So it's tax time again... and I've been thinking... :rolleyes:

.. surely there has to be a way to minimize taxes. :D

I'm not talking about my personal taxes -- there is no way around that. If I live in , then I need to pay the taxes due. Otherwise, I could wind up in jail.

I do not want to evade taxes... I simply want to [I]minimize them.

This means that I am referring to our corporate taxes.

:)

So... what I'm thinking is a business structure something like this:

- Register a corporation in an offshore country like Panama, where there is zero corporate taxes.

The business would of course pay me the usual salary, or dividends, or whatever.. and this would be declared as my personal revenue (and taxes paid) in the country where I live.

But the corporation itself would pay no taxes, thus allowing us to save a bit of $$ for anything we wanted to retain in the business.

As far as my local country would be concerned.. I would simply be an employee (or contractor, if desired) of a company that is registered in another country.

Thoughts?

The only "bad" thing I can think is that some customers might not want to do business with a coporation that is registered in some tax haven offshore country.

(But really, how many of YOU know where your service provider's business is actually registered? ie: we would of course maintain our local point of presence in the US/Europe, so our mailing addresses would not change, nor would the name of our business, or anything else such as operating structure, etc..)

What are the negatives to this sort of plan?

I'm sure you'd have to register the corporation in your country in order for it to legally exist and operate -- (for you to get the salary). If it's a contract, it's probably different.

Why would the corporation need to be registered in my country?

The corp would legally exist and operate in the offshore country... and I would simply be just another of its employees (or a contractor) who happens to be living in a different country from which the corporation is registered.

And since it's 100% internet based ecommerce, why would it need to be registered anywhere else? The corporation would be opening no physical stores, nor claiming operational status in any other country. It's customers, however, could be from anywhere.

As a salaried employee, I would simply declare my personal income as "other income" on my tax form, since obviously the company would not be able to issue any W2 or T4 or whatever "local" paperwork is usually associated with a same-country employer.

It would be the same as if you work for a US company, and then decided to move to France and become a resident there. (For example, let's say you're a sys admin, and you can work remotely.) You would be required by French law to pay taxes in France, and then you would claim that as a tax credit against your US tax reporting (if you filed also in the US). However.. your employer (the US company for whom you work) would NOT need to register anything in France. (It didn't move there.. only you did.) On your French tax forms, you would simply need to specify your "worldwide" income as "other", since obviously you don't work for a French company and you don't have any of the French pay slips, etc...

Or.. let's say you are originally from China and you work for a Chinese company. And then you move to the US to live. (For the sake of argument, let's leave the visa issues aside.) So you would be required by US law to pay taxes in the US, based on your income, since you are a resident. But your Chinese employer would not be required to register in the US....

Why would the corporation need to be registered in my country?

You might find access to local services difficult, and you might also find it difficult to obtain contracts with larger companies.

For instance - obtaining a bank account or any kind of credit (overdraft, bank loan, credit terms from suppliers) may be troublesome if you are incorporated in a remote country. You may find it preferable to still incorporate in the USA - but perhaps choose a jurisdiction that is slightly more friendly towards business - I understand Nevada is good from a personal and corporate perspective.

In my opinion, take advice from a tax adviser if this is something you are serious about. Up to a certain level of income, the tax adviser will probably produce you a net loss (he will cost you more than you save) and then past that level he can start making you money. I have no idea what that level is though. :p

I don't know about other countries, but many (if not all) states in the US would consider the corporation to have a presence in any state where there is an employee, and therefore subject to corporate income tax.

and therefore subject to corporate income tax.On which part of the company's activities? Certainly they couldn't tax income from activities taking place in say France.

Anyway, maybe "Offshore Company" could hire the services of "US company", with things setup in such a way as to minimize "US company" profit -> profit remains offshore, untaxed. "US company" could get everything needed for the operation as a whole to function, it would just not have any customers other than "Offshore company".

