[USA] Inc. vs LLC - Is my tax planner trying to fool me ?

[JustAnotherNomad]

I’m going to ask him.

You can get such services everywhere, either as a complete package or by finding several providers yourself. I think most important is that you like the place you’re moving to and that the overall cost is acceptable.

I wouldn’t want to live in Malta or Cyprus. Lisbon is definitely much better for expats and I’ve heard they have a big startup scene.
And Lisbon has direct flights to lots of countries. Or you could go for that Italian scheme. I would definitely prefer both over Malta or Cyprus.

 

[mardz]

I’m going to ask him.

You can get such services everywhere, either as a complete package or by finding several providers yourself. I think most important is that you like the place you’re moving to and that the overall cost is acceptable.

I wouldn’t want to live in Malta or Cyprus. Lisbon is definitely much better for expats and I’ve heard they have a big startup scene.
And Lisbon has direct flights to lots of countries. Or you could go for that Italian scheme. I would definitely prefer both over Malta or Cyprus.

I will look into Portugal. If the tax advantage is the same I would choose Portugal over Malta too. Hopefully administrative stuff is not too complicated since its not in English

 

[JustAnotherNomad]

I’m sure the bureaucracy in Portugal is straight from hell. But that’s what you have your accountant for. I think the cost wasn’t too bad. I think they offered me €1000 a year for accounting for the Portuguese side.
Then there were obviously additional costs for the Malta structure + 5% Maltese taxes.

If you google Portugal NHR + Malta, you’ll find lots of articles.

 

[mardz]

I’m sure the bureaucracy in Portugal is straight from hell. But that’s what you have your accountant for. I think the cost wasn’t too bad. I think they offered me €1000 a year for accounting for the Portuguese side.
Then there were obviously additional costs for the Malta structure + 5% Maltese taxes.

If you google Portugal NHR + Malta, you’ll find lots of articles.

The cheap living cost will probably balance that out
I think a Maltese company would not be optimal for me as I need a US bank account + Stripe (I know there are alternatives but by far not as good as Stripe) so a US LLC or Inc. is a must. I currently pay thousands of € in fees monthly because I do business in USD and Stripe in Germany pays out in Euro...

 

[JustAnotherNomad]

A US LLC/corporation should work with the NHR scheme. But you would have elect for the LLC to be taxed as a corporation.
I’m not sure why you would want that, though. The US corporate tax rate isn’t very low and Stripe fees are higher in the US, too (2.9% vs. 1.5% for European credit cards).
Lithuania, Ireland, Malta (Stripe preview, so it should launch soon) should all be better option if Stripe is your only reason for choosing the US.

 

[JustAnotherNomad]

Anyway, let me know if you’re interested in NHR and I can give you the contact details of the Portuguese tax lawyer I spoke to. They have very reasonable rates and they will be able to help with everything from registering as NHR to opening a company in Malta or elsewhere.

 

[JustAnotherNomad]

If you choose a US corporation, you will be paying at least 21% in corporate income tax. Yes, you can reduce it by reducing your profits like my friend is doing - just investing all your profits into new goods at the end of the year, thus grow and hope to have nice exit one day. That’s his plan.
But if you’re ok with that, I would actually recommend Estonia (I think he uses an Estonian company for his European operations) because then you’d only pay 20% on payouts, but you can keep the money in the company without paying taxes at least.

I’m not sure what “preview” means, but I think Stripe will launch in Malta very soon. I remember it went really quickly from “preview” to regular mode in Estonia. But maybe you could even sign up for the preview?

Otherwise you could go with Ireland: 12.5% CIT and Stripe is available.

Or you could go with Lithuania (Stripe is available):
“Entities with fewer than ten employees and less than EUR 300,000 in gross annual revenues can benefit from a reduced CIT rate of 0% for the first year of operations and 5% for the following periods if certain conditions are met.”
https://taxsummaries.pwc.com/lithuania/corporate/taxes-on-corporate-incomeIf you exceed EUR 300k in revenue, the CIT is 15%.

You could also start with a company in Lithuania and switch to a Malta company later. I have a contact in Lithuania as well.

The only really important requirement for NHR is that there must be a tax treaty between Portugal and the other country.
But that’s the case for Cyprus, Malta, Ireland, Estonia, Lithuania, USA, ... so not really something you’d have to worry about in this case.

 

[Martin Everson]

I will look into Portugal. If the tax advantage is the same I would choose Portugal over Malta too. Hopefully administrative stuff is not too complicated since its not in English

I would avoid the Portugal NHR scheme. It is overly restricted compared to Malta and only lasts 10 years. I looked into it in detail years ago and found it a waste of time. Do examine yourself and you will discover this too.

https://www.offshorecorptalk.com/threads/madeira-free-trade-zone-portugal.28889/post-127170

 

[JustAnotherNomad]

I also researched it and decided against it in the end because it was quite complex. You definitely can’t do it without a tax lawyer. But I was also looking for rather exotic structures that no one had tried before.
If you are fine with a Malta company, then definitely do look into NHR. They told me there are hundreds or thousands of people who successfully use NHR with a Malta company. It’s really well-tested.

Living in Malta or Cyprus really isn’t for everyone. I’m not sure if I’d want to live there. But Portugal? Anytime.

 

[mardz]

If you choose a US corporation, you will be paying at least 21% in corporate income tax. Yes, you can reduce it by reducing your profits like my friend is doing - just investing all your profits into new goods at the end of the year, thus grow and hope to have nice exit one day. That’s his plan.

The tax guy told me I could reduce profit by simply paying myself a salary. For example on $100.000 profit I can pay myself a $95.000 salary so only $5000 would be taxable at 21%. Then combine this with a no income tax residency.

