Best locations for Norway & UK residents

[ishipp]

Hi all!

We are two family members that own a business:

• One citizen/resident in UK (aka J)
• One citizen/resident in Norway (aka S)
• Business is a US C-corp selling software (aka C). No crypto, nothing illegal

Eager to avoid taxes when bringing money into UK and Norway respectively. Currently S has an AS company that bills C for consulting, and then pays S out as salary in Norway. J currently not taking any $$ from company.

We're thinking of setting up a Nevis LLC with a Belize bank account which would bill C for consulting instead, then we each take a prepaid debit card and use that for purchases to avoid taking money into UK and Norway directly.

Concerned that info online may be outdated and offshore firms online are always trying to sell you services, so wanted to get the group's thoughts on whether the plan makes sense of if there's better location or jurisdiction.

Business currently making ballpark $100K per year but would like something with room to grow, without needing 5-figure costs to get everything incorporated.

Any guidance would be much appreciated thanks!

 

[Sols]

Yeah, no, forget about it. If you live in Norway, you pay Norwegian tax. Any company you manage/control from Norway is Norwegian for tax purposes. Same with UK.

If you don't like Norwegian and/or British tax, don't live in Norway and/or UK.

 

[JustAnotherNomad]

Your C-Corp is already taxable in both Norway and the UK. You better talk to some good accountants really quick to make sure you can clean up your mess, before it gets out of control.
Hope you didn't pay tax in the US.

 

[ishipp]

US corp files a Delaware franchise tax, and the only way money has been “taken out” is invoiced through the Norwegian company which is declared and tax paid on.

Unclear how the C-Corp itself would be taxable in Norway given it operates in US and hasn’t paid dividends?

 

[JustAnotherNomad]

Unclear how the C-Corp itself would be taxable in Norway given it operates in US and hasn’t paid dividends?

Yes, a lot is unclear for you, that's evident.
"Operates in US", lol. So where did the company pay corporate income tax then?
You really need to get your mess cleaned up. You've probably got outstanding tax obligations in all three countries.
Also lol, "how it would be taxable". How about you contact your tax offices in the UK and Norway and tell them about the "US" company? You will be learning a lot, really fast.

To mention just one of the many aspects of how you have screwed up: A C-Corp always has to pay corporate income tax on the federal level. The only difference between states is whether you have to pay any state taxes on top of the federal taxes. This also has absolutely nothing to do with whether or not you pay dividends.

Seriously, talk to accountants in all three countries and try to figure out how you can clean this up. At this point, I don't think there will be criminal charges. Just pay the taxes and fines/interest and figure out how to continue from there.

 

[Sols]

Unclear how the C-Corp itself would be taxable in Norway given it operates in US and hasn’t paid dividends?

Here's a simple check:

Foreign corporations are regarded as tax resident in Norway if the de facto management of the company is carried out in Norway. When assessing whether de facto management is carried out in Norway, one must consider where management at board level and daily management are exercised. Other circumstances concerning the organisation and the business of the company may be relevant in an overall assessment where the management functions are split and carried out in different jurisdictions.

Copied from PwC: Norway - Corporate - Corporate residence

Skatteetaten would love your case. It would be such an easy win.

 

[JohnLocke]

I have great experience in thinking that one can avoid the long claws of the tax authorities in Scandinavia, but you can't, and I would never do it again. I chose to pack my things and leave the country where I have lived for over 40 years! Before this, I spent nearly 100K Euro on accountants and lawyers to get out of the mess! These were the same people who helped with the constitution. It just tells me, once the tax authorities have got wind of you, they make sure to shut down everything you own and have, even if they have to lie about stories and events, they do it. You don't stand a chance unless your name is Elon Musk.

 

[JustAnotherNomad]

Really, the most important thing now is to file for US corporate income tax.
Pay the 21% tax (not sure how long you've had the company - the corporate tax rate in the UK actually used to be just 19%!), then close the company if you can and pray that nobody in the UK or Norway will ever find out about it. It's not the cleanest way, but cleaning up the UK/Norwegian side of your mess would likely cost you a s**t ton of money.

But I really wouldn't want to mess around with the IRS. Absolutely bonkers that you thought you could just set up a corporation in the US and not pay tax in any country.

 

[Dandyline]

Really, the most important thing now is to file for US corporate income tax.
Pay the 21% tax (not sure how long you've had the company - the corporate tax rate in the UK actually used to be just 19%!), then close the company if you can and pray that nobody in the UK or Norway will ever find out about it. It's not the cleanest way, but cleaning up the UK/Norwegian side of your mess would likely cost you a s**t ton of money.

But I really wouldn't want to mess around with the IRS. Absolutely bonkers that you thought you could just set up a corporation in the US and not pay tax in any country.

