[USA] Inc. vs LLC - Is my tax planner trying to fool me ?

[mardz]

I am in the eCommerce business currently living in Germany. I would like to create an offshore company and move outside of Germany asap.

My tax planner recommended me this setup: USA Inc. (Incorporation) + moving to Malta
I did a lot of reading lately and noticed nobody mentions Inc. while LLC's are mentioned all the time. Why is that ?
I asked my tax planner about this and he said there are no advantages of having an LLC for me.

The Inc. setup + maintenance is quite expensive (5.5k first year and 4.5k following years + accounting). I am afraid he is trying to sell me the inc. setup to make me rely on his services and milk me in the future.

I would like some opinion on this


Regarding Malta: I read that non-dom residents are automatically tax-resident in their home countries. Is this true ?

 

[JustAnotherNomad]

Don't set up any company until you are no longer tax resident in Germany (i.e. you have moved). And learn about German CFC rules before you do ANYTHING. You might be liable for tax in Germany for up to 10 years, even after you have moved abroad. That risk is probably a bit higher with a single member LLC than with a corporation.

But yes, it sounds a bit strange that he recommends setting up a corporation instead of an LLC, especially because you can have an LLC and elect for it to be treated as a corporation for tax purposes. Definitely get a second opinion.

 

[mardz]

JustAnotherNomad said:
Don't set up any company until you are no longer tax resident in Germany (i.e. you have moved). And learn about German CFC rules before you do ANYTHING. You might be liable for tax in Germany for up to 10 years, even after you have moved abroad. That risk is probably a bit higher with a single member LLC than with a corporation.

But yes, it sounds a bit strange that he recommends setting up a corporation instead of an LLC, especially because you can have an LLC and elect for it to be treated as a corporation for tax purposes. Definitely get a second opinion.
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Thanks for the advice, I will try to find another tax planner.
He told me that if I move out of Germany this year (2020) I could setup a company without telling the tax office. It would only become illegal if I'm still resident in Germany in 2021 while having created the company in 2020. Not sure if its true

 

[JustAnotherNomad]

But there could be an advantage with a corporation insofar as you might be able to get it taxed in the US, even while living in and managing it from Germany (check the tax treaty). A friend of mine lives in Europe (not Germany) and does drop-shopping for the US market using a US corporation. He simply spends all profit on new orders in December and thus defers the tax payments.
And I think you can also get deductions for travel expenses etc.
But the fees just sound way too high, definitely speak to a US CPA and a German/Maltese tax advisor.

 

[JustAnotherNomad]

mardz said:
Thanks for the advice, I will try to find another tax planner.
He told me that if I move out of Germany this year (2020) I could setup a company without telling the tax office. It would only become illegal if I'm still resident in Germany in 2021 while having created the company in 2020. Not sure if its true
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I'm not sure about that, it could be true. But yes, that's what I meant. There are reporting requirements for tax residents of Germany. So it's safer to move first, and then set up the company.

But you definitely need to look into exit tax (Wegzugsbesteuerung) and CFC rules (Aussensteuergesetz), especially extended limited tax residency (erweiterte beschraenkte Steuerpflicht) and Hinzurechnungsbesteuerung. Of course all of this also depends on the size of your business.

 

[Sols]

I wouldn't do a US LLC. I'd go for a Maltese company with a UK or Cyprus parent company to qualify for the tax rebate and net 5% tax rate.

LLCs introduce a potential risk in that they're tax neutral. The entity isn't taxed and income instead falls on you personally. I'm not sure if this has been tested in Maltese courts yet but it just seems unnecessary.

And as mentioned, be careful about setting up the companies before you leave Germany, especially if you're a German citizen. Make sure your documents are in order when you leave Germany and register as a resident in Malta right away.

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This is the probably the answer to your question.

 

[memento mori]

Sols said:
I wouldn't do a US LLC. I'd go for a Maltese company with a UK or Cyprus parent company to qualify for the tax rebate and net 5% tax rate.

LLCs introduce a potential risk in that they're tax neutral. The entity isn't taxed and income instead falls on you personally. I'm not sure if this has been tested in Maltese courts yet but it just seems unnecessary.

And as mentioned, be careful about setting up the companies before you leave Germany, especially if you're a German citizen. Make sure your documents are in order when you leave Germany and register as a resident in Malta right away.
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But do you think that if he stablishes a US LLC his european residency country will know about it?
If he never gets any income from the US LLC into any European account...

 

[memento mori]

What about setting up a US LLC in for example Delaware and later, if you don´t do business with US citizens nor buy from US, you pay nearly 0 taxes with them.

So afterwards, you put the company profits into Montenegro. I think that german authorities won´t know about it

 

[JustAnotherNomad]

memento mori said:
What about setting up a US LLC in for example Delaware and later, if you don´t do business with US citizens nor buy from US, you pay nearly 0 taxes with them.
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You don't seem to know much about US LLCs.

Anyway, when you want to stay legal and actually move abroad, you don't want to ruin all your efforts by breaking laws you could easily comply with.