EDIT: http://en.wikipedia.org/wiki/Shell_corporation

Careful though, the crisis seems to lead to tax havens partly becoming what the jews were for the Nazis during the Great Depression, a group to point the finger at as the cause of all the "wrongs". This means that todays' status may not be tomorrow's. The rules are changing!

In Canada, you cannot legally operate a business (except a sole proprietorship) without being registered with the government. Even if majority of your operations are abroad, if you want to have ANY presence in Canada, you will need to be registered.

If you're a sole proprietorship, you will pay personal income tax anyway.

In Canada, you cannot legally operate a business (except a sole proprietorship) without being registered with the government. Even if majority of your operations are abroad, if you want to have ANY presence in Canada, you will need to be registered.

If you're a sole proprietorship, you will pay personal income tax anyway.

That's not entirely true. Here in Newfoundland you can operate a small business under your name without being registered. For example,

larwilliams sports jackets

I'm surprised no one has recommended talking to either a CPA or Tax Attorney.

Real simple one, you can minimize your corporate tax by paying yourself more.

Good luck.

Real simple one, you can minimize your corporate tax by paying yourself more.



That's even worse, since personal taxes are typically much higher then corporate taxes.


In Canada, you cannot legally operate a business (except a sole proprietorship) without being registered with the government.

I'm not talking about having a presence of any kind, or "operating" a business of any kind, in Canada.. or any other country besides the offshore country where the business would be incorporated.

For example... most of you are incorporated in USA/Canada/Europe/Wherever, right? Now.. most of you also accept customers from any other country. If someone in Bosnia or Egypt wants to sign up for your hosting.. you would certainly NOT need to register your business in Bosnia or Egypt in order to accept those customers.

If you then hired a Bosnian or Egyption to manage your servers.. you wouldn't need to declare your corporate revenue in Bosnia or Egypt. Those governments would have zero power to even "see" your foreign owned corporation. All they have the rights to is the personal income tax of your employee who is a resident of their country.

So if my business was incorporated in [insert offshore country here], why would I need to register anything in Canada to sell to a Canadian customer over the internet? And why couldn't that offshore company hire a Canadian or American (or Frenchman, or whatever) to work for it?

Besides... what is Canada going to do? Arrest the offshore company directors, who are registered in [offshore country]? Stop the offshore company from operating in Canada (over the internet?)

Anyway, maybe "Offshore Company" could hire the services of "US company", with things setup in such a way as to minimize "US company" profit -> profit remains offshore, untaxed. "US company" could get everything needed for the operation as a whole to function, it would just not have any customers other than "Offshore company".

This is actually exactly what my CPA suggested as the desired setup. He said that as long as everything is done legitimately, then when I get (personally) audited by whatever country I am a resident.. they would not be able to do anything, since the setup is legal, and I am in fact declaring personal income. The auditor would not be able to touch the corporation's books (since the auditor's have no jurisdiction in the offshore country), and as long as I'm not living beyond my means (ie: I don't declare an income of $10k but drive a Ferrari and live in a $1m mansion), then it should be fine.

Tax evasion is illegal, but avoidance is not. His advice was to keep everything legal and not to hide anything.

From what I can see, I think the only other drawback/negatives to this kind of corporate structure would be the inability to get credit for the company, and some vendors might not want to deal with my company. (Although.. how many of YOUR service providers asked where you were located. Most don't care, as long as you pay on time.)

One problem might be..

- getting a merchant account. Although there are plenty of reputabe offshore merchant accounts around, and ldcdc's idea of having a US "shell company" might be a workaround, as long as it's all on the up-and-up.)

Another thing you have to keep in mind, if you have a US Mailing address for that company, you will more than likely need to register in that state as a business. (I'm just going to assume you are US since you used taht dreaded W2).

If you have a presense you will still have to register. Having an address/office will require that registration. It's a handy idea, but, if your not making 100k+ from the business it really doesn't seem worth it to me, to go through all that hassle/.

If you have a presense you will still have to register. Having an address/office will require that registration.

According to my CPA, registration in the US is only required if there is a physical point of presence for the company.