Sounds from TS like there is no profits in the C-corp, hence no CIT.

 

[JustAnotherNomad]

Sounds from TS like there is no profits in the C-corp, hence no CIT.

Doesn't sound like it at all. OP mentioned the UK partner hasn't taken any money out, so presumably there are profits left.
I'm also quite sure you'd still have to submit CIT returns.

 

[Dandyline]

Doesn't sound like it at all. OP mentioned the UK partner hasn't taken any money out, so presumably there are profits left.
I'm also quite sure you'd still have to submit CIT returns.

They are invoicing the money out from the C-corp leaving no profits, hence no CIT. They should file though. Overall, not the best setup obviously.

 

[JustAnotherNomad]

No, that's not what they said. They only said that the Norwegian company takes money out of the C-corp, but not how much.
They also indicated that the UK resident isn't taking any money from the company, which to me sounds like there is (taxable) profit left over.

Currently S has an AS company that bills C for consulting, and then pays S out as salary in Norway. J currently not taking any $$ from company.

But even if 100% of all profits were indeed taken out, then this could also violate transfer pricing rules.
Anyway, yes, they should file... I guess the fine for not filing is up to $25,000? (Probably a lot less in practice... if you do file, just late.)

 

[ishipp]

Thanks for the candid feedback and sorry for the delay responding - wanted to make sure I'm fully clear on the current setup.

Delaware corp was set up late 2021, filed paperwork but made no profit so paid no tax.

In 2022 we had net profit of ~$1.5K so paid the US corporate tax on that (~$300). Revenues of around $70K and expenses of $69K (including ~$30K 'consulting fees' paid to the Norwegian company which is how $$ was taken out of the business). UK partner took no dividends, salary, etc. based on our own internal agreement (UK partner is an owner, Norway is operator, and agreed initial funds will cover Norway's costs before UK receives income). So correct above in that company had basically no profits but did indeed file corporate US taxes.

What we haven't done is declare the company in Norway or the UK. Funnily enough our Norwegian accountant knew that we were managing the US Corp but didn't mention at all that it's taxable in Norway, so they are obviously fired.

Still thinking about next steps, as the foreign ownership of the C corp is reported on Form 1120 schedule G, which I assume is how it would be reported back to UK/Norway that we're running the business.

Regardless the above has been helpful and we clearly need to think through next steps in a bit more detail here

 

[JustAnotherNomad]

Ok, it's good that you have filed for corporate income tax in the US.
The risk that the US will report your company to the UK or Norway are probably rather low. Even in that case, the tax authority would have to have a closer look to decide that you have operations in Norway/the UK.
Since you didn't actually evade taxes, only paid them in the wrong place (in the US instead of the UK/Norway, where the operations were actually taking place), I think the risk is very low at this point. You made a mistake, but you did pay the tax in the end. No one will start an investigation about such low profits, and even if they did, I can't imagine it would be a criminal investigation. It would only be lots of paperwork, maybe some interest. But the paperwork is the problem, accountants don't work for free.

You should decide if you want to keep the company. You can do that, there's nothing illegal about registering a company in another country and running it from somewhere else. But it can be a nightmare in terms of tax paperwork since you will be dealing with taxes in three different countries. And you will have to get them all to agree how much of the taxable profit was generated in each country, and thus taxable there.
So this would usually only make sense when you absolutely have to register your company in a specific country because of access to local markets, investors etc.

If it's just you and your partner running things and you don't have any employees elsewhere, the best idea would probably be to register the company in either Norway or the UK.
There would likely still be tax in the other country (due to permanent establishment), but at least you're only dealing with two countries.
The UK is probably a bit less strict than Norway, so I would probably incorporate in Norway. Maybe you could even avoid the PE in the UK altogether. If you have a UK company, I don't think you would be able to avoid having a PE (fast driftssted) in Norway.

Once you have grown to the point that you want to hire employees, you can consider setting up a company in a country with lower taxes. But you cannot be running that company yourselves, otherwise you would run into the same issue again. You would have to hire local staff who would be running the company independently. You'll need to work with experienced tax lawyers to make sure everything is set up correctly, and even then, some risk remains. If the tax authorities want to screw you over, they can. They have unlimited resources, you don't.
So it may be wiser to just move to a lower-tax country.

Also, both the UK and Norway have CFC rules. That means that if the company in the lower tax country (run by local staff) doesn't pay enough tax in that country, the UK/Norway may still be able to tax the company, simply because you own it. But the rules can be complex. If I recall correctly, they can't enforce them if the other company is in an EU country. Still this is something to be aware of.

Generally, the best idea would be to just move to a country with lower taxes and spend 183+ days per year there.