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Looking for Solutions to Reduce Taxation on Stock Investments (Europe based)
- Thread starter Bourne
- Start date
A minor detail you forgot to mention...
This will also eliminate treaty benefits, so you'll get 30% WHT.
Unless you make the foreign corporation tax resident in your residency country - but then what's the point? And then it would be simpler to just set up a local company and invest through that company directly.
You don't have to pay CGT in the US anyway, so there's no benefit.
OP asked how to save taxes in their situation, being based in a European country.
You claim to have a solution, but when a critical question comes up, you tell them to just move to another country. I bet they haven't thought of that before...
I mean, you're not wrong, but then just tell them to move and don't suggest this LLC stuff.
Right, I think corporate accounts may not be reported under FATCA? That's the only potential upside then.
But you pay 30% WHT on dividends with such a setup, which likely is more than what OP is paying now.
This depends on your tax residency country. In some countries, accumulating ETFs are taxed and it would be better to invest into distributing ETFs.
https://www.bogleheads.org/wiki/Com...ng_ETFs_and_distributing_ETFs#Effect_of_taxes
What do you mean you don't have to pay CGT in the U.S.?
No, you don't pay 30% WHT on dividends, you still pay based on the treaty, most likely 15% (I pay 10%).
Do more research about LLC brokerage account and you'll see that it's the best option to have a brokerage account in the U.S. and at the same time forgetting about CGT, still getting the WHT rate based on the treaty with your home country, avoiding the Estate Tax, avoid CRS, avoid FATCA.
This setup has been used for decades and it works perfectly.
You don't pay tax in the US on disposal of US stocks if you're not a US person. Doesn't matter if you own them through a US LLC or in your own name.
Wrong. But of course you can lie to your broker and tell them you are entitled to treaty benefits when you are not.
Do more research about how tax treaties work and you'll see you're would have to lie to the IRS and/or the tax authority in your residency country to get such a result. It's not legally possible.
You've got it wrong buddy, you don't have to lie to your broker at ALL, it's all legal, by the book.
Your broker will ask you to submit a W8-Ben form, like they always do, and then the WTH rate is whatever the treaty says.
You are criticizing a setup that is perfectly legal and it's being used by thousands of foreigners.
Go ahead, contact any CPA in the U.S. and you'll see..
First of all, you would have to submit a W8-BEN-E, not a W8-BEN. Since we're talking about a company account.
(Or maybe you would have to submit a W8-BEN as well? But definitely the W8-BEN-E for the company.)
If you claim treaty benefits on that form, you are lying.
You don't have access to treaty benefits with such a setup.
You would have to check the line that you don't claim treaty benefits, and then you get 30% WHT.
Say you have a US LLC (transparent) that is owned by an offshore company, for example a Hong Kong Ltd.
The US LLC is transparent, so it's irrelevant for taxes.
So the situation will be the same as if the Hong Kong company owned the shares.
But the Hong Kong Ltd. does not have treaty benefits: You would probably want it to have tax-free status, which would mean it is not tax resident in Hong Kong.
But even if it was, LoB clauses in the trax treaty would state that the company does not have access to treaty benefits.
The only way this could work is if you made the Hong Kong company tax resident in your country of tax residence.
In that case, it would of course get access to tax treaty benefits like a local company. But then why bother with the two companies? You could simply set up a local company and then open an IBKR account for that entity directly. No need to overcomplicate things.
Typically, the offshore company would be tax resident where you live (assuming you live in a developed, high-tax country). So then, strictly speaking, maybe it's fine to claim treaty benefits.
But the thing is - you would still have to register the offshore company in your home country and pay tax. You're even literally telling the IRS: "The Hong Kong company pays tax where I live!"
If you don't do that, then you will be committing tax fraud in your residency country.
TL;DR: It's either not legal or there is no advantage over just using a local company.
As I said, talk to a CPA in the U.S.
Most of the time they use a Panamanian Corp, not a HK company.
The advantages are many, the setup allows you to have a brokerage account in the U.S., not pay taxes in the U.S. other than the withholding on dividends based on treaty with your country of residency, avoid the Estate tax, no CRS, no FATCA, and it's cheap.
Every single trader that I know, including myself, use this setup to trade and invest in the U.S.
Hey, it's up to you, but if you want to invest from a solid U.S. broker and trade options, futures, buy stocks, ETFs, and so on, this is the way to go.
And if you live in Europe, you're facing restrictions on U.S. ETFs, so you avoid that as well.
Look, it's called a "treaty for the avoidance of DOUBLE taxation".
What you are describing could work if the Panamanian company is indeed tax resident in your residency country. Which it would likely be under that country's rules.
But I think you're forgetting the part where you actually register the Panamanian company as tax resident AND PAY TAX.
The whole idea with the tax treaty is that, if there was no treaty, you would be paying 30% WHT in the US, and then also full CGT/dividend tax in your country of tax residency.
To avoid this, the treaty reduces the WHT to something usually 15% - the US basically says: "Ok, we understand, you live in Spain, you pay tax in Spain on those dividends, we will reduce our cut."
So if you live in Spain and you register your Panamanian company in Spain, and the Panamanian company pays tax in Spain like a Spanish company, then yes, this can work.
And I guess you can avoid some restrictions (like not being able to buy US-domiciled ETFs) this way, etc.
But what you are describing sounds like:
Put it all into a Panamanian company and then claim the treaty rate of your residency country (not even the treaty rate of Panama, if there is a treaty), and then only pay the 15% WHT for that country (e.g. Spain), keep the dividends in the company and never pay tax in Spain... and this is all correct and legal. That is of course not the case.
What you are describing could work if the Panamanian company is indeed tax resident in your residency country. Which it would likely be under that country's rules.