Merely having a mailing address (ie: forwarding only address) does not constitute a physical presence and so registration is not required.

According to my CPA, registration in the US is only required if there is a physical point of presence for the company.

Merely having a mailing address (ie: forwarding only address) does not constitute a physical presence and so registration is not required.

To get round that, could you not use the shell company mentioned earlier.

I.e. have a different company registered in the US, but does not make any profit. Expenses are covered by your other offshore company providing "loans" to your US registered company..? Would that be viable?

Barclays bank did a good job of getting away with paying taxes.. Article was covered in a newspaper but court ruled to have the original leaked documents removed.. Although how they did it and the full documentation is on wikileaks..

Careful though, the crisis seems to lead to tax havens partly becoming what the jews were for the Nazis during the Great Depression, a group to point the finger at as the cause of all the "wrongs". This means that todays' status may not be tomorrow's. The rules are changing!

Agreed. These tax havens definitely are leak in the economy, but although this may sound harsh to some, a business is in business to make money for itself. I certainly didn't set up a business thinking what I can do to help out the government, especially considering the amount of stealth taxes and penny pinching they do.. At least in the UK..

I'd take a look at the US S Corporation. Basically, all of the income passes through to the owner, so that it's not double taxed.

If your drawing a salary or working under contract in the United States and that's your only "labour" expense, your income will be taxed by US authorities. End of story. Tax havens are nice for investment income, but operating income, good luck. The cost of defending yourself from the IRA is not worth the money you will save... and you'll probably end up paying anyways.

Taxes are a cost of doing business. Talk to an expert, a CPA, whoever and see how you can minimize your taxes.

Talk to your CPA on it of course, but multi-owner LLCs (in the US) do not pay taxes on business income/profit. As LLCs are tax-through companies, the owners will only pay taxes on profits that are distributed to them, any funds remaining in the business account at the end of your fiscal year are not taxed (single member LLCs are taxed on the owner's personal tax return and ALL income is taxed, even if it's just sitting in the biz bank account). So you will be taxed on any profits that you distribute to yourself, and you can still leave money sitting in the bank tax-free for future purchases as you are looking to do.

If this entity will still give you the corp protection you personally need, it may be an option rather than dealing with offshore businesses.

Talk to your CPA on it of course, but multi-owner LLCs (in the US) do not pay taxes on business income/profit. As LLCs are tax-through companies, the owners will only pay taxes on profits that are distributed to them, any funds remaining in the business account at the end of your fiscal year are not taxed

This is absolutely, colossally wrong. It doesn't matter if the income is distributed as equity withdrawal/distribution, guaranteed payment, or left as retained earnings, it's all taxable in a pass through manner to the LLC members.

It doesn't matter if the income is distributed as equity withdrawal/distribution, guaranteed payment, or left as retained earnings, it's all taxable in a pass through manner to the LLC members.

Thank you for the correction, and sorry for the mis-information. I misread some docs from my accountant going over this exact issue. Taxes are still pass through unless you file as a corporation, then you're just paying the lower corporate rate but still paying taxes on profit.

If your drawing a salary or working under contract in the United States and that's your only "labour" expense, your income will be taxed by US authorities. End of story.

Yes, I agree. Did you read the original post? I said that I fully expect (and have no problem) to pay the personal income tax that is due to the government where I reside.

It is corporate tax that I am trying to avoid. (ie: The money left in the company after all expenses are paid...)

The cost of defending yourself from the IRA is not worth the money you will save... and you'll probably end up paying anyways.

How do you think the government is going to find out any information at all? Do you think the offshore company is going to report the company's finanancial statements every year?

The government would have no information at all on which to ask me to pay anything to do with the offshore coporation for which I work. I would already pay my personal income tax... and as long as I'm not evading my personal tax responsibility.. what basis would the government have to come after me for anything relating to an offshore company that has NO finanical records declared in my country?

Hi,

As others have said if you setup a legal entity in panama you may have a little difficulty obtaining a US bank account.

One structure that you might try is setting up a management company in panama and a company in the US.

