Delaware LLC + holding company + EU sole proprietorship

[gnud]

I wonder where's the catch with these UK LTD nominee services. Do Western governments really allow such anonymous setups facilitating CFC and POEM avoidance to exist right under their noses? It's hard to believe.

 

[gnud]

In fact, after looking into it more deeply, even the use of a nominee director and a nominee shareholder is not a protection against the CFC rules, since they aim to identify the ultimate beneficiary owner, which is you, regardless of if you officially direct or own the company. If you don't declare this "nominee" company in your country, you're likely committing tax evasion. Looks like the whole nominee setup is basically a useless waste of money.

https://www.offshorecorptalk.com/threads/uae-offshore-with-nominee-director-and-shareholder.28243/
So yeah, the question remains whether if the holding company is appropriated due to the CFC rules, if it extends also to the LLC, or whether it ends with the profit of the holding company, which is 0 if the LLC subsidiary is seen as an opaque entity.

 

[gnud]

Also it's interesting that the UK has multiple full entity exemptions from its CFC rules, many of which could apply to an LLC subsidiary if it's managed from the UK.

https://www.menzies.co.uk/controlled-foreign-company-tax-exemptions/
Therefore it looks like by managing the structure from the UK it should be possible to achieve the 0% taxation securely and without a doubt.

 

[uplana]

Things will change if you have a real setup in the UK with substance, the question is if it makes sense for all of us to do that compared to the tax savings someone will achieve.

 

[gnud]

Things will change if you have a real setup in the UK with substance, the question is if it makes sense for all of us to do that compared to the tax savings someone will achieve.

How exactly will things change? Thanks to the CFC exemptions and the opaque classification of LLCs it seems to be only beneficial for the LTD to have a substance in the UK.

 

[gnud]

Ok so to recap:

A Delaware LLC subsidiary, an UK LTD parent, owned and managed by a non-resident of the UK from the UK.

LLC: no tax in the US (non-ETBUS, pass-through)
LTD: no tax on LLCs profits, only on draws which are treated as dividends. The LLC is considered a CFC in the UK but fully exempt due to being registered in an excluded territory (US) and having a profit of less than 500k GBP / year (and less than 50k from non-trading activities).

So far 0 tax.

Non-resident director and owner manages the LTD from the UK once a month, outsources work, pays himself no salary. The UK doesn't have a low corporate tax either. Therefore it's not considered a CFC by his resident country and doesn't have to be declared. No tax is due personally in the UK and no tax is due at all in his country of residency.

So far still 0.

The director has to register by self-assessment with the HMRC for PAYE and NIS, obtains a personal UTR (UK tax id). With this id it'll be possible to open a business or brokerage account for the LTD and the LLC without providing a personal tax id of the country of residency. The country of residency won't be notified of existence of any foreign bank account. And it even shouldn't be. They'll all be tied to the UK entity.

https://www.blickrothenberg.com/app/uploads/2019/11/Non-resident-directors-of-UK-companies.pdf
The work of the LLC is outsourced to his local sole proprietorship in his country of residency to cover living expenses. Either directly or through freelancing sites (to not to attract attention). Part of his rent, car, computers, etc. can be deducted. Total tax can be 0 here as well, if achieved profit / income is low enough.

So overall most of the profits are retained in the LLC, and no tax is due on any step of the setup.

Can anyone confirm?

 

[gnud]

... nope, if an LLC is managed from the UK it'll be seen by the HMRC as having a tax residency in the UK therefore liable for the UK corporate tax on its profits.

Unless you find a place to manage it from that doesn't appropriate the LLC. Having an UK LTD parent then would be beneficial as a beneficiary indicated on the IRS forms, so that you don't own it personally and your country of residency won't be notified of the profits of the LLC.

Now which countries don't appropriate foreign companies managed from their territory ... ?

So Romania as a parent seems to be the best solution again.

Or a parent company in one of the Channel Islands where corp tax is 0%. But they're difficult and relatively expensive to get to.

 

[gnud]

hmm the UK considers dividends received from overseas subsidiaries to be non taxable (mostly, under certain conditions), and at the same time considers LLCs opaque and draws as dividends ...

So if the LTD is managed from the UK, and the LLC is not, and all the LLC's profits are paid to the LTD as draws, the UK will consider them as overseas dividends and won't tax. The country where the LLC is managed from can't claim any tax because there's nothing left to be taxed. hmmm I'm pretty sure the country where the LLC is managed from wouldn't like this so there has to be some catch ...

btw the UK CIT is supposed to increase from 19% to 25% in 2023

 

[Jerry1911]

Forget about it.

https://www.gov.uk/government/publi...ents-to-the-hybrid-and-other-mismatches-rules

 

[gnud]

Forget about it.

https://www.gov.uk/government/publi...ents-to-the-hybrid-and-other-mismatches-rules

got it

Seems like the UK LTD + US LLC combination is really useless, because the LLC needs to be managed from somewhere and that country will claim its profit for taxation, whether it's the UK or some other country.

So it's again Romania. In fact only Romanian SRL + sole proprietorship. The LLC is useless too, I read the tax treaty between Romania and the US, it'd be taxed in Romania if it's managed from there.

