Zero tax option for software development with access to EMI

[Roo]

@Cloudbanck I do live in such a country at the moment. Would paying a low salary/dividends and apart from that making expenses via company debit card be deemed illegal/grey ?
Between US LLC and UAE which is more permissive with company expenses? I know at least Singapore and Hong Kong a lot of stuff is acceptable even if not tax deductible.

 

[Marzio]

I checked and unfortunately the EU country I reside in treats LLCs as transparent so unless I change my residence

If you are willing to move your tax residency to Poland you could take adavantage of the Polish IP Box AKA you'll pay a wopping 5% tax on income from software development.

https://msztax.pl/en/can-a-programmer-take-advantage-of-ip-box-in-poland/

 

[Cloudbanck]

@Cloudbanck I do live in such a country at the moment. Would paying a low salary/dividends and apart from that making expenses via company debit card be deemed illegal/grey ?

If you include the salary/dividend/expenses in your company accounting / personal tax return and pay tax on it to your country of residence, it's white. Otherwise, well, it's black.

Between US LLC and UAE which is more permissive with company expenses? I know at least Singapore and Hong Kong a lot of stuff is acceptable even if not tax deductible.

It will be the rules for expenses of your country of residence that matter most here. However for the UAE it is not pass through, so if you have a company there, I guess you have to register, do accounting and pay tax in the UAE , as well as in your country of residence, and then maybe offset with a double taxation agreement, I dont know - it gets messy.

Generally if one's country of residence is a high tax western country, one might as well just have a company there - it's cheaper and involves less paperwork. One potential exception is if one lives in Switzerland, where it could be worth the extra paperwork to have a US or non resident UK company, as that would cost less than a Swiss company.

 

[Asterion]

It depends upon the receiving country.

For example UK treats US LLC as an opacque entity so US LLC income is considered like dividends.

https://www.gov.uk/hmrc-internal-manuals/international-manual/intm180030

Which would be different from capital gains, right?

Also, Cyprus IP Box has only 2.5% corporate tax, and as a Cyprus resident non-dom, you pay 2.5% on dividends, I think?

 

[Marzio]

Which would be different from capital gains, right?

Yes

Also, Cyprus IP Box has only 2.5% corporate tax, and as a Cyprus resident non-dom, you pay 2.5% on dividends, I think?

The overall taxation will be the same 5%, the difference is that with Polish IP box you don't need to form a Polish company. You operate through a US LLC that's considered tax transparent in Poland and you pay 5% PIT so it's more efficient and cost effective.

 

[Roo]

@Marzio , @Asterion these IP box options however seem to be an option if you are selling your own product/IP but not so much if working on a client's product or being paid for developing custom software by a third party since it's not your IP or am I mistaken?

 

[Marzio]

am I mistaken

Yes you are, because by definition "custom software" it's your IP.

 

[sinos]

Software is a creative idea or process that focuses on solving a problem – meaning it is a form of intellectual property.

If you develop IP for a third party, its also part of IP.

@Roo going back to your OP, the main fact as stated by @Marzio , the real question is your residency. It doesn't matter where you register your company the US/UAE/Cyprus, where ever, the issue will be your residency. There are a lot of EU countries with territorial taxation, but the place of effective management comes into play, if you reside in a high tax country, chances are, that the company will be taxed at domestic rate in that case. Anything else, we are then dealing with tax evasion. If someone is ok and happy to peddle tax evasion, in the hope IRS or any other country's agencies will give them a free pass. Some people here might have never dealt with IRS.

I just don't believe people in this thread are seriously suggesting and hoping that IRS will look the other way with tax evasion or US doesn't report non-resident LLCs to their Beneficial owner country - Infact they do since 2017.

There are so many variables into play. Lets imagine a scenario, say person A created an US LLC (single member) with an address which is foreign, the LLC may be considered as a branch and get involved with ETOB. The LLC has to provide a physical address and it can't be any virtual address. Also, the EMI you are using, based on their country of registration and prevailing tax rules may share information with the beneficial owner's country.

