US LLC > Holding company structure tips and ideas

[kayaked]

Hello there!

I just moved to that tax hell called Spain (no other choice!) and looking into 100% LEGAL ways to reduce my tax burden.

I own a US LLC and a corp located in Peru. 100% legit business, and although the two companies are not legally connected, they pretty much do the same thing ”“ the LLC was first created to facilitate penetration in the US market and to have access to stable payment gateway. The Peru corp is not a member of the LLC and vice versa.

Problem is, as the LLC money flows directly into the members' pockets, paying personal taxes on that in Spain means 45-50% of my cash to corrupt politicians. I'm therefore looking into ways to creating an holding company in a 0% (or very low) tax country, that would hold both the LLC and Peru corp, so that the profits of the LLC and the dividends of the Peru corp flow into the holding company. That way, I would be able to pay myself dividends from the holding company into Spain, which means 23-26% instead of 45-50% ”“ something acceptable for me personally.

I'm aware of new rules regarding economic substance. Where would you say it would be easier/cheaper to build that substance? I'm thinking about hiring a digital marketing specialist, so I feel nominee director + marketing guy associated to the holding company could be enough? Andorra? Romania? Jersey/Guernsey? I'm sure some creative folks here may have some money-optimizing ideas for me? We are talking about 250K a year pre-taxes, which surely will increase in the future ”“ still too low for Singapore and Dubai though.

Last edited: Jan 2, 2023

 

[Sols]

kayaked said:
I just moved to that tax hell called Spain (no other choice!) and looking into 100% LEGAL ways to reduce my tax burden.
Click to expand...

There have been a lot of threads about Spain lately and they all come down to these options:

1. Pack your bags and leave.
2. Look into if Beckham's law works for you, and work with a good tax adviser/accountant to optimise deductions and other benefits.
3. Accept your new high tax overlords, and work with a good tax adviser/accountant to optimise deductions and other benefits.
4. Commit tax evasion and hope to not get caught.

In your case, I think it's going to come down to option 3. Do what you can within the confines of the Spanish law, and drastically lower your expectations on big tax savings.

kayaked said:
I own a US LLC and a corp located in Peru. 100% legit business, and although the two companies are not legally connected, they pretty much do the same thing ”“ the LLC was first created to facilitate penetration in the US market and to have access to stable payment gateway. The Peru corp is not a member of the LLC and vice versa.

Problem is, as the LLC money flows directly into the members' pockets, paying personal taxes on that in Spain means 45-50% of my cash to corrupt politicians. I'm therefore looking into ways to creating an holding company in a 0% (or very low) tax country, that would hold both the LLC and Peru corp, so that the profits of the LLC and the dividends of the Peru corp flow into the holding company. That way, I would be able to pay myself dividends from the holding company into Spain, which means 23-26% instead of 45-50% ”“ something acceptable for me personally.

I'm aware of new rules regarding economic substance. Where would you say it would be easier/cheaper to build that substance? I'm thinking about hiring a digital marketing specialist, so I feel nominee director + marketing guy associated to the holding company could be enough? Andorra? Romania? Jersey/Guernsey? I'm sure some creative folks here may have some money-optimizing ideas for me? We are talking about 250K a year pre-taxes, which surely will increase in the future ”“ still too low for Singapore and Dubai though.
Click to expand...

Both the LLC and the Peruvian companies are now or will soon be tax resident in Spain, which means they have to pay taxes in Spain like Spanish companies. However, if you have some team/operations in US and Peru, and your role is as a passive investor only, you might not run into any issues there.

Consolidating ownership into a holding company may be beneficial and allow you to defer taxes. But it's very, very easy to trigger Spanish tax residence. Even when non-resident, Spain is trigger happy with calling companies partly tax resident in Spain and attribute as much of the company's income as possible to Spain. So while substance is important, I am aware of at least one case where the Hacienda went after a Spanish resident who co-owned a company. They claimed the company had a permanent establishment in Spain and all work done by that person created taxable income in Spain.

Of course, each situation is a little different with its own details and nuances. That's why it's so important to speak with a lawyer/tax adviser.

Maybe an ETVE could work in your situation?

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This is the probably the answer to your question.

 

[CyprusLawyer101]

A Cyprus company, would at least render the dividend income exempted from taxation and in the worsed case scenario have the LLC income taxable at 12.5% corporate tax. Subsequent dividend distribution would be subject to nil% withholding tax in Cyprus. If you want to talk about the potential of setting up a Cyprus company as a holding company for your current operation , please do let me know.

 

[JohnnyDoe]

kayaked said:
Hello there!

I just moved to that tax hell called Spain (no other choice!) and looking into 100% LEGAL ways to reduce my tax burden.

I own a US LLC and a corp located in Peru. 100% legit business, and although the two companies are not legally connected, they pretty much do the same thing ”“ the LLC was first created to facilitate penetration in the US market and to have access to stable payment gateway. The Peru corp is not a member of the LLC and vice versa.