 

[Sols]

memento mori said:
But do you think that if he stablishes a US LLC his european residency country will know about it?
If he never gets any income from the US LLC into any European account...
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I don't care that much about secrecy. I care about sleeping at night knowing my affairs are in order so that if there is an information leak or the tax man audits me, I can just give them all the docs and continue my business in peace.

With CRS/AEOI and even FATCA when it's reciprocal, relying on secrecy nowadays is a trap.

Toggle signature
This is the probably the answer to your question.

 

[mardz]

Sols said:
I wouldn't do a US LLC. I'd go for a Maltese company with a UK or Cyprus parent company to qualify for the tax rebate and net 5% tax rate.
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Stripe and Paypal are an absolute necessity for me and they don't work with Maltese companies as far as I know

 

[JustAnotherNomad]

Maybe the parent company can do the billing? That would solve the problem. But do you really want to live in Malta?

 

[Sols]

mardz said:
Stripe and Paypal are an absolute necessity for me and they don't work with Maltese companies as far as I know
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PayPal works fine with Malta company and there are many alternatives to Stripe, such as Braintree and Mollie.

Toggle signature
This is the probably the answer to your question.

 

[mardz]

JustAnotherNomad said:
But do you really want to live in Malta?
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Not really but I would like to stay in Europe and if I understood correctly I only have 4 options: Malta, UK, Irland and Cyprus.
I have heard there are lots of expats with online businesses in Malta, maybe its a good opportunity to meet new people doing the same as me.

 

[Martin Everson]

I think all has been said. You can't argue with 5% tax rate, sunshine and being able to sleep at night 😉.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[JustAnotherNomad]

I would definitely visit the places before making a decision. There's also Portugal's NHR regime if you want to stay in Europe. I know that many people combine NHR with Maltese companies. I think Portugal is vastly superior to Malta. I can recommend a Portuguese tax lawyer (I looked into it, but then decided against it).
And then there's Gibraltar and Madeira (not sure about the details there), the Canary Islands (requires local employees, I think), Italy's “growth decree” (10% tax if you settle in Southern Italy if I remember correctly). Probably others as well. Czechia has very low taxes for sole proprietors as well (15% and no accounting requirements or something). Bulgaria has 10% flat tax. Romania and Hungary offer low taxes as well. There are many options.
Estonia has 20% deferred CIT (no CIT until profits are distributed), but no tax on dividends if they have been subject to tax of at least ~7% or so. If you live in Estonia and have a company in Bulgaria, you would only be paying 10% in Bulgarian corporate income tax and no taxes in Estonia.
If you want to stay close to Germany, Czechia could be an option because you could just drive across the border whenever you want.
Russia has 10% or something as well.
Lithuania has very low CIT as well, I think.

But yes, out of those four, Malta would probably be my favorite as well.
Just make sure you actually want to live there. There's more things to life than money. I would hate to save a few hundred euros a month, only to live in a place I don't like. It's a rather small island. And not that many flight connections. A city like Lisbon is a completely different story.

 

[mardz]

JustAnotherNomad said:
I would definitely visit the places before making a decision. There's also Portugal's NHR regime if you want to stay in Europe. I know that many people combine NHR with Maltese companies. I think Portugal is vastly superior to Malta. I can recommend a Portuguese tax lawyer (I looked into it, but then decided against it).
And then there's Gibraltar and Madeira (not sure about the details there), the Canary Islands (requires local employees, I think), Italy's “growth decree” (10% tax if you settle in Southern Italy if I remember correctly). Probably others as well. Czechia has very low taxes for sole proprietors as well (15% and no accounting requirements or something). Bulgaria has 10% flat tax. Romania and Hungary offer low taxes as well. There are many options.
Estonia has 20% deferred CIT (no CIT until profits are distributed), but no tax on dividends if they have been subject to tax of at least ~7% or so. If you live in Estonia and have a company in Bulgaria, you would only be paying 10% in Bulgarian corporate income tax and no taxes in Estonia.
If you want to stay close to Germany, Czechia could be an option because you could just drive across the border whenever you want.
Russia has 10% or something as well.
Lithuania has very low CIT as well, I think.

But yes, out of those four, Malta would probably be my favorite as well.
Just make sure you actually want to live there. There's more things to life than money. I would hate to save a few hundred euros a month, only to live in a place I don't like. It's a rather small island. And not that many flight connections. A city like Lisbon is a completely different story.
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Thanks a lot for these info! I am quite overwhelmed to be honest

 

[JustAnotherNomad]

That's just what this forum is for, you know. ;-)

 

[JustAnotherNomad]

...And of course always look at the total cost, not just the tax rate. If you need to maintain a complex structure, that can quickly eat up a couple percent in tax savings. And the more complex the structure, the higher the risk that something will go wrong.

 

[mardz]

JustAnotherNomad said:
...And of course always look at the total cost, not just the tax rate. If you need to maintain a complex structure, that can quickly eat up a couple percent in tax savings. And the more complex the structure, the higher the risk that something will go wrong.
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You are right. I actually really like what my tax planner offered me since the package includes: support for moving to malta, US-Director for the Corporation, Virtual office. Etc..
But the yearly costs are just too high. Do you know how much your friend pays for the corporation by any chance ?