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Best offshore jurisdiction for collecting AdSense income?
- Thread starter diginomad
- Start date
No that's not possible as the Residence Visa makes the difference to get real physical bank account opened otherwise you end up with EMI same like with HK and US.
Fulton Abraham Sanchez
Fulton Abraham Sanchez, CPA
US SMLLC will be tax free if the income received is not US sourced and it will require tax filing form 5472 only.
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Thanks @Fulton Abraham Sanchez
The problem with SMLLC is the interpretation of ECI. The IRS will be always free to come back to you and argue that your income is not ECI.... and I don't like interpretation. I prefer jurisdictions where tax rules for foreign income are "clear".
My actual case that involves this uncertainty is this:
- I have mobile apps on Google Play Store and App Store and I offer "In-App-Purchases"
- This IAP are collected by Google and Apple and they send me a periodical transactions (for instance, monthly).
- When they send transactions they send it from Google US and Apple US entities and the transactions are directed to my company bank account (US). Although anything is digital and I will never go to the US, anything seems to be happening in the US (just digitally, but all between US entities).
- Moreover al lot of In-App-Purchases are made from US users
=> I'm not sure how the IRS will deem this case. If this is considered ECI, the SMLLC is no longer an attractive setup for my offshore. I don't want to take this risk and getting future penalties.
Everything mentioned above does not come only from my personal thoughts. I had a call with 10 different "CPA" from all over the US. There is a lot of confusion on this matter... and I don't like confusion. This is what they say:
Positive feedbacks:
Alan:
"App Store contracts are characterized as a "sales/commission" agreement, as opposed to a "royalty" agreement.
Commissions are basically taxed as services income, therefore if the app development or services did not happen in the US, then the sales in the app store or play store should not be subject to US taxes"
Robert:
"From what I understand the earnings from the App Store, Google Play etc. are considered royalties and taxed as such. Meaning they would be subject to a 30% withholding tax.
This will probably depend on which country version of the App Store the apps are deployed to.
Neil:
"You have a Single-member LLC disregarded entity and you will always work/live outside the US, plus you don't have any office or dependent agent in the US (just a registered address to receive mails).
Moreover you sell digital goods, therefore you should never pay taxes in the US. So, there is absolutely no need to file 1040nr. You don't have any US-source income."
Larry:
"You did right submitting a W-8 form to Google, because although you have a company in the US, that is a disregarded entity and you are a foreign owner living outside the US"
Simon:
"You don't have ECI, but besides 1120 and 5472 It's much better to file also 1040NR as a protective measure, in case the IRS will come to you"
Negative feedbacks:
Loren:
"You have a registered address in the US and you have a US bank account, therefore all your income will be automatically taxed as US source income"
Cindy:
"You have a US entity with a US bank account. All your income will be seen as US-source income. Plus you might need to file form 8832. For sure all your income will be subject to a 30% taxation"
Thomas:
"You have a company in the US so you should submit a W-9 to Google... not a W-8"
As you would notice, if the CPA in the US have so many different interpretations of these rules, as foreigner for me It's not easy to see an SMLLC as a safe setup for an offshore (if you want it to be tax-efficient).
The problem with SMLLC is the interpretation of ECI. The IRS will be always free to come back to you and argue that your income is not ECI.... and I don't like interpretation. I prefer jurisdictions where tax rules for foreign income are "clear".
My actual case that involves this uncertainty is this:
- I have mobile apps on Google Play Store and App Store and I offer "In-App-Purchases"
- This IAP are collected by Google and Apple and they send me a periodical transactions (for instance, monthly).
- When they send transactions they send it from Google US and Apple US entities and the transactions are directed to my company bank account (US). Although anything is digital and I will never go to the US, anything seems to be happening in the US (just digitally, but all between US entities).
- Moreover al lot of In-App-Purchases are made from US users
=> I'm not sure how the IRS will deem this case. If this is considered ECI, the SMLLC is no longer an attractive setup for my offshore. I don't want to take this risk and getting future penalties.
