US LLC without taking out Dividends

[inector]

I plan to move to Estonia, and open US LLC, but I am aware of Permanent Establishment (PE) and management rules.

Estonia has 0% tax until distribution.

But what if I use the LLC only for card and business expenses, keep it 0$ profit to the end of the year, and never send funds to my personal account (aka distributions)?

Even if Estonia finds out, my receipts are in place, I never take out money to my personal account, etc. They technically would have nothing to fine?

Am I wrong and there is still a risk?

 

[daniels27]

Estonia has 0% tax until distribution.

I think they are soon to have a 2% defence tax.

But what if I use the LLC only for card and business expenses, keep it 0$ profit to the end of the year, and never send funds to my personal account (aka distributions)?

If you have $0 profit, you cannot take out anything. But that would mean your business is not profitable. Is that possible?

Even if Estonia finds out, my receipts are in place, I never take out money to my personal account, etc. They technically would have nothing to fine?

Only the 2% defense tax. But would they accept all your expenses? And would you pay the tax eventually? Also, you would have failed to register the foreign company in Estonia.

Am I wrong and there is still a risk?

Yes. See above. Honestly, I would not do it.

 

[inector]

2% defence tax

Indeed a problem, but from 2026

If you have $0 profit, you cannot take out anything. But that would mean your business is not profitable. Is that possible?

Yes, I would just use that LLC for expenses and a few client payments, not for major revenue

 

[daniels27]

Indeed a problem, but from 2026

Yes, I would just use that LLC for expenses and a few client payments, not for major revenue

If the company is losing money, there will be limited interest. But what are those expenses? Holidays on the beach? Why even bother with a LLC for no profit?

 

[dany]

I plan to move to Estonia, and open US LLC, but I am aware of Permanent Establishment (PE) and management rules.

Estonia has 0% tax until distribution.

But what if I use the LLC only for card and business expenses, keep it 0$ profit to the end of the year, and never send funds to my personal account (aka distributions)?

Even if Estonia finds out, my receipts are in place, I never take out money to my personal account, etc. They technically would have nothing to fine?

Am I wrong and there is still a risk?

very good detailed explanation in mentor group FYI - https://www.offshorecorptalk.com/threads/anonymity-with-passive-owner-how-to-accomplish-it.47023/

 

[JustAnotherNomad]

Even if Estonia finds out, my receipts are in place, I never take out money to my personal account, etc. They technically would have nothing to fine?

The risk would probably be low, Estonia hardly enforced PE rules, as far as I have heard.
But I guess if they wanted to, they could still fine you for not declaring this. But if there were effectively no savings, probably the fine wouldn't be that high, but I don't know.

But why do you want to set up a US LLC in the first place and not declare it? If there is no profit anyway, why not declare it?

 

[Sols]

You cannot defer taxes with a US LLC unless you elect to have it taxed like a C Corp, in which case you'd have to pay corporate income tax (state and federal). Otherwise, the profits the LLC makes immediately becomes your own personal income (under US law).

So it depends on how Estonia views US LLCs.

 

[Don]

You cannot defer taxes with a US LLC unless you elect to have it taxed like a C Corp, in which case you'd have to pay corporate income tax (state and federal). Otherwise, the profits the LLC makes immediately becomes your own personal income (under US law).

So it depends on how Estonia views US LLCs.

Foreign corporations can not be tax resident in Estonia, only taxed as PE.
Estonia don't view US LLC-s as transparent but as foreign corporation.
US LLC-s could form a PE in Estonia (provided certain conditions are met).
In some cases entity could even hire employees in Estonia, but it will not be considered a PE so CIT will still not apply even then.

In short, it depends. Potentially the CIT obligation can be avoided.

 

[daniels27]

In some cases entity could even hire employees in Estonia, but it will not be considered a PE so CIT will still not apply even then.

Yes, but unlikely if the sole owner and director is in Estonia?

I think we once discussed the example of @Hydrox do IMO was using a US LLC in Germany and declared all income as self-employment income. Technically it is not entirely correct, but it is good enough that you can sleep in peace.

Now, if OP would do the same in Estonia, which should not be a problem if all expenses are legit, there should not be any issue. However, as with all those questions, I think it is on OP to state what is dirty or if it is not.

 

[Xshore]

You cannot defer taxes with a US LLC unless you elect to have it taxed like a C Corp, in which case you'd have to pay corporate income tax (state and federal). Otherwise, the profits the LLC makes immediately becomes your own personal income (under US law).

So it depends on how Estonia views US LLCs.

Yes, that's the interesting thing with a US llc, it's disregarded for taxes in the US. Profits can be kept in the company if it's not affected by other countries rules that would require them to be paid out and taxes.

 

[Clank]

A US LLC doesn't issue dividends as it's a passthrough entity. Nevertheless it depends on how your country of residence views it.

 

[Xshore]

A US LLC doesn't issue dividends as it's a passthrough entity. Nevertheless it depends on how your country of residence views it.

That's IRS' view, but the LLC itself can issue dividends if operated in another country/another tax jurisdiction, or outside any jurisdiction.

 

[10101]

A US LLC doesn't issue dividends as it's a passthrough entity. Nevertheless it depends on how your country of residence views it.

Is it common for EU countries (or any state outside the US) to view US LLCs as passthrough entity,
not as company?
I know exactly what passthrough entity means. But.. "limited liability company".. "Google LLC"....

 

[JustAnotherNomad]

Is it common for EU countries (or any state outside the US) to view US LLCs as passthrough entity,
not as company?
I know exactly what passthrough entity means. But.. "limited liability company".. "Google LLC"....

You are confused. An LLC is a limited-liability company, it is always a company, no matter how it is taxed. And even in the US, an LLC can choose to be opaque.
You are confusing the terms "company" and "corporation".