Seeking Expert Advice on Structuring US App Companies for Tax-Efficient Global Revenue Transfers

[littlerabbit]

I have an app studio with dozens of applications, and I want these apps to be marketable everywhere. For this reason, I intend to establish all these apps—which have at least the advantages of banks, etc.—as companies in the US. Later, I plan to transfer the money from the US company to Dubai or country X. The nice thing is, I can do all of this with legal expenses. When you develop a mobile application, you know that many headings such as marketing, development, ASO, product management, and similar ones can incur huge expenses; therefore, while earning money in the US, I can, for example, record app development expenses from Dubai, etc.

But I want to do this legally. For example, if one of my apps in the US goes viral and earns $1M a month—amounting to $12M a year—I can’t write off $11M as app development expenses. I’m not clear on these situations, so I’d like you to guide me. I want to transfer 95% of the money I earn in the US to a country with tax advantages—is this possible or just a pipe dream?

Would it be possible if I opened a holding company for the 10 separate mobile applications I’ve set up in the US and transferred the revenues to that company? What would be the most logical international corporate architecture, and what do you recommend?

Before giving any recommendations, please make sure that you’ve actually done this. I’m really seeking advice from truly experienced individuals, and I am also open to consulting; feel free to DM me with a short message outlining your previous experience.

 

[Despina]

The first question you should answer is: where are you tax resident?

Second question is: which kind of income will you derive from app income? Business profits? Royalties?

 

[littlerabbit]

The first question you should answer is: where are you tax resident?

Second question is: which kind of income will you derive from app income? Business profits? Royalties?

Thank you for asking.

I am resident in Turkey. Actually, I'm discussing the business taxation here, so I'm not sure if it matters where I am resident. We can list very high salaries for C-level positions; therefore, for example in Dubai, since there is no personal income tax, I plan to have my salary deposited into my Dubai bank account. Even if I transfer that money to Turkey after it is deposited in my Dubai account, it won't be a problem since it is received as salary.

I can say that our applications operate as business profits; we sell subscriptions and receive the income from these subscriptions into our company account via the Apple Store, Google Play, or Stripe.

 

[Marzio]

Since you are not the one engaged in sales use a resident not domiciled company in Malta owned directly by you.

The resident non domicile company in Malta will be tax free as long as:
1. no work is performed in Malta
2. no income is remitted in Malta
3. is managed by a director in Malta

You will be hired by the Maltese company in UAE through a EOR to develop the software but you will not be the one controlling the company.

Total taxes paid 0%

 

[JustAnotherNomad]

Since you are not the one engaged in sales use a resident not domiciled company in Malta owned directly by you.

The resident non domicile company in Malta will be tax free as long as:
1. no work is performed in Malta
2. no income is remitted in Malta
3. is managed by a director in Malta

You will be hired by the Maltese company in UAE through a EOR to develop the software but you will not be the one controlling the company.

Total taxes paid 0%

Can't imagine that will work. The income would have to be tied to a foreign asset to count as foreign, I don't think subscription income from an app would qualify.

 

[Marzio]

I don't think subscription income from an app would qualify.

Please elaborate as to way subscriptions wouldn't qualify.

By foreign asset what do you mean?

 

[JustAnotherNomad]

Foreign income has to be linked to a foreign asset. Basically passive income, linked to an asset outside of Malta. I have discussed this with Maltese tax lawyers.
Regular trading income would not qualify.
Also, where would you set up the company?

OP could just live in Dubai and run the apps as transparent US LLCs if they're not a US citizen.

 

[Marzio]

Regular trading income would not qualify.

What matters is where the work is carried out.

For an app business the selling is done outside of Malta by the platforms and if you think about it the 30% that Apple deducts from appstore sales are exactly sales commissions.

App development is done in UAE.

Nothing is actually done in Malta beside managing the company

OP could just live in Dubai and run the apps as transparent US LLCs if they're not a US citizen.

