What company structure to use

[Topcat]

Hey all,

I'm from the UK but based in SE Asia, moving around not tax resident anywhere currently. I built and own some online video courses and sell them as memberships on my websites. No physical/tangible product, all digital/online. More than half my customers are based in the US, then the rest are spread between the other western countries, UK, Canada, Australia, Europe etc. I've been set up for years as a Seychelles IBC with office address in Hong Kong, using paypal as the payment gateway (Stripe wouldn't accept a Seychelles IBC). Recently paypal have made the credit card checkout process more prohibitive (asking my customers for phone number and OTP, pushing them to create a paypal account) and I've noticed a dropoff in sales from this. And since paypal is the only payment gateway option available for my setup, it's time to close the current setup and get a new one.

Given I have no ties to the US, the most promising solution seems to be a US LLC where I am sole member, registered in either Wyoming or New Mexico. Then use Stripe for payment gateway and Mercury for banking. But I have a couple questions about this, hoping someone here will know the answers:

1. With more than half my customers being based in the US, would there still be 0% tax for me with a Wyoming or NM LLC? No State tax maybe, but what about Federal tax? I read that there's 30% tax on dividends paid out by US LLC's also. And what about salary, any tax on it in this case?

2. All my company will own is my business's websites and the intellectual property on them. That being the case, and being a non-US person, do I need the extra legal protection of a Wyoming LLC, or in my case would a cheaper and less hassle New Mexico LLC do the job just as well?

3. Given I sell access to online video courses that stream online where there's no tangible product or download, with a US LLC am I supposed to charge VAT to customers located in the EU and UK? I believe the answer is yes, but in practicality, lots of non-EU companies don't bother to charge EU/UK customers VAT, because there's not really any way for the EU/UK authorities to chase them up about it.

If you know the answer to any of those 3 questions, any help you're able to give will be greatly appreciated.

Cheers,
TC

 

[Sols]

1. With more than half my customers being based in the US, would there still be 0% tax for me with a Wyoming or NM LLC? No State tax maybe, but what about Federal tax? I read that there's 30% tax on dividends paid out by US LLC's also. And what about salary, any tax on it in this case?

The LLC itself is not taxed. An LLC does not (cannot) pay dividends. Under US law, the income becomes your personal income. In some cases, income from within US may be taxable. The reality is that the IRS is overworked and it's extremely unlikely anyone would come after you unless there's something very interesting about you (such as large amounts, physical presence in US). This may not be sustainable long-term, as both information and funding available to the IRS is increasing.

However, if you want to avoid the US exposure entirely, consider Hong Kong or Singapore. Stripe can be a little difficult if you don't have a local presence and most nominee directors on the market are known already, which can be a detriment.

2. All my company will own is my business's websites and the intellectual property on them. That being the case, and being a non-US person, do I need the extra legal protection of a Wyoming LLC, or in my case would a cheaper and less hassle New Mexico LLC do the job just as well?

Legal protection from what? Who's coming for you? What are they going to try to take from you?

3. Given I sell access to online video courses that stream online where there's no tangible product or download, with a US LLC am I supposed to charge VAT to customers located in the EU and UK? I believe the answer is yes, but in practicality, lots of non-EU companies don't bother to charge EU/UK customers VAT, because there's not really any way for the EU/UK authorities to chase them up about it.

Your understanding of the situation is correct.

 

[yngmind]

Hey all,

I'm from the UK but based in SE Asia, moving around not tax resident anywhere currently. I built and own some online video courses and sell them as memberships on my websites. No physical/tangible product, all digital/online. More than half my customers are based in the US, then the rest are spread between the other western countries, UK, Canada, Australia, Europe etc. I've been set up for years as a Seychelles IBC with office address in Hong Kong, using paypal as the payment gateway (Stripe wouldn't accept a Seychelles IBC). Recently paypal have made the credit card checkout process more prohibitive (asking my customers for phone number and OTP, pushing them to create a paypal account) and I've noticed a dropoff in sales from this. And since paypal is the only payment gateway option available for my setup, it's time to close the current setup and get a new one.

Given I have no ties to the US, the most promising solution seems to be a US LLC where I am sole member, registered in either Wyoming or New Mexico. Then use Stripe for payment gateway and Mercury for banking. But I have a couple questions about this, hoping someone here will know the answers:

1. With more than half my customers being based in the US, would there still be 0% tax for me with a Wyoming or NM LLC? No State tax maybe, but what about Federal tax? I read that there's 30% tax on dividends paid out by US LLC's also. And what about salary, any tax on it in this case?

