Advices about tax, location for incorporation, etc

#1

Hi nomads,

I and my husband are graphic designers and we work from home mainly doing services for UK. We have personal bank account in UK as we lived there for a while and we use it to receive payments and then use transferwise, but we are worried because we have no company there to declare these payments.

We are at the moment in Malta but moving to Portugal soon and we really would like to make the things right to avoid problems but also we need avoid pay lots of tax… I am researching a lot but not sure what to do. Would be very good to have a bit of advice to what way to go, where is the best country to open an offshore business for exemple?
We earn together about 25k euro year (brut).
Any advice or tip would be very welcome.

Thanks!

#2

If you make €25k Malta could be ideal for Ordinary residence and its simple to arrange. I suggested it because the current income thresholds are set at €14,000 for a single person but €23,300 for couples. You have to be covered by a health insurance policy (local or international is OK) but this could work even if you don’t spend a vast amount of time there it would likely work.

For the company a Delaware LLC would work well and I have summarised it below:

An LLC offer the ability to trade via an onshore vehicle 100% tax free provided the members are not US citizens or Green Card holders and no business is conducted in the United States. LLC’s are being successfully utilized by companies around the world with great success and also potentially offer a high degree of anonymity in some states.

The U.S. Limited Liability Company (LLC) has been an essential international tax planning tool for over 30 years because it is a pass through entity and not taxed as a corporation. Although the LLC is not a corporation it still protection from liability, but for tax purposes it is treated like a partnership. Because the LLC is a passthrough entity it pays no income tax itself and as a result liabilities pass to the “members” who if they are in a favourable tax position and non resident of their home country can effectively pay zero tax.

In some circumstances you might wish to combine a U.S. LLC with an offshore company such as a BVI or Belize company you can gain the benefits of both onshore and offshore structure because the offshore company can operate in the U.S. if required… A carefully structured LLC will enable you to avoid the possible scrutiny of offshore companies and present the acceptable face of a U.S. company plus the added tax advantages of an offshore company. We find the LLC functions extremely well when it is combined with a maildrop in the US or Canada and a voicemail service or live answering plus a frontman who can increase believability as and when needed.

The most popular states for LLC formation are Delaware, Oregon, Wyoming, Nevada and Florida although we form LLC’s in all 50 states. It should be noted that 60% of the LLC’s we form are in Delaware. Although in most ways Delaware LLC’s and those from other states are quite similar the vital difference is that the register of members in Delaware is not open to the public which guarantees rock solid privacy. It is this factor together with the efficiency and speed of formation - 7 days start to delivery worldwide - that makes Delaware the leading US state for the formation of LLC’s. We appreciate that in some cases (maybe for contractual or business reasons) another state might be better for your needs where the members appear on public record but for privacy Delaware is the state of choice. We deal with all 50 states so feel free to give us a call or send an email and we can advise you on your specific needs along with the various considerations which apply to that particular state.

The key features of a Delaware LLC are outlined below along with the basic requirements to render it tax efficient.

The Tax Saving benefits of an American LLC

  • For most clients the primary benefit of an LLC is the “pass-through” taxation. Keep in mind as outlined earlier that the LLC remains tax free on business transactions and benefits only when they are derived outside the United States and the members are non-resident foreigners.
  • Features of a Delaware Limited Liability Company
  • A Delaware LLC may be formed by one or more organizer or member. For tax purposes, non-resident legal entities (such as companies or Corporations) who are members of the LLC may cause the IRS to classify the LLC as a branch of a foreign company in the US, and the LLC will be taxed on its worldwide income. It is therefore recommended that the non-resident members of Delaware offshore companies be physical persons.
  • An LLC does not issue shares and therefore does not have shareholders. The owners of an LLC are referred to as members.
  • A Delaware LLC is a legal entity, registered with the state, and is treated separate from its members.
  • The Delaware LLC is recognized anywhere in the world as a legally registered US company.
  • Because of the Limited Liability status, the law protects the members (owners) from the debts and other obligations of the LLC.
  • After Delaware offshore incorporation, the risk to an owner of a Delaware offshore LLC is to the extent of his investment in the LLC, and all his personal assets are protected.
  • A Delaware Limited Liability Company may be fully owned by non-resident aliens.
  • An LLC may also be owned by Corporations (companies limited by shares), Partnerships, Trusts, Charitable Organizations and Pension Plans.
  • After Delaware company formation, the Limited Liability Company must have these words after the company name or the abbreviation thereof i.e. “Limited Liability Company”, “L.L.C.”, or “LLC”.
  • The IRS tax treatment of a Delaware LLC is on the flow-through tax basis. That is the LLC is not taxed on its profits.
  • Non-resident aliens are not taxable by the US on income derived outside of the US. If an LLC derives its income outside of the US, the non-resident members do not need to file US tax returns.
  • There is no limit on the number of members allowed in a Delaware LLC.
  • The Management of an LLC is usually undertaken by its members. If it is found necessary, an outside manager may be employed and would report directly to the members.
  • The structure of the LLC does not provide for a Board of Directors. The flexibility in the law allows the members by agreement, written or oral, to decide on the most appropriate management system and on the distribution of profits.
  • The voting authority usually is in direct proportion to member’s interest in profits.
  • The manager of a Delaware LLC may also be a member.
  • There are no statutory requirements concerning meetings of members or record keeping. It is recommended that with two or more members, Members’ Agreements be entered into.
  • If meetings are held by members, this may be done anywhere in the world and in any way convenient to the members.
  • A Delaware Limited Liability Company (LLC) is a good vehicle for non-resident aliens to earn tax free income (not derived in the USA), utilizing a US business entity.
  • Members of a Delaware LLC are not liable for tax to the United States providing that:
  • The members are non-resident aliens.
  • The LLC does not employ US residents as permanent staff, or rely on a dedicated place of business within the United States.
  • The LLC does not undertake any business activity that is effectively connected with business or trade within the United States.
  • The Delaware LLC has a perpetual life and membership is easily transferable. It is advisable to enter into a Members’ Agreement if alternative conditions are required.

In summary these are the main points in which an LLC tends to score highly

  • Fast 12 hour formation in Delaware and 7 days start to delivery worldwide
  • No filing of accounts
  • Onshore presence with offshore benefits
  • Anonymity
  • Respectable onshore location
  • Flexible
  • Reasonable initial formation and ongoing costs
  • Conversion between Corporations & LLC’s is possible
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#3

I’m not sure on tax residency in the UK (as in how easy it is to establish tax residency elsewhere). But with that amount of money (50k/pa), I wouldn’t bother with it.

You’ll need to get residence elsewhere with favourable tax rules (e.g. Malta, Dubai, Panama), which will cost you quite a lot. On top of that you will have to make that your base of operations, which you might not want to do either.

Then you’ll have to set up an offshore company in a zero tax country, get a (virtual) office and the hardest part these days get a bank account (which they will charge you a lot for).

You might also lose out on some retirement benefits which you would have when you stay registered in the UK.

However if you expect to increase your income in the near future and plan on being a DN for a while it might be worth setting up this structure, just consult with an international tax lawyer in the UK before you do so.