US LLC + Panama resident

[D0naldDuck]

Hi guys,
I'm planning to form a US LLC and run it from Panama as a Panama resident. I'm a EU resident now and the business is a service business.

Afaik this should have the following consequences:
- Zero tax since disregarded entity by US and forgein sourced income in panama
- No VAT liability when charging Europe b2c clients, given you provide a service, not just sellling a product.
- b2c payments running through stripe to EMI or bank account of the US LLC, then distributed to panama (on individual level, not a company).

Now I'm wondering:
1. Will Panama watch this kind of income for sure as forgein sourced? Has anyone up to date information/experience on this?
2. Will there be problems with banks/emis/stripe in this structure?
3. I read they changed the requirements for getting the friendly nations visa. Would it still be sufficient to be employed by your own company to get the visa?

Would be great if you guys could share some thoughts! 🙂

 

[MiltonStone]

D0naldDuck said:
- No VAT liability when charging Europe b2c clients, given you provide a service, not just sellling a product.
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That would be a competition advantage with Europe, if someone know if it is allowed or possible it's worth for large businesses to consider in their financial speculations.

 

[Marzio]

D0naldDuck said:
forgein sourced income in panama
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Be aware that running a company from a territorial taxation country will make ti local sourced income.

If Panama decided to not enforice this rule is another story but it doesn't mean that it wouldn't change in the future.

 

[Sols]

D0naldDuck said:
- Zero tax since disregarded entity by US and forgein sourced income in panama
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Since there is nothing exactly equivalent to LLC under Panamanian law, check how LLC is treated there. Is it a partnership or is it a corporation?

D0naldDuck said:
- No VAT liability when charging Europe b2c clients, given you provide a service, not just sellling a product.
Click to expand...

Not correct. There is/can be VAT liability. It's just not enforced much and as long as your business remains small, chances are no one will care.

D0naldDuck said:
- b2c payments running through stripe to EMI or bank account of the US LLC, then distributed to panama (on individual level, not a company).
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Run it by a Panamanian tax adviser if you want to be sure.

D0naldDuck said:
1. Will Panama watch this kind of income for sure as forgein sourced? Has anyone up to date information/experience on this?
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Panama has a history of leaving foreigners alone and not asking too many questions.

On the other hand, Panama once accidentally removed its territorial tax system. It took them a few months to sort out but they ultimately changed back.

D0naldDuck said:
2. Will there be problems with banks/emis/stripe in this structure?
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Absolutely. Ever since the Panama Papers, Panama is considered a high-risk jurisdiction. You will struggle to open and maintain accounts with financial institutions.

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This is the probably the answer to your question.

 

[D0naldDuck]

Thank you guys for your fast answers.

Sols said:
Not correct. There is/can be VAT liability. It's just not enforced much and as long as your business remains small, chances are no one will care.
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Could you explain this statement in a bit more detail or add a few sources here?
If you imagine a non-EU company selling manually carried out services, for example translation services, (at least no physical products or electronically supplied services as defined by EU) to EU-B2C-customers, are you sure that this non-EU company needs to pay VAT in the EU?

 

[Marzio]

D0naldDuck said:
his non-EU company needs to pay VAT in the EU
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No because in case of services the place where the service is carried is taken in consideration so in your case Panama.

 

[D0naldDuck]

marzio said:
No because in case of services the place where the service is carried is taken in consideration so in your case Panama.
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Thats what I thought as well actually.

 

[Marzio]

At the same time be aware that if services are rendered from Panama "technically" you should pay 7% VAT to Panama.

 

[D0naldDuck]

marzio said:
At the same time be aware that if services are rendered from Panama "technically" you should pay 7% VAT to Panama.
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Now imagine you hire contractors from all over the world to do the actual translation (example) work in this case, so you are more or less a platform. Would you say its still considered "rendered" in Panama? Because now, the real service is executed in a third state, the one of the contractor. But since the relationship between contractor and the US LLC is B2B, not VAT should be levied here as well.

Last edited: Sep 15, 2022

 

[Sols]

D0naldDuck said:
Could you explain this statement in a bit more detail or add a few sources here?
If you imagine a non-EU company selling manually carried out services, for example translation services, (at least no physical products or electronically supplied services as defined by EU) to EU-B2C-customers, are you sure that this non-EU company needs to pay VAT in the EU?
Click to expand...

https://ec.europa.eu/taxation_custo...services/content/when-and-where-charge-vat_enhttps://beanninjas.com/blog/vat-eu/https://www.trade.gov/country-commercial-guides/eu-value-added-tax-vat

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This is the probably the answer to your question.