And it needs to be made sure that the SRL is really managed from Romania and not from the country of residency, i.e. for every signature one needs to fly to Bucharest, and the sole proprietorship is not seen as a dependent agent, i.e. can't make any managerial decisions whatsoever, only work. Collect evidence, document everything, to cover your a*s.

 

[Jerry1911]

Hire a reputable accountant or lawyer to manage the SRL company for you. I would contact TMF Group, they have presence in Romania

 

[gnud]

Does a branch office create a permanent establishment? According to the usual DTT tax treaties that'd move the tax obligation to that country from the country of registration, proportionally to the profit attributed to that establishment. So if an LTD creates a branch office in Romania, is managed from there, it will be taxed according to Romanian corporate tax rates. The LLC subsidiary would be taxed according to Romanian tax rates too. The benefit of such arrangement would be gaining access to US services thanks to the LLC and reputation thanks to the LLC + LTD combination indicated on W-8BEN-E, while enjoying Romanian tax rates. Would this work?

 

[gnud]

f**k I forgot about the CFC rules. Holy s**t this tax planning and lawyering is frustrating.

Romania still the best though. In the EU CFC rules apply only if the company has no substance in the country of incorporation. It's easy to create one in Romania.

 

[gnud]

I just got confirmed by a yet another Romanian lawyer that an US LLC operated from Romania would not be liable for any tax in Romania. Weird considering what's written in the tax treaty.

Th ANAF never replied with their clarification.

 

[Marzio]

I just got confirmed by a yet another Romanian lawyer that an US LLC operated from Romania would not be liable for any tax in Romania.

Hard to believe. What's the reasoning they gave to support the fact that operating an LLC from Romania will not create tax obligations in Romania?

 

[gnud]

Hard to believe. What's the reasoning they gave to support the fact that operating an LLC from Romania will not create tax obligations in Romania?

Yes hard to believe. No one gave me any reasoning, all the lawyers and accountants who replied only told me it won't be liable for any taxation, only if draws are paid, which will be considered dividends.

The treaty clearly says:

(1) Industrial or commercial profits of a resident of one of the Contracting States shall be exempt from tax by the other Contracting State unless the resident has a permanent establishment in that other Contracting State. If the resident has a permanent establishment in that other Contracting State, tax may be imposed by that other Contracting State on the industrial or commercial profits of the resident but only on so much of them as are attributable to the permanent establishment.

(2) Where a resident of one of the Contracting States has a permanent establishment in the other Contracting State, there shall in each Contracting State be attributed to the permanent establishment the industrial or commercial profits which would reasonably be expected to have been derived by it if it were an independent entity engaged in the same or similar activities under the same or similar conditions and dealing at arm's length with the resident of which it is a permanent establishment.

...

(1) For the purpose of this Convention, the term "permanent establishment" means a fixed place of business through which the business of a resident of one of the Contracting States is wholly or partly carried on.

(2) The term "permanent establishment" includes but is not limited to: (a) A branch; (b) An office; (c) A factory; (d) A workshop; (e) A warehouse; (f) A mine, quarry, or other place of extraction of natural resources; and (g) A construction or installation project which exists for more than 12-months.

https://www.irs.gov/businesses/international-businesses/romania-tax-treaty-documents

And the PWC says:

A company is considered tax resident in Romania if:

• it was set-up under Romanian law
• it has its head office situated in Romania and it was set-up under EU law, or
• it has its ‘place of effective management’ (POEM) in Romania.

POEM represents the place where a foreign legal entity carries out operations corresponding to economic, real, and substantial purposes and where at least one of the following conditions is met:

• The economic-strategic decisions necessary for the management of the activity of the foreign legal entity as a whole are taken in Romania by the executive directors/members of the board of directors.
• At least 50% of the executive directors/members of the board of directors of the foreign legal entity are resident.

https://taxsummaries.pwc.com/romania/corporate/corporate-residence
So it's clear a place of effective management is in Romania, a permanent establishment is created there too, therefore the LLC should be a tax resident there. Yet Romanian lawyers and accountants say otherwise.

 

[gnud]

So I'd ignore these "advices" to be on the safe side.

Now the question is if the LLC will be taxed with the standard CIT or the 3% / 1% revenue tax if it's a subsidiary and a CFC of a Romanian SRL micro-enterprise with a POEM there.

 

[Marzio]

So it's clear a place of effective management is in Romania, a permanent establishment is created there too, therefore the LLC should be a tax resident there. Yet Romanian lawyers and accountants say otherwise.

I would try contacting also those people, they were suggested earlier in the forum and they look pretty realiable.

BTW what was the exact question you asked to receive that question?

 

[gnud]

I would try contacting also those people, they were suggested earlier in the forum and they look pretty realiable.

BTW what was the exact question you asked to receive that question?

The last lawyer I asked this:

Before proceeding I’d like to clarify how would a US LLC subsidiary of a Romanian micro-entreprise SRL be taxed if it’s managed through the SRL parent from Romania? Will it be the 3% / 1% rate as a CFC of the Romanian company or the regular rate as a separate entity with a place of effective management in Romania?

Answer:

In Romania there would be no other tax for the American LLC. However, I am not aware if there are any fiscal treatments in the U.S.

 

[Marzio]

The only thing that comes to mind is that Romania sees the LLC as a capital company and dividends received from subisidiaries could be exempt of corporate income tax in Romania.