@Cloudbanck stated FINCEN and IRS are two different organisation, true, but they work for the same department - Treasury. FINCEN has been tasked to maintain the BOI databse. The BOI will be an internal database accessed by Law Enforcement agencies and IRS. People can disagree with me because so called James Baker doesn't acknowledge it, as it will hurt his own business.

@Roo Whatever scheme somebosy suggests - the truth post CRS and OECD world - we have to look at residencies and POEM.

People on this forum wrongly assumed there won't be any UAE corporate tax on the Freezones and look where we are. The same thing is about to happen with US LLCs, and there won't be any James Baker then to admit his mistake.

 

[Cloudbanck]

Software is a creative idea or process that focuses on solving a problem – meaning it is a form of intellectual property.

If you develop IP for a third party, its also part of IP.

Ah, ok, that's actually interesting, opens the door for software developers to have zero tax in the UAE.

@Roo going back to your OP, the main fact as stated by @Marzio , the real question is your residency. It doesn't matter where you register your company the US/UAE/Cyprus, where ever, the issue will be your residency.

Yes, indeed.

There are a lot of EU countries with territorial taxation

No, there is no EU country with territorial taxation. See International taxation - Wikipedia
You could argue that non-dom status means territorial taxation, but even that only applies to a few EU countries.

I just don't believe people in this thread are seriously suggesting and hoping that IRS will look the other way with tax evasion or US doesn't report non-resident LLCs to their Beneficial owner country - Infact they do since 2017.

What US shares is determined by the tax treaties, and information sharing agreements the US has signed. The largest list of countries the US has signed agreements with is for FATCA. There is some bidirectionality in FATCA, but it depends on the type of agreement, and the focus of FATCA is very much getting the rest of the world to share with the US, not the other way round.
Current list of FATCA agreements: https://home.treasury.gov/policy-issues/tax-policy/foreign-account-tax-compliance-act

Then you have Tax Treaties, and Tax Information Exchange Agreements which are typically signed with OECD countries and some tax havens. Lists here: https://home.treasury.gov/policy-issues/tax-policy/treaties, https://home.treasury.gov/policy-issues/tax-policy/tax-information-exchange-agreements-tieas

Basically you can count on a reasonable likelihood that the US is sharing information with your country of residence if you live in a rich OECD country or one of the listed tax havens. But then the US treats many countries as too unstable/corrupt/hostile/untrustworthy/badly organised, that they do not want to share information with them. If your country of residence doesn't even have a FATCA agreement with the US, yeah then it is unlikely the US (or US banks/EMIs) will share information.

There are so many variables into play. Lets imagine a scenario, say person A created an US LLC (single member) with an address which is foreign, the LLC may be considered as a branch and get involved with ETOB.

Im not sure it is possible to create a US LLC with a foreign address. The IRS and the state you form it in require a US address for mail correspondance.

The LLC has to provide a physical address and it can't be any virtual address.

I do not think this is correct. There is no requirement for a physical address - or even definition of what a "physical address" is, in the various required forms by US authorities.

@Cloudbanck stated FINCEN and IRS are two different organisation, true, but they work for the same department - Treasury. FINCEN has been tasked to maintain the BOI databse. The BOI will be an internal database accessed by Law Enforcement agencies and IRS. People can disagree with me because so called James Baker doesn't acknowledge it, as it will hurt his own business.

Not disagreeing, the IRS might very well access the BOI database. But if you have a single member LLC, and you personally are the single member, you have already given your personal address and your LLC:s US address to the IRS at creation of the US LLC, and every year in form 5472. So the IRS already has all this.
It's a different story if your US LLC is owned by another company that in turn is owned by another company - that's where the BOI registry comes in.

 

[koohl]

@Marzio I checked and unfortunately the EU country I reside in treats LLCs as transparent so unless I change my residence I would need to declare and pay tax here on all profits of the LLC due to its pass-through nature.

I would think that any EU or European country has the same rules by now, regardless of which company you hide behind and where you do not live in the same country- or have a full-fledged office with employees- as where the company is registered.

The rules are now clear, you pay taxes where you live, unless you can prove that you have a business (as already mentioned above) with employees and otherwise a fully functional office, and this office also works locally, at least 10%.

