How I plan to restructure my US C-Corp $1M/Year *Digital Marketing Agency*

#23
This is how it works where I live: since the US is a foreign opaque entity, its income is not considered local income because it’s essentially foreign company dealing with foreign clients. There is no connection to the country. It doesn’t matter if the owner of this company lives in the country, as there are no CFC rules.

But the moment money stops belonging to the LLC (company), and you transfer it to your name (personal), it becomes local income, as you earned this money somehow WHILE living in the country. You’re supposed to declare it as you would any local income. As dividends, as consultancy fees, whatever. Personal income from work is never tax-free.

So… OP is not a passive investor outsourcing work... He‘s running a $1MM/year marketing agency from Panama. All proceeds (to his name) are technically Panama sourced since he lives in Panama. Panama doesn’t enforce this? Cool. I personally wouldn’t rely on non-enforcement as part of my tax strategy, but to each their own.
 
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#24
saintjohnny said:
He is not a passive investor outsourcing work...
Click to expand...

Ok so you were talking about his specific situation and not how territorial taxation work in general.

saintjohnny said:
All proceeds are technically Panama sourced since he lives in Panama
Click to expand...

In any case i still don't understand how Panama will consider income as local sourced only when transferred to a personal bank account.

If you work for your US LLC from Panama all US LLC income technically is accrued from Panama so it's the US LLC that should pay taxes in Panama first.
 
#25
I am not 100% sure about Panama but where I live it works like that… as long as all clients are abroad.

This is because the LLC is considered an opaque entity i.e. a foreign company dealing with foreign clients. Doesn’t matter if a resident owns it. This is one of the few cases where territorial tax is useful. The LLC being an opaque entity is key.
 
#26
When you say that you wouldn't rely on non-enforcement you are assuming:

-That laws are clear, that you know what tax evasion is and what isnt.
-That tax authorities' interpretation of the laws is uniform and predictable
-That the law is applied equally for everybody

Basically, you are assuming that it works like in Germany. In Germany (or Denmark, or Netherlands etc) yes, I agree that making non-enforcement part of your tax strategy is a bad idea.

However, most of the world does not operate like Germany.

Just to take one example, in middle income country of Tunisia, under Ben Ali before the arab spring, to get goods in and out of a Tunisian port, the official laws imposed so onerous customs duties that no company could make a profit by following the official law. Instead customs encouraged businesses to pay something under the table and get reasonable customs duties. But they kept a file of each company paying under the table, and if ever an owner of such a company critized Ben Ali, or the powerful Trabelsi family, then the company could be hit by a tax evasion investigation and many years in prison for the owner.
And any company owned by the Ben Ali clan/Trabelsi family would not pay any customs duties at all. There was a case of a customs official insisting on a Trabelsi owned company paying (reasonable low) customs duties. The customs official was beaten up by thugs, and had to spend quite some time in hospital.

Or another example, a friend of mine in a West African country (with worldwide taxation on paper) was working remotely for an Italian company. He naively initially went to the local tax office to declare his foreign income. The tax officials thought that this guy must be really stupid, but agreed that he would pay 10% of his foreign income, which they probably took directly in their own pockets. According to official law foreign income should be treated like local income and actually taxed at about 36%, but the local tax office were either not aware of this or chose not to implement it.
Then 3 years later, the local tax office came up with some obviously bogus excuse that he had filled in some paper incorrectly and was due to pay a lump sum additional tax of the equivalent in local currency of 23,000 EUR. Note that this amount or the reasoning behind it had nothing to do with the law or the actual about 36% rate.
After long negotiations and including quite a bit of swearing in Italian (it makes an impression on African officials), he managed to negotiate down the 23k EUR to a mere 230 EUR. After that he wisened up and never declared any foreign income again, and havent had any problems since.
 
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