options you all know, I'd like to know if you all see any advantage of doing it this way (Estonia business, DR residency/dual citizenship) VS the normal U.S. business set up.

And if so, any tips to optimize on this situation.

Thank you,

Lee

 

[Lee]

Anyone have advice on how to optimize my scenario?

It would be much appreciated.

- Lee

 

[Golden Fleece]

The short answer is that if you form a Controlled Foreign Corporation (CFC) you can take advantage of the Foreign Earned Income Exemption (FEIE) up to $107,600 by drawing a salary from the CFC (or up to $215,200 if you and your spouse can both legitimately draw a salary). Under the 2017 Trump tax law (The Tax Cuts and Jobs Act of 2017 (TCJA)), you can then set up a U.S. C Corp, where any money reinvested in the business above the amount of your salary is taxed at a rate of 10.5% (half of the 21% corporate rate). Anything not reinvested in the business but drawn out of the corporation as a dividend is then taxed at an additional 0% up to $40k and then at a15% rate up to $450k or so.

So, for any funds not reinvested in the business, you are taxed twice (at 10.5% and then at the applicable dividend tax rate). The important part is that there is no income tax up to $107,600, if you qualify for the FEIE. This is a very simplified explanation. You must consult an expat tax professional. As you can see, there is no reason to risk tax fraud. There are legal tax avoidance and minimization schemes, if you hire a competent tax professional who specializes in helping U.S. expats. You must choose a jurisdiction wisely for your CFC if you need a bank account.

 

[Lee]

The short answer is that if you form a Controlled Foreign Corporation (CFC) you can take advantage of the Foreign Earned Income Exemption (FEIE) up to $107,600 by drawing a salary from the CFC (or up to $215,200 if you and your spouse can both legitimately draw a salary). Under the 2017 Trump tax law (The Tax Cuts and Jobs Act of 2017 (TCJA)), you can then set up a U.S. C Corp, where any money reinvested in the business above the amount of your salary is taxed at a rate of 10.5% (half of the 21% corporate rate). Anything not reinvested in the business but drawn out of the corporation as a dividend is then taxed at an additional 0% up to $40k and then at a15% rate up to $450k or so.

So, for any funds not reinvested in the business, you are taxed twice (at 10.5% and then at the applicable dividend tax rate). The important part is that there is no income tax up to $107,600, if you qualify for the FEIE. This is a very simplified explanation. You must consult an expat tax professional. As you can see, there is no reason to risk tax fraud. There are legal tax avoidance and minimization schemes, if you hire a competent tax professional who specializes in helping U.S. expats. You must choose a jurisdiction wisely for your CFC if you need a bank account.

Brilliant! Thank you Golden Fleece, I will thoroughly investigate each aspect that you presented. This gives me a great head start. I truly appreciate you taking the time!

- Lee

 

[Fossilx]

Brilliant! Thank you Golden Fleece, I will thoroughly investigate each aspect that you presented. This gives me a great head start. I truly appreciate you taking the time!

- Lee

What did you end up doing?

 

[Fossilx]

The short answer is that if you form a Controlled Foreign Corporation (CFC) you can take advantage of the Foreign Earned Income Exemption (FEIE) up to $107,600 by drawing a salary from the CFC (or up to $215,200 if you and your spouse can both legitimately draw a salary). Under the 2017 Trump tax law (The Tax Cuts and Jobs Act of 2017 (TCJA)), you can then set up a U.S. C Corp, where any money reinvested in the business above the amount of your salary is taxed at a rate of 10.5% (half of the 21% corporate rate). Anything not reinvested in the business but drawn out of the corporation as a dividend is then taxed at an additional 0% up to $40k and then at a15% rate up to $450k or so.

So, for any funds not reinvested in the business, you are taxed twice (at 10.5% and then at the applicable dividend tax rate). The important part is that there is no income tax up to $107,600, if you qualify for the FEIE. This is a very simplified explanation. You must consult an expat tax professional. As you can see, there is no reason to risk tax fraud. There are legal tax avoidance and minimization schemes, if you hire a competent tax professional who specializes in helping U.S. expats. You must choose a jurisdiction wisely for your CFC if you need a bank account.

The C Corp only makes sense if you're earning quite a bit over the 107K FEIE limit though right? Because of the 10.5 vs 21%? Instead of an LLC?

When you say money reinvested in the business, do you mean just left in the account or actually used to purchase something?

 

[Golden Fleece]

The C Corp only makes sense if you're earning quite a bit over the 107K FEIE limit though right? Because of the 10.5 vs 21%? Instead of an LLC?

Correct, although I am not sure I would say "quite a bit over." You would also want to investigate whether you qualify for the Foreign Housing Exclusion before committing to a CFC and C Corp, especially if you live in an expensive area.

When you say money reinvested in the business, do you mean just left in the account or actually used to purchase something?

My understanding is either one. As soon as it leaves the business account, however, it becomes a taxable dividend distribution.


BTW: This is also something that I am researching, so I am not an expert (although an expat CPA confirmed that my general understanding of the topic is correct).

 

[tsu458]

I don't know about the US stuff, but isn't there a territorial tax system in the Dominican Republic? If so, I assume you could use a UK or CA LLP, a UAE setup, whatever and get the money out of it at 0% tax? Meanwhile you would pay 20% tax in Estonia (taxed on dividend cashout).

 

[Golden Fleece]

I don't know about the US stuff.

As a U.S. citizen the U.S tax system is what matters, because U.S. citizens are taxed on their worldwide income -- and there is no escape from U.S. income taxes, unless you renounce your U.S. citizenship. So, as far as U.S. income tax, tax minimization is the only game in town.

 

[elboligrafo]

Happy Saturday to all and thanks for taking the time to read this. I'll try to be brief.

My name is Lee, a husband and father of 2.

I'm sick of paying U.S. taxes, I'm a full-time online marketer and I'm looking to set up my business in Estonia through Xolo on the Leap plan.

I've been living in the Dominican Republic as a resident for 5+ years without even visiting the States.

My questions for those with the knowledge:

Does this sound like ONE OF the better low-tax options for my situation?

Any PRO TIPS that a rookie like me might overlook when trying pay as few taxes as possible? (dividends vs salary, etc.)

THANK YOU.

What's wrong with forming a Dominican Republic company?