The US company takes all the expenses and the panama company takes all the profit as it's "management" fee and should hold all assets.

This would reduce your net tax on your US corporation to zero but still gives you a legal US presence.

Doing it this way will probably cost you a fair amount in administration so I probably wouldn't suggest this to anyone looking to pay less than $5k/year in taxes.

As always talk to a CPA instead of random people on a forum.

How do you think the government is going to find out any information at all? Do you think the offshore company is going to report the company's finanancial statements every year?

You live in a mansion and report $0 income. Your going to get busted. The IRS does standard of living audits ALL the time, especially those that report low income but live in nice zip codes. Even if you live like crap, you'll still have some cash to feed yourself, etc., and the only way to move that cash is electronically from your offshore to yourself. Unless your getting into running cash across the boarder on little rafts or something, but that's pretty foolhardy.

The government would have no information at all on which to ask me to pay anything to do with the offshore coporation for which I work. I would already pay my personal income tax... and as long as I'm not evading my personal tax responsibility.. what basis would the government have to come after me for anything relating to an offshore company that has NO finanical records declared in my country?

If your drawing a salary in the US, in MANY/MOST cases the business is operating there. The IRS has the right to find out how much of a business your operating.

Your right, no financial records declared. But your OPERATING in the United States if your physically sitting on your computer in New York or wherever developing and managing your business. Therefore, you have tax consequence for your business in the United States.

Your money would be trapped offshore forever essientially, because the taxes of bringing it back into the United States generally always outweigh paying the taxes on the income in the United States in the first place. As a U.S. citizen, your required by law to report your worldwide income. So congratulations, you retire to Bermuda to enjoy your profits and guess what? Uncle Sam taxes you on any dollar you spend that you've withdrawn from your company!

You may get away with it, you really might. But that's definitely getting into the evasion side of taxes and spending a decade in jail isn't really my idea of a risk worth taking.

It's completely not worth it. Pay your taxes! The legal costs and the accountants your going to need to hire to cover your ass on this are only going to be worth while if your making millions a year. Even still, I think it's disputable (what the point of having money if you can never use it).

If you think you can do this yourself, you will end up in jail. Your going to need to hire a pretty solid offshore financing legal firm to help you out here. Not worth it!

You live in a mansion and report $0 income. Your going to get busted.

Sigh... :rolleyes:

I think you missed a critical point, which I've made twice now in this thread:

I would declare, and pay taxes, on all personal income.

I am only referring to the corporate taxes in this thread.

I fully 100% agree that I would be an idiot if I live in a mansion, drive a nice car, declare zero personal income, and expect to get away with it.

That is not what this thread is about.

:)

Your right, no financial records declared. But your OPERATING in the United States if your physically sitting on your computer in New York or wherever developing and managing your business. Therefore, you have tax consequence for your business in the United States.

Again, you missed the critical point.

If you are an employee of a corporation, which is registered outside the united states... then YOU have NOTHING to do with the corporation operation. You're an employee. You're not "operating" or "managing" or "developing" anything. Or call yourself a consultant. Whatever works for you.

The point is.. if you go work for McDonalds as a manager or management consultant or whatever, do you think you have any direct involvement in the corporate direction of the company? No, you do not.

Do you think the IRS is going to hold YOU responsible for income of the McDonalds corporation, if you're hired as a consultant, or salaried employee with no director responsibility listed in the articles of McDonalds incorporation?

I don't think so. Legally, they can't. You are responsible, as an employee of the compamy, for your own salary/bonus/dividends/whatever. The IRS has no right whatsoever to touch you in any way for the revenue of the corporation. They can only "see" you for your personal tax obligation, which I agree you must declare and pay.

That is, unless you are dumb enough to list yourself as a director/owner of the offshore-registered company. (Which would defeat the whole purpose of having an offshore registered company.)