US LLC is a taxable entity in Dubai, yes you can run it like that hoping that nobody will ever discover you but if they do, it wont end well.

I suggested to use an offshore company managed from Malta so he could get tax id for that company and pay himself a salary tax free in UAE for the development work.

Also, where would you set up the company?

US or UK

 

[JustAnotherNomad]

What matters is where the work is carried out.

No. Unless you know more than Maltese tax lawyers.
Again: "The income has to be linked to an asset outside of Malta."

In the end, the Maltese director made the decision to have the app developed and sold - this is clearly linked to Malta.

For an app business the selling is done outside of Malta by the platforms and if you think about it the 30% that Apple deducts from appstore sales are exactly sales commissions.

Not relevant.

App development is done in UAE.

Not relevant.

Nothing is actually done in Malta beside managing the company

Nothing except the most important part.

US LLC is a taxable entity in Dubai, yes you can run it like that hoping that nobody will ever discover you but if they do, it wont end well.

Same thing with your Malta idea. Besides, what kind of offshore company would you even use for this?
Would be nice if it could work, but so far 2 tax lawyers have told me no. I'm inclined to believe them, until someone offers a reliable source for such an interpretation.

I suggested to use an offshore company managed from Malta so he could get tax id for that company and pay himself a salary tax free in UAE for the development work.

But what would he need Malta for? Also the UAE doesn't currently enforce PE rules.

US or UK

UK Ltd. resident in Malta?

 

[littlerabbit]

Hey @Marzio, thanks for your suggestions. I’m very interested in booking a paid consultancy session with you. Could you please DM me so we can arrange a meeting? I’m eager to gain from your expertise.

Also, @JustAnotherNomad, please send me a DM as well. I’d like to secure your consultancy services too for a second opinion. Looking forward to discussing the details, and thanks for your time!

Konunun devam etmesi adına birçok sorum var.

"No tax is payable on foreign income which is not received in Malta and on capital gains arising outside Malta to a company which is not ordinarily resident and domiciled in Malta, even if remitted to Malta."

1. If we set up a company in the US, I want to run all my mobile applications on a US-based system because of the advantages in payment infrastructure and the use of many US-based tools. Later, if revenues from Apple and Google Play are directed to the US, is it possible for me to bring those funds to Malta based on the tax advantages mentioned above?
2. Or do the revenues need to be transferred directly to Malta?
3. Should development payments to Dubai be made through Malta, or, if possible, should they be made from the US?
4. If there is a special case for the US, what alternative country (similar to the UK in prestige, as prestigious as the US) would you recommend?

I would appreciate it if you could take the time to answer my questions from your perspective @Marzio @JustAnotherNomad

 

[Despina]

so far 2 tax lawyers have told me no.

Which business model did you describe to the Maltese lawyer? An app selling business is different than an e-commerce. When you say linked to an asset outside Malta do you mean a subsidiary or branch or any form of permanent establishment that sends money back to Malta?

 

[Marzio]

I’m very interested in booking a paid consultancy session with you.

Book a paid consultation with the guys who wrote the article about resident non domiciled companies describing the propsed setup and report back their answer.

Their feedback is worth more than money, at least for me.

IMHO it could work because i was told that the key is where the work is carried out and in the proposed setup the work is carried out outside of Malta.

@JustAnotherNomad it could be stretch but nowhere is it written that you can only receive passive income. Local sourced income accrues when you work for the company within the territory. Working for the company outside of Malta and not remitting income in Malta is the loophole we are going to use.

@littlerabbit in the event that the proposed setup will not work you could access the full imputation system where at the end of the day you'll pay 5% total taxes.

 

[JustAnotherNomad]

Hey @Marzio, thanks for your suggestions. I’m very interested in booking a paid consultancy session with you. Could you please DM me so we can arrange a meeting? I’m eager to gain from your expertise.

Also, @JustAnotherNomad, please send me a DM as well. I’d like to secure your consultancy services too for a second opinion. Looking forward to discussing the details, and thanks for your time!

