Delaware company incorporation: good idea?

[John89]

I want to open a LLC to put some of my life savings. My life savings are invested in US-based companies, ETFs, and funds, so I pay 30% of taxes on the dividends. I would transfer what remains from the dividends received into my bank account in Europe, and live off this income. If I put these savings in Europe I would need to pay an additional 20-30% of taxes on what remains after I paid US taxes, so I would end up paying 50-60% of taxes on the dividends. So this is my situation. I think Delaware might be better than Bahamas, Seychelles, or other tax havens, in case the European taxman looks into it. If this is important, I am a European, not a US citizen.
My questions are:
1. Would this be possible?
2. Would the company need to pay any additional taxes, apart from the taxes on the dividends? Would there be profit taxes or something? No economic activity would be carried out, the company would just own the stocks, and the income would come from the dividends of the stocks.
3. I believe the LLC has to fill in IRD forms? How much would it cost to pay an accountant to fill in such forms? My company would have a very easy tax structure: receive dividends, and transfer the incomes from these dividends to another bank account.
4. Are there ways for a US LLC to recover some of the taxes that it has to pay on the dividends?

 

[John89]

I forgot to write: would Nevada or New Mexico be better, or worse, or no difference?

 

[fshore]

If the LLC is disregarded then the tax situation in the US is exactly as today, you will be taxed personally.

You can deduct what you paid in taxes in the US from your tax bill in europe. Are you saying the tax rate is 50-60% on dividends in europe (what country)?

Any way you try to form companies in USA or offshore while living in europe will result in tax evasion in some way. So better think about how you can optimize your holdings. Consider UK listed ETFs, or chose companies that don't pay dividends.

 

[John89]

Thank you fshore.

When you write "If the LLC is disregarded then the tax situation in the US is exactly as today, you will be taxed personally." you mean that I would need to pay income tax on the dividends I receive?

About the tax bill in Europe. If I understand the situation correctly, if I look at Italy I would need to pay 30% taxes on US dividends, and then 26% taxes on the remaining dividends. I need to fill in some form to get back half the US taxes. So if I receive $100 in dividends I end up paying $15 to the IRS, and then 26% of the remaining $85 to the Italian tax office, that's another $22.10. So in total I pay 37.1% taxes. However, claiming the 15% is complicated and costly(?) and most people don't actually claim the money. If I pay 30% taxes on US dividends, and then 26% in Italy I get $100-30%=$70-26%=$51.8, i.e. a total of almost 50% taxes.

 

[fshore]

For your first question I mean exactly what I write. The llc doesn't change anything.

You can deduct the taxes paid in USA from Italian taxes. So you totally pay only the taxes that you owe to Italy.

 

[erni]

You can avoid taxes with any offshore entity any longer unless you setup a complete operation with substance i.e. office, phone, electricity, staff and everything a real office need.

You want to seek for some dark area advise in the mentor group gold if you persist to research further.

 

[John89]

fshore said:
For your first question I mean exactly what I write. The llc doesn't change anything.
Click to expand...

What doesn't change? Can someone explain to me in English what fshore wrote?

fshore said:
You can deduct the taxes paid in USA from Italian taxes. So you totally pay only the taxes that you owe to Italy.
Click to expand...

No, you can't. You can read the regulations here: Dividendi Esteri: il regime di tassazione . It's as I calculated in my message.

Last edited: Jan 28, 2021

 

[John89]

erni said:
You can avoid taxes with any offshore entity any longer unless you setup a complete operation with substance i.e. office, phone, electricity, staff and everything a real office need.

You want to seek for some dark area advise in the mentor group gold if you persist to research further.
Click to expand...

You mean I can't avoid ..., right? But the European tax authorities would not know that I have a company in USA, since the shareholders are hidden. So I could just use an ATM machine and withdraw (in Europe) the money from the US company account, right? So apart from the tax on the dividends, what other taxes would the US company have to pay? Would I need to pay some taxes in the US, if I live in Europe, I am not a US citizen, and the company is not in my name?

 

[fshore]

John89 said:
What doesn't change? Can someone explain to me in English what fshore wrote?
Click to expand...

I don't know exactly what taxes you pay today. But if you start a disregarded llc the broker will disregard the llc and tax you exactly as you're taxed today, as a natural person. The llc doesn't exist for taxes (in the USA).

 

[fshore]

John89 said:
No, you can't. You can read the regulations here: Dividendi Esteri: il regime di tassazione . It's as I calculated in my message.
Click to expand...

Ok, in many countries you can.
If Italy doesn't let you, you can file a US tax return and get a credit for the taxes paid in Italy.
If that's 26% then it should be possible to reduce US taxes to 4%, so the total is 30%.

See here for further details.
https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit

 

[John89]

fshore said:
I don't know exactly what taxes you pay today. But if you start a disregarded llc the broker will disregard the llc and tax you exactly as you're taxed today, as a natural person. The llc doesn't exist for taxes (in the USA).
Click to expand...

As I wrote, I don't live in USA, I live in Europe, and I am not a US citizen, I am a European citizen.

 

[John89]

fshore said:
Ok, in many countries you can.
If Italy doesn't let you, you can file a US tax return and get a credit for the taxes paid in Italy.
If that's 26% then it should be possible to reduce US taxes to 4%, so the total is 30%.

See here for further details.
https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit
Click to expand...