2. All my company will own is my business's websites and the intellectual property on them. That being the case, and being a non-US person, do I need the extra legal protection of a Wyoming LLC, or in my case would a cheaper and less hassle New Mexico LLC do the job just as well?

3. Given I sell access to online video courses that stream online where there's no tangible product or download, with a US LLC am I supposed to charge VAT to customers located in the EU and UK? I believe the answer is yes, but in practicality, lots of non-EU companies don't bother to charge EU/UK customers VAT, because there's not really any way for the EU/UK authorities to chase them up about it.

If you know the answer to any of those 3 questions, any help you're able to give will be greatly appreciated.

Cheers,
TC

It should work, but what address will you use in the US tax forms, stripe etc?

 

[Topcat]

Under US law, the income becomes your personal income.

Does that mean that profit the LLC earns, I can just move it freely from the LLC's bank account to my personal account, at any time and any amount?

In some cases, income from within US may be taxable.

In my case, more than half of my LLC's customers will be based in the US. Is this sounding like my LLC's income from within the US would be taxable?

However, if you want to avoid the US exposure entirely, consider Hong Kong or Singapore.

Hong Kong I'm also considering. Cost to maintain the company would be higher, and more annual BS involved. Having no Stripe would be a deal breaker. I need Stripe.

Legal protection from what? Who's coming for you?

lol, almost certainly nobody coming for me. I guess just in case someone uses information from one of my online courses to claim it caused them some kind of harm. Been running this business for many years and it's never happened, but I guess you never know. And so it would be legal protection from that. Seems Wyoming would offer better protection against something like that?

 

[Topcat]

It should work, but what address will you use in the US tax forms, stripe etc?

The 'registered agent' address of the US LLC that I'll pay annually to provide the registered agent service. Unless that's not acceptable?

 

[yngmind]

The 'registered agent' address of the US LLC that I'll pay annually to provide the registered agent service. Unless that's not acceptable?

No, they will ask you for your personal address

 

[Cloudbanck]

No, they will ask you for your personal address

And foreign tax id number ("if any"). Here is a handy list of foreign tax ids by country and if they issue one or not: https://labels.traxsource.com/files/taxforms/What-is-my-Foreign-Tax-ID.pdf

Here Id suggest get residency somewhere, so you have more than just a tourist visa, and have bills in your name at the address you enter. And of course best to get this in a zero tax or territorial tax country.

I think it's very rare that the IRS checks that you really live where you say you live, but just in case.
For example for the W-8BEN form, you have to file a new W-8BEN if your circumstances change, but changing residency from one foreign country to another foreign country does not count as changed circumstances. They just care if you move to the US basically.

 

[Topcat]

No, they will ask you for your personal address

What’s the harm in giving them the address I happen to be spending 3-6 months at? Like in Thailand or Vietnam or something.

For example for the W-8BEN form, you have to file a new W-8BEN if your circumstances change, but changing residency from one foreign country to another foreign country does not count as changed circumstances.

Sounds like whatever address I happen to be at for 3-6 months should be fine? Then if they do check, and I’m not at that address anymore when they check, moving didn’t count as changed circumstances in their eyes anyway, so they shouldn’t be surprised when I move and don’t notify them

 

[Sols]

Does that mean that profit the LLC earns, I can just move it freely from the LLC's bank account to my personal account, at any time and any amount?

Sort of. I understand what you mean. Just to be clear, you can only take out profits. If you take out so much money that the LLC cannot meet its obligations, you run into a problem (which can be solved).

In my case, more than half of my LLC's customers will be based in the US. Is this sounding like my LLC's income from within the US would be taxable?

The fun answer is that no one really knows for sure. The IRS won't exactly complain if you voluntarily pay tax, but they're unlikely to come after you if you don't pay taxes on that income.

You could hire a US tax attorney to conduct a study of your business and write a legal opinion.

lol, almost certainly nobody coming for me. I guess just in case someone uses information from one of my online courses to claim it caused them some kind of harm. Been running this business for many years and it's never happened, but I guess you never know. And so it would be legal protection from that. Seems Wyoming would offer better protection against something like that?

That would just fall under normal limitation of liability. If your classes are things like "How to balance a machete on your nose", just make sure you have adequate warnings and disclaimers.

