Invoices from non-resident companies

[JustAnotherNomad]

Foreign-owned US LLC’s, UK LP’s, non-resident UK Ltd.’s - there are many ways to add better reputation to an offshore company.
But can that create issues for a business customer who pays an invoice from such an entity and is audited by their tax office?

Would they demand a corporate tax residency certificate? What if you can’t produce that since your US LLC is a disregarded entity?

 

[Tax Cow]

Boils down to what local bueraucrats think and want.

You'd probably be regarded as, and taxed as a self-employed person on all money movements.

 

[Gravity]

In Germany I haven't faced any issues at all with UK LTds. Even better if they have a VAT. And we have a small-invoice-rule that invoices below 250€ have less requirements.

Not sure about US LLCs.

 

[JustAnotherNomad]

Hmmm, I’m not sure we’re on the same page here.

What I meant was, say you live in the UAE or Panama. But you obviously don’t want to invoice your customers with a company from such a country. So you set up a tax-transparent/non-resident company in the US, UK, Canada, whatever and bill your client in a high-tax country through it. The amount is a couple thousand dollars.
Now that client gets audited - can the client demand a corporate tax residency certificate? What if you can’t provide that since your company isn’t tax resident where it’s incorporated? Is there a risk that the payment wouldn’t be deductible as a business expense for your customer? That would be a massive risk.

 

[Gravity]

We are on the same page. I am saying for the German tax authorities, I haven't seen any problems regarding invoices from UK Ltds. They simply didn't bother.

 

[JustAnotherNomad]

Sorry, I meant @xzars .

What I’d like to know is if you simply got lucky because the UK has such good reputation or if there really is no risk. I’m talking a couple thousand dollars a month over a long period here...

 

[Phil123]

When the audit time comes you need to defend yourself, personally from your actions and your company.

Unless you're dealing with a blacklisted country it really doesn't matter where the company is from.
A lot of tax heavens are fine to deal with, as its not like your company needs to be punished and not do good business with someone just because they are from far away.

What is important however is how you do it.
It's easy to make mistakes when you own both and are in fact responsible for them end to end.

For that purpose forget about it and be able to explain to auditor how the relationship started, when, where, why despite having a choice you started doing with that company and not with other more local.

Have that ready.

Then, you show them how you dyd your KYC on them, so take the auditor through this, and show them how you verified that company and actually existed.
Did you ask for references?

Depending on the type of the business you need to show them just the contracts or the insertion order as well.

Show them the rates and requirements, but for affiliate type of relationship rates and describe what the conversion were.

Show how they contributed to the business, and thus us important as why doing business with someone if there's no positive impact on the business. Mind you positives may be smaller than negatives so here's the hint fir you but again I don't know what's the exact situation.

I lived through this several times and the auditors came and stays in the office for 2 weeks each time. We were doing over a mil a month in revenues and used to pay to all sorts of invoices from all sorts of funny companies.

I won't tell you more as this is going too much off topic, but when it comes to audits your problem isn't where the supplier is from, it is proving how you handled them from the start and why you are doing business together.

Auditors are smart but again their job isn't to go against you but to check whether all us good. So if you know what they are looking for you can have that in mind from the start.

Also, it's not just auditors that will be interested but your banks too, sure in the era of EMI it may be less relevant (I have no real experience as currently banking only with real banks). The thing to remember is the banks can question and demand more information about your outgoing wires. More than once I was asked to provide more info and invoice not always was enough.

Banks can be challenging as unlike auditors they are to block your current wires from going out which in turn can endanger your company.

There are tricks of trade here too....;-)

 

[Tax Cow]

Germans and other EU folks can use UK Ltds. as per EC judgement. One doing business in a EU member state doesn't have to use a legal structure of that same member state, and can pick freely a preferred legal structure from another state in the single market. i.e. a German transport company head-quartered in Berlin can use a UK Ltd. and German officials have no right to sneeze.

This doesn't help with tax savings, but it can help with registration and upkeep costs as UK Ltds. are among the cheapest.

This aligns with @Sh0w3n said. The judgement doesn't apply to US LLCs and those get disregarded and usually taxed as self-employed individuals by the home state.

 

[JustAnotherNomad]

Very interesting feedback, thanks!

I’m not talking about doing anything fishy in this case though. I’m talking about actually moving to a taxpayer-friendly country, but using a company from a high-tax country to invoice an actual client. Because if you tell your client that you live in the UAE or Panama or the Bahamas - even if you actually do! - they might not want to do business with you.

My question is neither about cases where you own both companies nor about cases where you live in Germany and own a UK Ltd.
I’m talking about a true operative business, but where you just don’t want the customer to know where you live because they are conservative and skeptical about businesses from such a country.
Can there be trouble when they are audited?
Or is it enough for them to say “It’s JustAnotherNomad who’s behind that company, he provides this kind of service for us, here’s the proof”?

 

[Phil123]

Well, I mistook you, that's for sure.

However if you are worried about your less elite location, then just have in mind some of the things I mentioned anyway and make it easier for other to do business with. If someone doesn't want to do business with you purely based on where you or your company is located it could a bad sign.

If that happens, depending on the value of potential business you could work with this potential customer on the setup that would satisfy his exclusive needs. Nothing wrong with that and new company formation is affordable in most places.