Everything mentioned above does not come only from my personal thoughts. I had a call with 10 different "CPA" from all over the US. There is a lot of confusion on this matter... and I don't like confusion. This is what they say:
Positive feedbacks:
Alan:
"App Store contracts are characterized as a "sales/commission" agreement, as opposed to a "royalty" agreement.
Commissions are basically taxed as services income, therefore if the app development or services did not happen in the US, then the sales in the app store or play store should not be subject to US taxes"
Robert:
"From what I understand the earnings from the App Store, Google Play etc. are considered royalties and taxed as such. Meaning they would be subject to a 30% withholding tax.
This will probably depend on which country version of the App Store the apps are deployed to.
Neil:
"You have a Single-member LLC disregarded entity and you will always work/live outside the US, plus you don't have any office or dependent agent in the US (just a registered address to receive mails).
Moreover you sell digital goods, therefore you should never pay taxes in the US. So, there is absolutely no need to file 1040nr. You don't have any US-source income."
Larry:
"You did right submitting a W-8 form to Google, because although you have a company in the US, that is a disregarded entity and you are a foreign owner living outside the US"
Simon:
"You don't have ECI, but besides 1120 and 5472 It's much better to file also 1040NR as a protective measure, in case the IRS will come to you"
Negative feedbacks:
Loren:
"You have a registered address in the US and you have a US bank account, therefore all your income will be automatically taxed as US source income"
Cindy:
"You have a US entity with a US bank account. All your income will be seen as US-source income. Plus you might need to file form 8832. For sure all your income will be subject to a 30% taxation"
Thomas:
"You have a company in the US so you should submit a W-9 to Google... not a W-8"
As you would notice, if the CPA in the US have so many different interpretations of these rules, as foreigner for me It's not easy to see an SMLLC as a safe setup for an offshore (if you want it to be tax-efficient).
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I really can't imagine that such sales would be ECI. ECI is about having a dependent agent in the US, and clearly Google/Apple are not a dependent agent.
You also wouldn't have a US entity as the SMLLC is disregarded for tax purposes (pass-through) - so it shouldn't make any difference in terms of taxes if you have a US entity or not.
But obviously that's just my interpretation as a layman. Is there some way to get a binding statement from the IRS?
@Fred What if he goes for a cheap license (like from Ajman), gets a residency visa, opens a UAE business bank account in person with his Emirates ID (with Mashreq NeoBiz or some other bank) and then cancels his visa? Would Mashreq know that the visa has been cancelled?
I know a couple people with cheap UAE licenses and business bank accounts, but they actually live in Dubai.
What about my UK suggestion? Maybe @CaptK can chime in?
As another alternative, what about Georgia? I believe there's an IT freezone, where you pay 1% tax, but I'm not sure about withholding taxes.
You also wouldn't have a US entity as the SMLLC is disregarded for tax purposes (pass-through) - so it shouldn't make any difference in terms of taxes if you have a US entity or not.
But obviously that's just my interpretation as a layman. Is there some way to get a binding statement from the IRS?
@Fred What if he goes for a cheap license (like from Ajman), gets a residency visa, opens a UAE business bank account in person with his Emirates ID (with Mashreq NeoBiz or some other bank) and then cancels his visa? Would Mashreq know that the visa has been cancelled?
I know a couple people with cheap UAE licenses and business bank accounts, but they actually live in Dubai.
What about my UK suggestion? Maybe @CaptK can chime in?
As another alternative, what about Georgia? I believe there's an IT freezone, where you pay 1% tax, but I'm not sure about withholding taxes.
Maybe to help some of you out regarding the US Withholding taxes...
I actually setup in the UAE with Fred (I can recommend him) one month before they announced the withholding tax on US revenue. 50% of my revenue is coming from the US, so staying in the UAE was no option for me...