 

[zzzzzz]

I'm from the UK but based in SE Asia, moving around not tax resident anywhere currently.

What do you do when banks ask you for address, tax residency, tax id? What do you give them as proof of address, I assume you don't rent and have utility bills for 3-months only?

 

[Cloudbanck]

What do you do when banks ask you for address, tax residency, tax id? What do you give them as proof of address, I assume you don't rent and have utility bills for 3-months only?

I'm not the thread starter but I lived in the UK a while, and opened a bunch of personal bank accounts while I lived there.
Some I kept at my old UK address and use a mail forwarding service for. For others I changed the address to home bases in various countries where I have utility bills.

Never been asked for proof of address, tax residency or tax id.

 

[Topcat]

You could hire a US tax attorney to conduct a study of your business and write a legal opinion.

But it would just be an opinion and I’d still be wondering, “will the IRS come looking for a boat load of $ from me one day?”

So it’s starting to sound like steering clear of setting up in the US may be better. Perhaps Hong Kong with the higher cost and more BS, is still better long term.

That would just fall under normal limitation of liability.

So the legal protection in Wyoming would be overkill for me and I’d be better off with the cheaper and simpler New Mexico LLC, sounds like?

 

[Topcat]

What do you do when banks ask you for address, tax residency, tax id? What do you give them as proof of address

My parents address in the UK where I grew up. I’m long since established as non resident non domicile in the UK with HMRC, so I’ve never seen it being an issue to use that address. If you know of a reason it is an issue though, of course I’d be interested to know.

 

[Cloudbanck]

What’s the harm in giving them the address I happen to be spending 3-6 months at? Like in Thailand or Vietnam or something.


Sounds like whatever address I happen to be at for 3-6 months should be fine? Then if they do check, and I’m not at that address anymore when they check, moving didn’t count as changed circumstances in their eyes anyway, so they shouldn’t be surprised when I move and don’t notify them

Well, for form 5472 you have to enter where you were a tax resident for every past tax year. There is no box to tick for "I was not a tax resident anywhere". I guess one just puts the place one spent most time in, in that case. I do think that's fine, but Id be curious to hear about any case where the IRS has enquired/questioned a non-resident alien's residence.

But it would just be an opinion and I’d still be wondering, “will the IRS come looking for a boat load of $ from me one day?”

I do not think this is such a big risk. The rules for foreigners owning a US LLC including selling to US clients are pretty well established and have been so for a long time, ever since the court case with British author PG Wodehouse who earned money from his books in the US while living in France in the 1930s and 1940s. There it was ruled that royalities would be taxed in the US.

 

[Topcat]

The fun answer is that no one really knows for sure. The IRS won't exactly complain if you voluntarily pay tax, but they're unlikely to come after you if you don't pay taxes on that income.

but Id be curious to hear about any case where the IRS has enquired/questioned a non-resident alien's residence.

I think the key thing is with these things, currently at least, NON-US people who don't have citizenship in the US and don't spend any time there, but DO sell to customers in the US via a US LLC....there's plenty of people like that....those people are not exactly opening accounts on forums like this one and shouting about how the IRS is coming for them even though they're non-US people but have a US LLC. It's not happening. The reality for now seems to be they are staying physically out of the US but selling there via the internet, using US LLC's, but paying no US taxes and having NO issues with this setup. Please correct me if I'm wrong about that, but it looks that way.

For me with currently low sales volume under $10k USD per month, I think the chances of the IRS targeting me, with that low volume, and as a non-US person who never goes there (but does sell to US residents), I think those chances are so remote that I won't be losing any sleep over this while running a US LLC. If anyone agrees with that position or disagrees, would be keen to know.

 

[Sols]

But it would just be an opinion and I’d still be wondering, “will the IRS come looking for a boat load of $ from me one day?”

Legal opinions aren't just opinions. They carry legal weight and are often used to keep parties from going to court. If the IRS comes for you and you show them a legal opinion, the IRS might decide not to pursue you further if the legal opinion convinces them that a judge would come to the same conclusion.

So the legal protection in Wyoming would be overkill for me and I’d be better off with the cheaper and simpler New Mexico LLC, sounds like?

It doesn't sound like you have identified any risks that would go beyond the normal limitation of liability provided by an LLC. But go with Wyoming if you're worried and have identified that it will offer better protection for you. The difference in price shouldn't be a concern in the grand scheme of things. Don't let saving 50 dollars be the difference between whether you sleep well at night.