Problem is, as the LLC money flows directly into the members' pockets, paying personal taxes on that in Spain means 45-50% of my cash to corrupt politicians. I'm therefore looking into ways to creating an holding company in a 0% (or very low) tax country, that would hold both the LLC and Peru corp, so that the profits of the LLC and the dividends of the Peru corp flow into the holding company. That way, I would be able to pay myself dividends from the holding company into Spain, which means 23-26% instead of 45-50% ”“ something acceptable for me personally.

I'm aware of new rules regarding economic substance. Where would you say it would be easier/cheaper to build that substance? I'm thinking about hiring a digital marketing specialist, so I feel nominee director + marketing guy associated to the holding company could be enough? Andorra? Romania? Jersey/Guernsey? I'm sure some creative folks here may have some money-optimizing ideas for me? We are talking about 250K a year pre-taxes, which surely will increase in the future ”“ still too low for Singapore and Dubai though.
Click to expand...

You are f”¦ed dead:-!

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@JohnnyDoe ”“ Your #1 Source for Guidance in Different Offshore Fields​

 

[kayaked]

Sols said:
There have been a lot of threads about Spain lately and they all come down to these options:

1. Pack your bags and leave.
2. Look into if Beckham's law works for you, and work with a good tax adviser/accountant to optimise deductions and other benefits.
3. Accept your new high tax overlords, and work with a good tax adviser/accountant to optimise deductions and other benefits.
4. Commit tax evasion and hope to not get caught.

In your case, I think it's going to come down to option 3. Do what you can within the confines of the Spanish law, and drastically lower your expectations on big tax savings.
Click to expand...

Thanks! That's also my conclusion so far, unless I can set something up with real economic substance that saves me more money than I'd spend for the actual set up. Setting up a digital marketing team could even boost revenue, and with that boost, cover the setup fixed costs.

Sols said:
Both the LLC and the Peruvian companies are now or will soon be tax resident in Spain, which means they have to pay taxes in Spain like Spanish companies. However, if you have some team/operations in US and Peru, and your role is as a passive investor only, you might not run into any issues there.
Click to expand...

The Peru corp economic substance can easily be demonstrated. We have 10 employees, credits, physical offices and the service is provided in Peru. For the LLC, after some researches, it does feel like because of the tax treaty between the US and Spain and what actually happens in the real world, they don't treat it as a Spanish corp even if work is performed from Spain. With the holding company idea, the sales and marketing tasks would definitely be performed outside of Spain.

Sols said:
Consolidating ownership into a holding company may be beneficial and allow you to defer taxes. But it's very, very easy to trigger Spanish tax residence. Even when non-resident, Spain is trigger happy with calling companies partly tax resident in Spain and attribute as much of the company's income as possible to Spain. So while substance is important, I am aware of at least one case where the Hacienda went after a Spanish resident who co-owned a company. They claimed the company had a permanent establishment in Spain and all work done by that person created taxable income in Spain.

Of course, each situation is a little different with its own details and nuances. That's why it's so important to speak with a lawyer/tax adviser.

Maybe an ETVE could work in your situation?
Click to expand...

Thanks. I'll check ETVE in more details.

CyprusLawyer101 said:
A Cyprus company, would at least render the dividend income exempted from taxation and in the worsed case scenario have the LLC income taxable at 12.5% corporate tax. Subsequent dividend distribution would be subject to nil% withholding tax in Cyprus. If you want to talk about the potential of setting up a Cyprus company as a holding company for your current operation , please do let me know.
Click to expand...

How does Cyprus look like in terms of economic substance? What would be a ballpark estimation of fixed costs per year for offices, 1 director, 1 employee and admin/public fees? I've read banking can be a tad challenging.

 

[CyprusLawyer101]

kayaked said:
Thanks! That's also my conclusion so far, unless I can set something up with real economic substance that saves me more money than I'd spend for the actual set up. Setting up a digital marketing team could even boost revenue, and with that boost, cover the setup fixed costs.



The Peru corp economic substance can easily be demonstrated. We have 10 employees, credits, physical offices and the service is provided in Peru. For the LLC, after some researches, it does feel like because of the tax treaty between the US and Spain and what actually happens in the real world, they don't treat it as a Spanish corp even if work is performed from Spain. With the holding company idea, the sales and marketing tasks would definitely be performed outside of Spain.



Thanks. I'll check ETVE in more details.



How does Cyprus look like in terms of economic substance? What would be a ballpark estimation of fixed costs per year for offices, 1 director, 1 employee and admin/public fees? I've read banking can be a tad challenging.
Click to expand...

The level of substance and overal costs of maintainance depends on the actual operation. I can PM you to discuss if interested.

 

[kayaked]

CyprusLawyer101 said:
The level of substance and overal costs of maintainance depends on the actual operation. I can PM you to discuss if interested.
Click to expand...

Please do, I'm interested in knowing how things would look like in Cyprus to analyze if it's actually worth the hassle. Thanks