My CPA told me it's a high-risk structure if you pass 95-99% profits to FZCO which is well known offshore. As a result,
IRS will knock on your door.
I'm assuming you are a
US citizen since you care about what the IRS thinks. The US is actually a great offshore option in many respects if you're not a US citizen.
You are not passing
profits to Dubai, you are sending the
gross to Dubai. That is a significant distinction. Likewise, every expense that is not related to processing payments should be paid by your
Dubai company.
Keep in mind it is your CPA's job to be both paranoid and get you into as much paperwork as possible. Remember too that this setup goes against his financial interest - your Dubai company will not require the services of an American CPA. You
will have to spend a decent amount of time in Dubai. As my tax attorney explained it to me there is nothing
illegal about setting up your business this way so long as you are doing the actual work in the country that is receiving the money. It becomes difficult to make that claim if you're only in Dubai 2 or 3 days a year. The other downside is that you won't be able to bring the money into the US without treating it as income and paying all taxes on it. That means double Medicare and SS tax since your Dubai company obviously isn't paying it. State and city taxes too.
Just because you are doing everything above board doesn't mean the IRS won't randomly decide you've committed 20 different tax crimes and prosecute you with infinite resources to see what they can get out of you. They do it all the time.
Another 87,000 IRS agents means they'll have more people to deploy in the field to catch you using the ATM to withdraw money from your Dubai company. They spend more money trying to catch people that move offshore than they could ever hope to collect. The ridiculous forms you'll have to fill out when you hit $10k offshore are designed more to trick you into filling them out incorrectly and incur huge fines than they are to catch terrorists or whatever the official justification was for it. Don't believe me? Try reaching out to the IRS to asking for help to make sure you fill it out correctly. They will outright refuse.
Honestly, if you really need a US billing company and are concerned the IRS will claim you are a tax cheat and owe taxes on your Dubai money just hire an American company to do the billing and eat that 5%. I'd be happy to collect 5% of whatever you make in exchange for very little work, I'm sure others are too. Get permanent residency in Dubai and keep it current so the UAE doesn't consider your information available for international exchange, Don't fill out the FBAR or any other form that puts a target on you. Keep your head down and
don't try to bring the money back into the US. That's how they catch people. One day they'll be waiting for you at an ATM you never used before and arrest you as soon as you withdraw the money. It's happened so many times it's practically cliche. Once you start spending money in the US that hasn't been taxed at US rates you are asking to get caught.
For US citizens offshore entities are part of your plan to escape the US, not a way to spend money in the US without paying
US taxes. Until you expatriate, that is.