Regarding Malta and Portugal, I am looking for the easiest solution. Portugal is probably a nicer place but I am working 18h a day on my business anyway and I don't have much time for anything else. I just want to work hard for a couple of years, make a few millions and then enjoy life.

 

[JustAnotherNomad]

LOL. Yes, you can do that, but you can do that in any country. However, there are transfer pricing restrictions. So if a regular salary for a CEO is $95,000 and that’s what you pay yourself in year 1 and after 5 years, you make $500,000 a year, you can’t increase your salary to $495,000. Or, well, you can, but the IRS will probably say such a salary increase is not normal and you’re trying to escape CIT. So they will tax it as a hidden dividend payment. Which means at least 21% CIT + 15-30% in withholding taxes if I’m not mistaken. Also Malta wasn’t a tax-free country last I checked.
On the other hand, if you actually lived in a tax-free country, you could just use a single-member LLC, taxed as a disregarded entity. Then there would be no US taxes and much simpler accounting. All taxes would be paid where you live. (But that only works if you have no employees in the US, I think.)
Honestly, ditch that guy.

If you don’t care about anything except cost, why don’t you move to a place where you pay no taxes at all? Like the UAE? Or maybe Georgia? Georgia would probably be cheaper than the UAE. I think there are even some direct flights to Germany with low-cost carriers.

Whatever you do, please go to those places first. This forum is full of reports from people who regretted their decisions to move just because of taxes.

I still think that for your criteria “location in Europe, willing to accept some taxes”, Portugal NHR would be the best option in terms of quality of life and taxes.
Portugal even is a Schengen country, so it would be much harder for anyone to track your movement. If you take out some cash and drive across the border to Spain, who would be able to prove it? Also Portugal doesn’t require you to spend a minimum number of days there to consider you tax resident. (I think Malta has some restrictions, in Cyprus it’s at least 60 days per year.)

If you don’t care about anything except paying as little as possible in total, I would probably look into Georgia. Very low or no taxes, very low cost of living. Good food and wine.
The Gulf states are obviously much hotter in the summer and the cost of living is higher.

 

[fshore]

Yes, you can reduce it by reducing your profits like my friend is doing - just investing all your profits into new goods at the end of the year, thus grow and hope to have nice exit one day. That’s his plan.

This implies cash accounting rather than accrual, and is not allowed in many situations like for limited companies in the UK, corporations in the US (however there seems to be an exception when the revenue is below $1M).

 

[JustAnotherNomad]

That’s what he told me. His US company is taxed as a corporation, I think it’s an LLC that elected for that. Probably his revenue is less than $1m then.

But if that’s what you want, you could even register a limited liability company in Germany and move to Estonia (I think Cyprus would work as well?) and receive dividends tax-free.
But even then I would still prefer a country with a lower corporate income tax rate...

You could even move to Estonia and use an Estonian company and only pay taxes on what you pay out. Any profits that are kept in the company are tax-exempt. (Still wouldn’t be my first choice though.)

 

[JustAnotherNomad]

So I asked my friend and he says it’s about $7000 per year for the accounting/paperwork for his US LLC which is taxed as a corporation.
He has pretty big volume, but it still seems waaaayyy to expensive as a setup if you ask me. I would definitely go with a different structure.

 

[mardz]

So I asked my friend and he says it’s about $7000 per year for the accounting/paperwork for his US LLC which is taxed as a corporation.
He has pretty big volume, but it still seems waaaayyy to expensive as a setup if you ask me. I would definitely go with a different structure.

Thanks for the update!
I talked to another tax planner like you suggested. Here is the setup he recommends: 2 LLC'S in Texas (1 LLC will collect payment via Stripe/Paypal while the other will charge the first one and cash the money out to me).
He said that I could stay in Germany for a while as long as I don't spend the money here. It's a risk to take but I like that idea because I am not ready to leave Germany now (I still have a 9-5 and my business is still very young even tho I am very profitable)

 

[JustAnotherNomad]

What? They will report everything to the German authorities...? Doesn’t sound like a smart plan if you ask me.

 

[mardz]

What? They will report everything to the German authorities...? Doesn’t sound like a smart plan if you ask me.

I don't know .. it's a risk to take..
Also he said 2nd step would be to move to Portugal and apply for NHR (like you also suggested)

Another option he mentioned is to create a company in bulgaria but I don't like the idea so much

 

[JustAnotherNomad]

German law requires you to declare the incorporation. If you don’t and they catch you (because the US authorities inform them), you could be on the hook for tax evasion. And that could happen many years later - though of course it’s questionable if they would go to such lengths when they see in 10 years that you’ve been out of the country for years and revenue was low.
Why the two companies though? Sounds like expensive overhead.

Why don’t you just set up a company in a traditional tax haven without CRS? I’m not saying do it, because it’s obviously illegal and I prefer to stay on the legal side, but if you want to do something that’s illegal anyway, you might as well go for the cheapest option with the lowest risk?
You could also get residency somewhere else and give that address to the ba

 

[JustAnotherNomad]

If the revenue is low anyway, you could go with Romania or Lithuania instead of Bulgaria.

 

[Loisir]

US LLC are pass entity meaning all Revenues generated by them will flow on personal incomes. you are taxed as unlimited in Germany meaning that worldwide income has to be declared.
The Finanzmatt will be informed by IRS that you have an entity there ( Not the amount of cash but the entity) the Finanzmatt will then decide to pursue this indication and they will. It take just a second to extract all Germany residents info from database then send it to the Finanzmatt