 

[Marzio]

@Sols doesn't this contradicts what is written here?

https://taxation-customs.ec.europa.eu/electronically-supplied-services_en

 

[D0naldDuck]

Sols said:
https://ec.europa.eu/taxation_custo...services/content/when-and-where-charge-vat_enhttps://beanninjas.com/blog/vat-eu/https://www.trade.gov/country-commercial-guides/eu-value-added-tax-vat
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Thanks, Sols! 🙂

This source states that VAT is levied when selling to Consumer in the EU (telecoms, broadcasting or electronic services):
https://ec.europa.eu/taxation_custo...services/content/when-and-where-charge-vat_en
I'm quite sure "(telecoms, broadcasting or electronic services)" refers to this rule for specific (mainly very automized) electronically supplied services:
Electronically supplied services
https://www.eurovat.com/pdf/EVR_FactSheet_OnlineServices.pdf

Not to manually carried out services.

 

[Sols]

marzio said:
@Sols doesn't this contradicts what is written here?

https://taxation-customs.ec.europa.eu/electronically-supplied-services_en
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Contradict what? On that page:

Buying electronically supplied services online if the seller is established outside the EU

When buying electronically supplied services online, VAT is due.

The seller will charge the VAT rate applicable in the country where you are established, have your permanent address or usually reside.

Example: If a private person residing in Sweden makes use of a Japanese on-line library, Swedish VAT will have to be paid on the amount the Japanese company charges.
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What is the contradiction?

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This is the probably the answer to your question.

 

[Marzio]

Sols said:
What is the contradiction?
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The contradiction or at least the lack of differentiation between products and non automated services sold by NON EU Business to EU consumers.

 

[Sols]

D0naldDuck said:
This source states that VAT is levied when selling to Consumer in the EU (telecoms, broadcasting or electronic services):
https://ec.europa.eu/taxation_custo...services/content/when-and-where-charge-vat_en
I'm quite sure "(telecoms, broadcasting or electronic services)" refers to this rule for specific (mainly very automized) electronically supplied services:
Electronically supplied services
https://www.eurovat.com/pdf/EVR_FactSheet_OnlineServices.pdf

Not to manually carried out services.
Click to expand...

If you're sure about that, then you're good to go. Hopefully all relevant EU tax authorities agree and/or never pay you attention.

marzio said:
The contradiction or at least the lack of differentiation between products and services sold by NON EU Business to EU customers.
Click to expand...

Maybe I'm missing something but the information seems to align. Non-EU businesses selling electronically provided services to EU consumers are subject to VAT.

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

 

[Marzio]

If the nature of services rendered is NOT automated then the VAT rate applicable is the seller's country.

 

[Sols]

If OP is certain that the services being rendered fall outside of the definition of electronically provided services, then VAT wouldn't apply. I missed the example of translation services earlier. That seems like a type of service which wouldn't be subject to VAT in this setup.

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

 

[D0naldDuck]

marzio said:

If the nature of services rendered is NOT automated then the VAT rate applicable is the seller's country.
Click to expand...

Sols said:
If OP is certain that the services being rendered fall outside of the definition of electronically provided services, then VAT wouldn't apply. I missed the example of translation services earlier. That seems like a type of service which wouldn't be subject to VAT in this setup.
Click to expand...

Thanks guys.

Do you see any problems regarding VAT (or other taxes) here?
"Now imagine you hire contractors from all over the world to do the actual translation (example) work in this case, so you are more or less a platform. Would you say its still considered "rendered" in Panama? Because now, the real service is executed in a third state, the one of the contractor. But since the relationship between contractor and the US LLC is B2B, not VAT should be levied here as well."

Structure like: B2C clients in EU buy translation service --- US LLC in panama sells service without VAT --- Translation service will be provided by contractors that US LLC hires, some in EU, some in other countries all over the world.

 

[Marzio]

D0naldDuck said:
Would you say its still considered "rendered" in Panama?
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Probably not because you are not rendering any manual service in Panama instead you are facilitating the service between the contractor and the end buyer.

It can be also said that since you are not rendering any manual service in Panama you could fall into the automated services category and in this case you should charge VAT but i honestly don't know.