It makes no sense setting up a UK Ltd or LLP or Cyprus company to 'avoid' withholding taxes.. Pretty much all tax treaties the US has signed have LOB (Limitation of benefit) clauses. Meaning it doesn't matter where the company has been setup it's about where the company and the UBO is resident.
If you have a lot of revenue coming from the US your best options are Georgia and Malta. I decided to move to Malta because there is a tax treaty between Malta and the US allowing for a 15% reduction and the other 15% can be partially set off against the corporate tax of 5% in Malta.
I actually setup in the UAE with Fred (I can recommend him) one month before they announced the withholding tax on US revenue. 50% of my revenue is coming from the US, so staying in the UAE was no option for me...
It makes no sense setting up a UK Ltd or LLP or Cyprus company to 'avoid' withholding taxes.. Pretty much all tax treaties the US has signed have LOB (Limitation of benefit) clauses. Meaning it doesn't matter where the company has been setup it's about where the company and the UBO is resident.
If you have a lot of revenue coming from the US your best options are Georgia and Malta. I decided to move to Malta because there is a tax treaty between Malta and the US allowing for a 15% reduction and the other 15% can be partially set off against the corporate tax of 5% in Malta.
Yes, Mashreq will sooner then later close the account - there are exceptions of course however should the bank finds this out they will shut you down asap. Doesn't make sense. Same like going for cheap license like Ajman as we have to spend then on the other end on substance for the Bank Account openings.
@wie7se thanks for the real life experience and clarification!
Ajman licenses are OK for bank account openings if you actually reside in the UAE. It may be a bit more work, but if you have some local contacts, it can definitely work.
I wasn't aware of LOB clauses. I thought that if you could provide a corporate tax residency certificate, you should generally be fine, but that obviously changes things. (Not for OP though, as he said he doesn't have a lot of US revenue.)
Thailand has signed a tax treaty with the US though. So maybe using a US LLC isn't such a bad idea after all? It seems like US tax treaties also contain clauses regarding ECI, so I'm not sure if incorporating somewhere else would make a difference?
The only thing I'd want to check with a US SMLLC + Thailand setup would be whether this could be considered a hybrid mismatch, as that is something that the OECD has been cracking down on.
I wasn't aware of LOB clauses. I thought that if you could provide a corporate tax residency certificate, you should generally be fine, but that obviously changes things. (Not for OP though, as he said he doesn't have a lot of US revenue.)
Thailand has signed a tax treaty with the US though. So maybe using a US LLC isn't such a bad idea after all? It seems like US tax treaties also contain clauses regarding ECI, so I'm not sure if incorporating somewhere else would make a difference?
The only thing I'd want to check with a US SMLLC + Thailand setup would be whether this could be considered a hybrid mismatch, as that is something that the OECD has been cracking down on.
Fulton Abraham Sanchez
Fulton Abraham Sanchez, CPA
D, hi. The only consideration is if your income is US source, meaning you will receive income from US taxpayers. If you will, it will be taxable regardless of the characterization, i.e. royalty, commission, etc. If you will not, the income is not taxable in the US and you will only need to file form 5472 if there are transactions between the USLLC and you, such as loans, distributions, etc.
No they probably won't, but the IRS will... There is a high chance you will get away with it, especially if you don't earn a lot.
I can't see the IRS digging either, unless there are very large sums involved. But anyway OP stated that he doesn't care about US withholding tax since most revenue is made outside of the USA.
Hello, I have the exact same problem.
I have an app that generates revenue from Google (Admob), Apple and other US-based ad-networks like AppLovin etc. in the magnitude of $2.5M per year.
I wanted to setup a US LLC but what scares me is that IRS may interpret it as US-based income.
What I do not like about Dubai is that I need to have a local bank there due to Google policy where the company and bank countries should match. In addition, Google would pay me in AED which then I have to convert every time and since there are large sums involved it can be very expensive.
What is the best setup in this scenario?
I have an app that generates revenue from Google (Admob), Apple and other US-based ad-networks like AppLovin etc. in the magnitude of $2.5M per year.