But isn't that for US-residents who pay taxes in Europe? I would be a Europe-resident (non-US citizen) who pays taxes in the US.

 

[exprtadvisrdev]

John89 said:
As I wrote, I don't live in USA, I live in Europe, and I am not a US citizen, I am a European citizen.
Click to expand...

What he means is this: You won't pay taxes in the US as long as you are not tied into a business connection there.

So, you will pay taxes in Europe for all profits you get in the LLC. Now, there are some countries that could treat the LLC as a local company since you are doing the job there so the best is to first ask that to a local accountant who understands this.

To summarize: All profits in your LLC will pay taxes in your home country (as long as it meets the requirements to not pay taxes in the US)

 

[John89]

eadeveloper said:
What he means is this: You won't pay taxes in the US as long as you are not tied into a business connection there.

So, you will pay taxes in Europe for all profits you get in the LLC. Now, there are some countries that could treat the LLC as a local company since you are doing the job there so the best is to first ask that to a local accountant who understands this.

To summarize: All profits in your LLC will pay taxes in your home country (as long as it meets the requirements to not pay taxes in the US)
Click to expand...

Thank you. Very helpful. But I still have a question: The US government and the IRS would not know who I am, and neither would the European taxman, since the company is not in my name. So if I don't tell the European taxman that I have this income, who is going to pay taxes? Is the US company taxed by the IRS based on the income from the dividends? If so, how much?

 

[exprtadvisrdev]

John89 said:
The US government and the IRS would not know who I am
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They will know, even if you don't tell them. Also, you must get an EIN because without it you won't be able to open a bank account and you won't be able to fill form 1120+5472, also once you open a bank account your privacy ends. There is another option and is using cryptos but you still need to get the EIN and I'm sure the IRS will know who you are if you own them taxes.

John89 said:
Is the US company taxed by the IRS based on the income from the dividends? If so, how much?
Click to expand...

You need to talk to an accountant in that case, I have never paid taxes there with my LLCs

 

[fshore]

John89 said:
Is the US company taxed by the IRS based on the income from the dividends? If so, how much?
Click to expand...

I'm trying again. The US llc (if disregarded) is not taxed, irs will tax you personally. The broker will fill out the tax forms reporting the income and send to irs, and they will not mention the llc at all, the forms will be in your name.

John89 said:
As I wrote, I don't live in USA, I live in Europe, and I am not a US citizen, I am a European citizen.
Click to expand...

That doesn't matter, you can still get a tax credit.

 

[Fulton Abraham Sanchez]

John89 said:
I want to open a LLC to put some of my life savings. My life savings are invested in US-based companies, ETFs, and funds, so I pay 30% of taxes on the dividends. I would transfer what remains from the dividends received into my bank account in Europe, and live off this income. If I put these savings in Europe I would need to pay an additional 20-30% of taxes on what remains after I paid US taxes, so I would end up paying 50-60% of taxes on the dividends. So this is my situation. I think Delaware might be better than Bahamas, Seychelles, or other tax havens, in case the European taxman looks into it. If this is important, I am a European, not a US citizen.
My questions are:
1. Would this be possible?
2. Would the company need to pay any additional taxes, apart from the taxes on the dividends? Would there be profit taxes or something? No economic activity would be carried out, the company would just own the stocks, and the income would come from the dividends of the stocks.
3. I believe the LLC has to fill in IRD forms? How much would it cost to pay an accountant to fill in such forms? My company would have a very easy tax structure: receive dividends, and transfer the incomes from these dividends to another bank account.
4. Are there ways for a US LLC to recover some of the taxes that it has to pay on the dividends?
Click to expand...

John, hi.
1. Delaware is better than other jurisdictions if your account is located in the USA.
2. LLCs do not pay taxes if it is only one owner. The owner pays taxes personally to the IRD and needs to apply for a tax ID personally to pay taxes. The profits of the company are reported personally to the IRD and tax is paid.
3. No. LLC has no forms to report. See 1. above.
4. LLC pays no taxes to the IRD. See 1. above.

 

[fshore]

FAS said:
The owner pays taxes personally to the IRD and needs to apply for a tax ID personally to pay taxes.
Click to expand...

Not for income from stocks, etf dividends. As the broker will withhold the taxes. You don't need a tax ID for this.

 

[TerraMan]

A single member LLC owned by a non-resident alien (non-US citizen not living in the US) is considered a foreign-owned disregarded entity.

As long as the foreign-owned disregarded entity does not have any effectively connected income aka does not have any real physical presence in the US such as offices, employees, warehouses, representatives, other US companies working solely for it, the US LLC is not subject to US federal income.

However, it still needs to file a pro-forma 1120 + 5472 to report all the transactions between the LLC and it's foreign owner. In this case the owner still does not need to file a 1040NR personal tax return, and does not need a personal tax ID in the US (called ITIN).

However, form 5472 does contain personal information, so the IRS will know who you are. Which doesn't really matter since the bank will have it anyway once you open the bank account for it.

Investing in financial instruments such as stocks and bonds is a bit different, dividends are subject to 30% withholding tax, and the owner would need to file a 1040NR personal tax return in that case.

Capital gains on stocks are tax free though.

 

[TerraMan]

Also Wyoming is the best option, it's pretty similar to Delaware, except it's maintenance fees are cheaper, and processing times are shorter.
I also think it has better liability protection laws. When it comes to privacy laws and taxes they are the same.