I don't know you specific circumstances, I know some people really want to hide where they are form, especially from India (numerous suppliers from India), my main advice to those guys is just stop calling others 'bro' and 'sir' and then no one would notice

 

[Gravity]

Tbh if you actually live in UAE and have substance there, you are able to prove the authorities of your customers that you are legitimate, hence they will not have a problem with your invoices from UAE at all.

But I understand that you would like to 'please' your customers with a UK invoice. What about an LLP? You will not face any corporate tax in the UK (if you do not operate from within the UK or most of your customers are from the UK) and you will be taxed based on your tax-residence, the UAE. It's a little more expensive to set it up, but if you do it correctly, you will make up for it in the long run.

 

[JustAnotherNomad]

Yes, that’s what I mean. There are lots of such options.
But my customer may not want to do business with someone from the UAE. I’m hearing similar issues from friends who have married Russian women and moved to Russia.
Everything is completely legal, there is substance etc. - but if they tell their client “I live in Russia, here’s my Russian company,” they would be shown the door.
So you set up a nice entity like a UK LLP to face the client - but that company will obviously not be paying UK taxes.
So can the client’s tax office demand to see proof of the substance in the UK?
If you have to tell them “Well, there is none, everything is in the UAE,” your client may feel betrayed - even if you never discussed where you live. Simply because they don’t like the country. Believe it or not, many people are against the UAE because of human rights issues, lack of taxes etc.
The client’s country may also consider the UAE (or Panama or whichever country you choose) to be high risk. So maybe then they would start an even bigger audit because they think they may find something. Which they won’t because the client does everything by the book - but it will still be a hassle and cost money.

I’d just like to know if I’m overthinking this or if it would make sense to create some sort of substance, so that one can get a tax residency certificate. Like a US corporation or some other company which can be used to bill the client, but which won’t have any significant profits because everything will just be paid to the offshore entity (UAE company etc.).

 

[Gravity]

I totally get you, options like going to the UAE are most likely for those, where the customers do not care or where you already have your business partners that trust you.

A UK Ltd / LLP will most likely not raise any questions if everything is legal and documented - but there is no-one who can guarantee that. Depending on the volume (you said a few thousands a month), it is most likely hard to actually build substance in the UK.

If I had to be in your position, I would go with a UK Firm (whether it be a Ltd or LLP, that is up to you). May I ask what kind of business you are in? Services or Goods?

You will want to speak this through with a consultant if you worked everything out. Shouldn't be too expensive if you do all the work beforehand and just ask for clarification. You can then proceed and do the rest yourself.

Edit: Just to let you know if you set in your UAE company as one of the shareholder of the LLP, they can see it. But that shouldn't be an issue.

 

[JustAnotherNomad]

I do services and I also think that it probably won’t be a problem in practice. I would just like to know for sure.
I guess it will depend on the client’s country anyway, but it would be nice to know what the common practice is internationally.

I doubt that I would have to actually build proper substance. I don’t think the UK would actively complain that they don’t want to get paid any taxes for a UK Ltd. - it would probably be enough to just not apply for non-resident status. But then there would be transfer pricing restrictions, which could create more hassle. I’m just looking for a simple solution.

 

[Gravity]

My personal opinion: You will neither face problems in the UK, nor will your customers face problems in their countries.

Uk Ltd = simple and cheap - but corporate tax.
UK LLP = requires a bit more work (at least 2 'shareholders'), if set up correctly and you are tax resident in let's say UAE, possibly tax-free.

Both options are being used widely. I would do the same and I have friends who are doing it in a similar way.

 

[JustAnotherNomad]

Thanks.
By the way, can you get access to banking with a UK Ltd./LLP? Or will you only be able to open EMI accounts?

 

[Gravity]

You will be able to open bank accounts, though you have to show up there. I assume you are not from a high-risk country if your customers are from Europe?

EMIs work fine as well, TransferWise being the most popular around here.

 

[JustAnotherNomad]

No, I have an EU passport. TransferWise is an option, but they don’t have bank details for all currencies that I need.

 

[BlueMist]

@JustAnotherNomad you have nice friends with a good taste Joke aside, I think you are overthinking this a bit. I have lived in UAE for several years now but I don't invoice clients from my UAE company. I invoice them from my EU based company. Any surplus I want or need I invoice from UAE to my EU based company (to reduce EU company income tax). I have corporate director for this EU based company and holding company with nominees. So nobody needs to know who the UBO is or where does he live.

 

[Gravity]

No, I have an EU passport. TransferWise is an option, but they don’t have bank details for all currencies that I need.

To make it short: if you have a legal business and have no problem traveling to the UK, you will not face any problems opening a bank account in the UK.

@JustAnotherNomad you have nice friends with a good taste Joke aside, I think you are overthinking this a bit. I have lived in UAE for several years now but I don't invoice clients from my UAE company. I invoice them from my EU based company. Any surplus I want or need I invoice from UAE to my EU based company (to reduce EU company income tax). I have corporate director for this EU based company and holding company with nominees. So nobody needs to know who the UBO is or where does he live.

1. I agree with the taste.

2. He wouldn't even need a nominee structure to cut costs. Of course it's more anonymous but not necessary in his case. If you are going with an LLP, just structure a profit transfer agreement and you won't even have to invoice. About UBO: The Banks will still want to know who the UBO is. And in regards to the UK (Ltd), the UBO will still show up if I am correct. If he wants to remain anonymous, LLP with two Offshore Companies with Nominees set it would be the way to go. But as I said, if everything is legal and privacy isn't needed, I would go the simple way.