 

[Roo]

Thanks @sinos I don't live in a country with territorial taxation (spain) at the moment, is there a list of such countries in the EU and worldwide on this forum or somewhere.

 

[Cloudbanck]

Thanks @sinos I don't live in a country with territorial taxation (spain) at the moment, is there a list of such countries in the EU and worldwide on this forum or somewhere.

See all countries with No in the second column, with "territorial taxation" as note on wikipedia here: International taxation - Wikipedia

Other useful lists of territorial tax countries:
https://www.expatintelligence.com/territorial-tax-systems.shtmlhttps://pro-mauritius.com/home/taxes/taxation-systems/
Note that it isnt as simple as a binary territorial taxation yes or no. There are many nuances in how territorial tax systems work, and significant differences between territorial systems, so one has to dig into the details of each country. The above is just a starting pointer.

 

[karishi]

Thanks for the info guys, I was looking for something that can preferably be set up remotely with zero tax, I am already using a low tax jurisdiction but I was thinking that I could save more on the annual costs of corporate service providers and tax.

I was looking into the caribbean like BVI, SVG as they have low annual costs and not much reporting but I am afraid I'll waste the incorporation money if I can't get some decent EMI/bank or end up spending a lot on bank fees and end up gaining nothing.
Any opinion on those jurisdictions? I see no one recommends them.

As I wrote in another thread I have a SVG LLC and a Virtual Work Visa in the UAE ( the company needs to exist by at least a year I think ). This means 1000$ for the LLC and 1000$ for the Visa + a health insurance which is something you need anyway. The LLC is a passthrough entity and UAE has no personal tax. I have Wise business although I think now it's probably going to be harder to open it, you can always try talking to Wise.
As service provider I use BBCIncorp and have had no issues.

 

[Roo]

As I wrote in another thread I have a SVG LLC and a Virtual Work Visa in the UAE ( the company needs to exist by at least a year I think ). This means 1000$ for the LLC and 1000$ for the Visa + a health insurance which is something you need anyway. The LLC is a passthrough entity and UAE has no personal tax. I have Wise business although I think now it's probably going to be harder to open it, you can always try talking to Wise.
As service provider I use BBCIncorp and have had no issues.

@karishi how did you get Wise business for SVG? Right now almost all carribean countries have a waitlist on Wise. Not sure if any EMI will accept SVG now sadly.

 

[JohnLocke]

Thanks for the info guys, I was looking for something that can preferably be set up remotely with zero tax, I am already using a low tax jurisdiction but I was thinking that I could save more on the annual costs of corporate service providers and tax.

How much do you pay annually for this service and where is that setup?

 

[Roo]

@JohnLocke I'm set up in Singapore and I'm paying around 4K for the corporate service provider (nominee, accounting, etc) + yearly tax. So far tax has been quite low due to writing off a lot of stuff as company expense and a temporary tax deduction but that will go away.

 

[Marzio]

I'm set up in Singapore

Isn't your SG company considered a CFC for Spain?

https://taxsummaries.pwc.com/spain/corporate/group-taxation

 

[Roo]

Moved away in the mean time for a few reasons, I am aware of CFC, local accountants where I lived couldn't even tell me what those were, one didn't even want to deal with me because it was out of his comfort zone/expertise so it is what it is, I tried to figure things out locally and abandoned it due to the level of incompetence I came across. Another accountant told me of basically a CFC from his description of it but it was for which he was declaring income and the owner paying personal tax in Spain although again not by CFC rules. My company is however tax resident in Singapore and paying tax in Singapore, maybe CFC would have burnt me eventually but haven't stayed to find out.

 

[JohnLocke]

@JohnLocke I'm set up in Singapore and I'm paying around 4K for the corporate service provider (nominee, accounting, etc) + yearly tax. So far tax has been quite low due to writing off a lot of stuff as company expense and a temporary tax deduction but that will go away.

Thank you for the information. And what about accounting and annual tax report, how much do you pay there and how much accounting work would you say there is for your company ?

 

[Roo]

I paid around 4k tax becaus I wrote off bucket loads of expenses but that will double next year due to the end of the startup tax exemption. There is some accounting work since I am doing my best to expense everything I can .
I am pretty much decided on a US LLC unless you have a better option.