US LLC + territorial tax

[maritusa]

I see many people recommending a setup where you have a US LLC + live in a territorial tax country and then pay 0% tax while getting all the benefits of having an American company. But where exactly would that be?

It's easy to find a list of these territorial tax countries but it seems like with almost all of them if your work is performed in the given country even though you don't have an office and work online for a foreign client from home the income is still considered local sourced. The only income that really seems to be foreign-sourced is passive income. On top of that, you would often trigger Permanent Establishment rules.

Do people just recommend these setups while being completely unaware of this or do they think the risk of getting caught is so low that it doesn't matter in practice?

Is there even a single country where a setup like this is 100% legit?

 

[Sols]

You're applying western/high-tax country thinking to places where that mentality⁢ doesn't exist. No one cares in places like Costa Rica, Panama, Dominican Republic, Uruguay. Don't︀ make a fuss. Don't ask questions. Don't get asked questions.

It's not even entirely clear︁ cut that what you write would or even could happen if someone suddenly started to︂ care.

There's an argument to be made that a US LLC might be a suboptimal︃ entity , in some cases. Dividends can look/work better than personal income.

If you want︄ to be a really good upstanding resident, form a local company, hire a couple of︅ locals, and have them be your customer service team or whatever. Pay tax on that︆ and provide jobs. You can add value to society without paying tax on your foreign︇ income.

 

[Cloudbanck]

People assume the laws are clear, and if the law says A of course︃ A is applied. Yes, this would be the case in Germany, (or the Netherlands or︄ Denmark), but most of the world doesn't operate like Germany. It's a classic fallacy to︅ think so.
In most Latam countries the law/rules about local sourced income are not clear︆ - if you ask different lawyers/tax experts you will get different answers, and remember that︇ there is money in it for them to scare you and make you need their︈ services, and no money in telling you it's all good, dont worry.

Then you have︉ the application of the law, which is the important thing in most of the world,︊ and in practice a one-man-with-a-laptop business registered abroad is just not going to be taxed︋ in Latam territorial tax countries. Sure, this application of the law could change sometime in︌ the future, you got to keep track of what's happing in the Latam country you︍ are in.

And about places where a setup with a US LLC and zero tax︎ is 100% legit. Well, the UAE before they introduced the 9% tax. You have Palau,️ and other pacific islands, Bahrain (but they probably will introduce corp tax like the UAE),‌ the Caribbean zero tax islands. But it's the wrong question, in much of the world‍ there is no clear cut difference between legit and non legit.

An example Ive shared⁠ before:

A friend of mine in a West African country (with worldwide taxation on paper)⁤ was working remotely for an Italian company. He naively initially went to the local tax⁣ office to declare his foreign income. The tax officials thought that this guy must be⁢ really stupid, but agreed that he would pay 10% of his foreign income, which they︀ probably took directly in their own pockets. According to official law foreign income should be︁ treated like local income and actually taxed at about 36%, but the local tax office︂ were either not aware of this or chose not to implement it.
Then 3 years︃ later, the local tax office came up with some obviously bogus excuse that he had︄ filled in some paper incorrectly and was due to pay a lump sum additional tax︅ of the equivalent in local currency of 23,000 EUR. Note that this amount or the︆ reasoning behind it had nothing to do with the law or the actual about 36%︇ rate.
After long negotiations and including quite a bit of swearing in Italian (it makes︈ an impression on African officials), he managed to negotiate down the 23k EUR to a︉ mere 230 EUR. After that he wisened up and never declared any foreign income again,︊ and havent had any problems since.

 

[Marzio]

Let sleeping dogs lie

 

[5K1PP3R]

Would a US LLC + Cambodian personal bank account work? Cambodia is still non CRS.‌ What banks/EMIs would be good options for a US LLC?

 

[DSoz]

Did you figure it out?

 

[lory]

Does anyone know if
Payset
Mercury
Paydo

still open accounts for foreign owned US LLC's‌ without substance? Mercury does not, but there is a workaround, what about the others?