Again, I think that if anyone here reads this thread and suggests I am trying to find a way to live in a mansion, drive a fancy car, have a boat, and not pay taxes.. then they need to give their head a shake. That just is not possible to do in a 1st-world country. If you are paying for something personal, then you must be able to "justify" the way you obtained the money to pay for the item. And the government will require you to pay tax on that money. I fully agree with this. But that isn't the point of this thread at all.

Be careful, maybe the IRS is on this website lol jk

So it's tax time again... and I've been thinking... :rolleyes:

.. surely there has to be a way to minimize taxes. :D

I'm not talking about my personal taxes -- there is no way around that. If I live in , then I need to pay the taxes due. Otherwise, I could wind up in jail.

I do not want to evade taxes... I simply want to [I]minimize them.

This means that I am referring to our corporate taxes.

:)

So... what I'm thinking is a business structure something like this:

- Register a corporation in an offshore country like Panama, where there is zero corporate taxes.

The business would of course pay me the usual salary, or dividends, or whatever.. and this would be declared as my personal revenue (and taxes paid) in the country where I live.

But the corporation itself would pay no taxes, thus allowing us to save a bit of $$ for anything we wanted to retain in the business.

As far as my local country would be concerned.. I would simply be an employee (or contractor, if desired) of a company that is registered in another country.

Thoughts?

The only "bad" thing I can think is that some customers might not want to do business with a coporation that is registered in some tax haven offshore country.

(But really, how many of YOU know where your service provider's business is actually registered? ie: we would of course maintain our local point of presence in the US/Europe, so our mailing addresses would not change, nor would the name of our business, or anything else such as operating structure, etc..)

What are the negatives to this sort of plan?

I am not sure if someone else has written this before but most countries have agreements with each other according to which one must pay taxes to the country where he/she resides. So as soon as you take money out of the biz for yourself you have to pay taxes to whatever country you live in. It gets even worse if you have a biz in a country that does not have an agreement with your country. In this case both countries may want taxes from you. Under certain circumstances you may end up paying over 100% taxes because no country gives a **** about the other one charging you as well.

I am not sure if someone else has written this before but most countries have agreements with each other according to which one must pay taxes to the country where he/she resides. So as soon as you take money out of the biz for yourself you have to pay taxes to whatever country you live in. It gets even worse if you have a biz in a country that does not have an agreement with your country. In this case both countries may want taxes from you. Under certain circumstances you may end up paying over 100% taxes because no country gives a **** about the other one charging you as well.

He's talking about using a tax haven such as panama (which he will not pay taxes to unless he conducts business in panama) to avoid paying taxes on the money his company doesn't send him in the form of dividends/salary.

Personally I don't think it's worth it. Sure there are some companies that structure themselves in messed up ways to avoid taxes, but if I'm not mistaken the vast amounts of what you spend in taxes are going to be your contributions to US social security anyway. If it were such a good idea, wouldn't all corporations be incorporated in offshore locations?

If you simply setup an off-shore corporation to handle everything you're going to lose out on all the possible write-offs as far as your business goes, except the stuff you buy personally and claim as part of your "job" expenses. I am not a tax lawyer but I'd advise against setting up a US company to take all the losses, that just screams "please audit me to find out what's going on" - remember the burden of proof is lower for tax crimes than it is for anything else - tax is how they jail mobsters and drug dealers. :)

How much money do you actually leave in your business at the end of the fiscal year anyway? If you're not trying to duck taxes on your personal income, will you even save enough to warrant the costs of incorporating in Panama?

Hate to revive this old thread, but just came across it, and it seems like the OP's question was not satisfactorily answered.


Let me take a crack:

First of all, this scheme will not work. You would be liable (in the US) for all your foreign corporate income tax as well as your own personal income taxes.

If you are a 10% or larger owner of a foreign corporation, or if you have constructive ownership in it, you are required to file an informational return on the corporation using form 5471. More importantly, if you are using this corporation to funnel personal services income (Think accountants, lawyers, dentists, web developers/consultants etc.) you cannot leave any profit in the corporation in hopes of deferring US taxes on that profit (Sub part F Income).

Hope this clears up any confusion..