I don't think either of us offers paid consultations. We just like to nerd about this stuff.

 

[JustAnotherNomad]

Which business model did you describe to the Maltese lawyer? An app selling business is different than an e-commerce.

I described a service business with contractors outside Malta, so quite similar to what Marzio suggested.

When you say linked to an asset outside Malta do you mean a subsidiary or branch or any form of permanent establishment that sends money back to Malta?

That wasn't quite clear to me either, the lawyer kept repeating that the income has to be "linked to an asset outside of Malta".
So I would guess a foreign PE, or some kind of passive income like royalties/license fees etc. - not active trading income.
But I don't know the exact AppStore terms - maybe you get the payout as a kind of royalty? I'm still not sure if it would count as foreign income.
Even then, it just seems like overkill. Why register the company with a director in Malta if you don't even want to do business in the EU, nor live there yourself?

 

[Marzio]

Why register the company with a director in Malta if you don't even want to do business in the EU, nor live there yourself?

Because is the most efficient way i know to pay 0% tax with a legit setup.

If you know other ways this is a forum, please share your knowledge, i'm all ears

And BTW same setup with a twist could be to license IP to Maltese resident non domiciled company that will distribute apps on appstore plaftorms then:
1. income is considered foreign sourced income > 0% tax paid if not remitted
2. income is considered local sourced income > pay maltese taxes on 5% of the income and transfer 95% to UAE as royalties payment for the use of IP.

 

[Marzio]

the lawyer kept repeating that the income has to be "linked to an asset outside of Malta

 

[JustAnotherNomad]

Because is the most efficient way i know to pay 0% tax with a legit setup.

I think it's just a misunderstanding.
Malta basically has territorial taxation. Foreign income is not taxed in Malta in most cases.
It's the definition of foreign income that is crucial, as usual. People usually have a far to optimistic view of what could be seen as foreign income.
"Oh cool, I'll just travel - foreign income!"
"Oh cool, my customer is in another country - foreign income!"
I've just never actually seen it work that way, and Malta seems no different.

If you know other ways this is a forum, please share your knowledge, i'm all ears

Yeah, just use a US LLC and live in Dubai.
If you're very worried about the PE, hire a manager from, I don't know, the Seychelles.

I tried to discuss the best location, but then the discussion centered around Malta and got a a bit out of hand.
I'm not convinced Malta will actually work for this.

And BTW same setup with a twist could be to license IP to Maltese resident non domiciled company that will distribute apps on appstore plaftorms then:
1. income is considered foreign sourced income > 0% tax paid if not remitted
2. income is considered local sourced income > pay maltese taxes on 5% of the income and transfer 95% to UAE as royalties payment for the use of IP.

The company would have to pay 35% on local income, and the refund process is allegedly a lot more complex for non-Maltese entities.

 

[daniels27]

"Oh cool, I'll just travel - foreign income!"
"Oh cool, my customer is in another country - foreign income!"
I've just never actually seen it work that way, and Malta seems no different.

And how about you ship physical goods from A to customers in B, where neither is in Malta?

 

[JustAnotherNomad]

And how about you ship physical goods from A to customers in B, where neither is in Malta?

How could that possibly be foreign income? That's about as clear as you can get that it's trading income, and the work to make this possible is done in Malta.
What's next? How about copywriting services provided from Malta in language that is not Maltese? Clearly foreign-sourced income?

 

[Marzio]

Malta basically has territorial taxation.

If that was the case you could remit foreign sourced income tax free.
In Malta you could remit only capital gains tax free, any other foreign sourced income, if remitted, is taxed at income tax rates.

Yeah, just use a US LLC and live in Dubai.

I've never seen a serious business built on such a fragile foundation.

The company would have to pay 35% on local income, and the refund process is allegedly a lot more complex for non-Maltese entities.

If you do the math you'll discover that OP would pay a whopping 1.75% total taxes without any refund process but paying 35% of the 5% on income left in Malta.

Maybe is even better to show bedouins that taxes has been paid somewhere.