 

[Topcat]

Legal opinions aren't just opinions. They carry legal weight and are often used to keep parties from going to court. If the IRS comes for you and you show them a legal opinion, the IRS might decide not to pursue you further if the legal opinion convinces them that a judge would come to the same conclusion.

Wow that is good to know. Thank you.

How does paying myself from the LLC work? Does it need to be a regular, predictably timed salary amount? Or can I just send $ from the LLC's bank account to a personal account of mine whenever I feel like it and in any amount that the company can afford from its profits?

Or maybe a combination of both, where there's a monthly salary so that it looks reasonably normal from an accounting perspective, and then alongside the salary just send myself money whenever I need it.

So maybe could send myself a tiny salary of a few hundred $ per month. And then when I need X thousand dollars for living expenses, just send it across to the personal account when I need it. Is this approach ok or does paying myself all need to be structured as a regular, predictable (like monthly) salary?

 

[Sols]

How does paying myself from the LLC work? Does it need to be a regular, predictably timed salary amount? Or can I just send $ from the LLC's bank account to a personal account of mine whenever I feel like it and in any amount that the company can afford from its profits?

Assuming it's a single-member LLC where you are the sole member and sole manager, you can just withdraw money as you see fit from the company, provided you are only withdrawing from the company's profits. You'll need to do some basic accounting. Checks app like Wave: Small Business Software or Quickbooks.

You withdraw by sending money from the company's bank account to your own bank account.

So maybe could send myself a tiny salary of a few hundred $ per month. And then when I need X thousand dollars for living expenses, just send it across to the personal account when I need it. Is this approach ok or does paying myself all need to be structured as a regular, predictable (like monthly) salary?

It really doesn't matter. You can't really defer taxes by keeping the money in the LLC, so most people take out everything they can that isn't required for business operations or reinvestments into the business. There's no point leaving profits sitting in an LLC.

This is all under US law, though. You are (also) bound by the laws of where you are based/tax resident.

 

[Topcat]

You'll need to do some basic accounting. Checks app like Wave: Small Business Software or Quickbooks.

Alright thank you and I think forming a Wyoming LLC is going to be the answer. wyomingllcattorney.com has excellent reviews and have been very responsive to me by email. It's $200 to form and for first year of registered agent service, and a bit less than that for renewal each year.

They told me they don't however offer any kind of accounting/book keeping service, nor an annual filing service of whatever the IRS needs Wyoming LLC's to file each year (federal return etc). At least they don't offer those things to foreign non-US residents. Can anyone recommend someone familiar with foreigners owning US LLC's who can do the accounting/book keeping for me, and do the annual filing procedures with the government?

I'd like to get someone else on those things so that I can focus on growing my business. Though if the cost of such a service is very high, I may have to reconsider and figure out how to do these things myself. But if anyone can recommend a trustworthy firm who does such work, please let me know, I'd be very grateful.

 

[Sols]

Alright thank you and I think forming a Wyoming LLC is going to be the answer. wyomingllcattorney.com has excellent reviews and have been very responsive to me by email. It's $200 to form and for first year of registered agent service, and a bit less than that for renewal each year.

Sounds reasonable.

They told me they don't however offer any kind of accounting/book keeping service, nor an annual filing service of whatever the IRS needs Wyoming LLC's to file each year (federal return etc).

Very common.

At least they don't offer those things to foreign non-US residents.

Many don't even do it for US residents.

Registered agents are corporate service providers the way you might be used to them elsewhere in the world. All they do is provide an address and forward some documents to the government and to you.

Can anyone recommend someone familiar with foreigners owning US LLC's who can do the accounting/book keeping for me, and do the annual filing procedures with the government?

I have worked with several: CT Corporations (Wolters Kluwer), TMF, Vistra, Baker Tilly, BDO, Grant Thornton, to mention a few. They can do it all for you but it's going to cost thousands.

To be frank, I don't think there any good, realistic options within your budget (based on the figures mentioned in the thread). It's a worthwhile investment if you're a rapidly scaling business but for a one-person business that's doing well enough for one person they're probably overkill. However, basic accounting for an LLC is very easy if it's just a single-member LLC with simple inflow and outflow of funds. I'm sure you can find guidance online (videos, articles). Wave and Quickbooks make it very, very easy.