But I think you're forgetting the part where you actually register the Panamanian company as tax resident AND PAY TAX.
The whole idea with the tax treaty is that, if there was no treaty, you would be paying 30% WHT in the US, and then also full CGT/dividend tax in your country of tax residency.
To avoid this, the treaty reduces the WHT to something usually 15% - the US basically says: "Ok, we understand, you live in Spain, you pay tax in Spain on those dividends, we will reduce our cut."
So if you live in Spain and you register your Panamanian company in Spain, and the Panamanian company pays tax in Spain like a Spanish company, then yes, this can work.
And I guess you can avoid some restrictions (like not being able to buy US-domiciled ETFs) this way, etc.
But what you are describing sounds like:
Put it all into a Panamanian company and then claim the treaty rate of your residency country (not even the treaty rate of Panama, if there is a treaty), and then only pay the 15% WHT for that country (e.g. Spain), keep the dividends in the company and never pay tax in Spain... and this is all correct and legal. That is of course not the case.
It's still tax fraud.
You're telling the IRS "Hey, I should be paying less tax, I also have to pay tax in Spain!", and then the IRS says "Oh, ok, if you pay your tax in Spain, then we'll reduce our tax from 30% to 15%" - but then you're not actually paying the tax.
It's likely tax fraud in both countries.
I'm not saying it can't work - but it's clearly illegal.
Why stop there then? Why not claim the treaty rate of Romania, Japan or Mexico? They have only 10% WHT. It would be just as illegal, but at least you're saving another 5%.
You're telling the IRS "Hey, I should be paying less tax, I also have to pay tax in Spain!", and then the IRS says "Oh, ok, if you pay your tax in Spain, then we'll reduce our tax from 30% to 15%" - but then you're not actually paying the tax.
It's likely tax fraud in both countries.
I'm not saying it can't work - but it's clearly illegal.
Why stop there then? Why not claim the treaty rate of Romania, Japan or Mexico? They have only 10% WHT. It would be just as illegal, but at least you're saving another 5%.
I have residency in Mexico, that's how I get the 10%
The Mexican tax authorities (SAT) don't bother foreigners as long as you don't have a business or work in Mexico.
In any case, I've never said that this setup is tax-free, that will depend on the country where you're a tax resident.
But the setup is arguably the best way to invest in the U.S. stock market and enjoy a bunch a benefit, which are plenty. And if you want to pay taxes back home, that's up to you.
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You are lying to the IRS (claiming you're paying tax in your residency country) AND your residency country (not paying the tax you're claiming you're paying). It is 100% illegal.
I'm not a lawyer, but I would expect that this is a felony in the US.
I'm not a lawyer, but I would expect that this is a felony in the US.
Sorry but that's absurd!
Having an LLC brokerage account is perfectly legal. You form the LLC, you open the brokerage account, and off you go.
When I was working for Goldman Sachs we had thousands of international customers with LLC accounts, never ever did we have a problem with the IRS, or with any other tax agency. Charles Schwab and IBKR also have thousands of international customers with LLC accounts, again perfectly legal.
I honestly don't know why you keep insisting on criticizing a setup that has been used, and it's being used by thousands of international customers to invest in the U.S. market.
As far as what people do in terms of paying taxes back home, that's not the concern of the Broker, or the IRS. Same as if you open a personal bank account at a bank in Puerto Rico, plenty of foreigners do that. They invest their funds, they make money on their investments, and off they go.
Nothing is illegal about that.
As I've said, contact any CPA in the U.S., they'll be more than glad to form the LLC and open the brokerage account for you in less than a week.
And again, paying taxes back home, wherever that is in the world, is the customers responsibility.
To recap, the benefits are plenty. No CRS, no FATCA, no restrictions on U.S. domiciled ETFs if the customer is a EU resident, no taxes of any kind in the U.S.
The thing is that, if he was living in e.g. Spain, then the Panamanian corporation would be tax resident in Spain due to its effective place of management.
And then it would indeed be entitled to the lower treaty rate, so the information given on the W8-BEN-E would be correct.
But if the Hacienda doesn't know about this company, can you really say it's tax resident in Spain?
The intention behind the reduced treaty rate is obviously that they don't want to double tax you - you're already paying tax in Spain, the US tax is reduced to 15% instead of 30%.
But he isn't because he is hiding the Panamanian company from the Hacienda.
So I would think it's a crime in both countries.
And he thinks it's some crazy hack because the broker withholds the tax according to the information that was given there.
It's like saying it's a crazy hack to photocopy $100 bills and buy expensive things with the forged bills: "My cost was only $5 at my local print shop!" I don't understand why anyone would pay with real money you can just print your own! People really have no clue!
And then it would indeed be entitled to the lower treaty rate, so the information given on the W8-BEN-E would be correct.
But if the Hacienda doesn't know about this company, can you really say it's tax resident in Spain?
The intention behind the reduced treaty rate is obviously that they don't want to double tax you - you're already paying tax in Spain, the US tax is reduced to 15% instead of 30%.
But he isn't because he is hiding the Panamanian company from the Hacienda.
So I would think it's a crime in both countries.
And he thinks it's some crazy hack because the broker withholds the tax according to the information that was given there.
It's like saying it's a crazy hack to photocopy $100 bills and buy expensive things with the forged bills: "My cost was only $5 at my local print shop!" I don't understand why anyone would pay with real money you can just print your own! People really have no clue!
Correct. Driving to fast while not getting caught fires not mean that it was legal.
I am not too worried about Spain. But okupas are mining bitcoin in his house. Probably counts as PE and then the hacienda also cannot get them.
I am not too worried about Spain. But okupas are mining bitcoin in his house. Probably counts as PE and then the hacienda also cannot get them.
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