I wanted to setup a US LLC but what scares me is that IRS may interpret it as US-based income.
What I do not like about Dubai is that I need to have a local bank there due to Google policy where the company and bank countries should match. In addition, Google would pay me in AED which then I have to convert every time and since there are large sums involved it can be very expensive.
What is the best setup in this scenario?
If you don't mind living in US or paying taxes there - than it's fine...
Otherwise, Dubai is best it can get. I've been in similar situation you are now and I regret only for not doing it sooner...
No issues with getting your payment in UAE bank in AED - trust me on that one.
Also, AED has fixed exchange rate to USD to AED is basically USD.
https://www.xe.com/currencycharts/?from=USD&to=AED&view=5Y
Exchanging AED to USD and back is quite cheap and you can even negotiate the better exchange rates with the bank if needed.
Here are the rates of an exchange office when you're exchanging $100 on the street.
BUY - Exchange Rate 1 USD = AED 3.67399996
SELL - Exchange Rate 1 USD = AED 3.65300006
For $100k+ or $1M+ your bank will give you way better rates than this.
The problem might be other currencies like EUR or GPB if you need these (as spread is much bigger).
But there is a solution for that as well.
Nice revenue.
I dumped Google AdSense earlier this year. It is the last Google service I was using, unless you count occasional logins to Google Webmaster Tools. I switched to an ad optimisation company called Ezoic. It would be hard to give an exact figure, as it has changed my ad setup. But in $ terms, my revenue is up 7-8X from using Google AdSense. I don't know if they support apps. The support is also brilliant. I had tried a few of these ad optimisation companies and not had good results.
I have gone for a Dubai setup. Given the situation with the banking cabal, you are increasingly asking for trouble if you have address, bank, company in different countries. They are squeezing those of us who thought we could live between countries and you may end up losing money because banks view you as high risk and close your account. With UAE you can get a setup that is not offshore, but have no real office, spend very little time there and pay no tax. If you worry about having money in bank accounts there, take it out to personal accounts. SwissQuote have an office there and will set you up with an account. A good place to park your money. The DSL guy who advertises (at the bottom of the page here) can set you up for $5K / year. I have not used him, but know a happy client of his.
I went for a more expensive setup, which is meant to be more prestigious - https://www.offshorecorptalk.com/threads/dmcc-and-uae.29752/#post-194402
We already using an ad mediation system, Google revenue is half our total revenue but it is still a consistent chunk + in order to handle Google Play subscriptions we still require to work with Google since it collects the payments.
I read your recent setup and seems quite good.
If no better solutions are found we may consider it, even if I would prefer a 0 tax-setup which does not include UAE, something like Caymans for example but as of my understanding this would be an issue in finding a local bank then.
US LLC would have been the perfect solution but this US-source income scares me.
Are there any 0-tax good solutions except UAE in the Caribbean for example? Otherwise, I guess UAE is the only way to go.
Thanks for the info!
There are options in Bharain. I don't know if Kuwait, Oman and Qatar have options.
The Channel Islands and The Isle of Man have no corporate tax, no capital gains, but they do have income tax and health + pension contributions. I don't know the situation on how much you could take out of your company in dividends.
Lichtenstein looked interesting. Don't know the situation on Monaco.
Vanuatnu is no-tax, but it's not a good jurisdiction. I believe they are cut off from the USD.
I am not an expert on these topics, but on average UAE banks have 18% of assets on hand, compared to 7% in The UK and 11% in The US.
https://www.centralbank.ae/sites/de...tors (All Banks - English) -February 2020.pdf
https://www.ceicdata.com/en/indicator/united-arab-emirates/capital-adequacy-ratio
FAB, is my favoutie bank, and has 58% liquid assets to deposits.
https://www.theasianbanker.com/ab500/2018-2019/largest-banks-mea
It's also become more crypto friendly.
There doesn't seem to be much of an alternative.
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