Best country for with territorial tax only and a double taxation agreement with the IRS - for Royalties Accrued in USA.

[SmartestSmarty]

Hello all,

Essentially I would like to structure a company that receives Royalties from the US, so it has to have a double taxation agreement with the IRS so there is no WHT in the USA.
Then when these royalties are received, as they are from outside the territory, they are again not taxed.

Does anyone know which country would be best for this set up?

 

[luap]

Georgia should work

 

[SmartestSmarty]

Thank you, I was researching a little‌ on this, and wasn’t sure if the foreign sourced income exemption was for tax residents‍ as opposed to companies registered there.

 

[Marzio]

Georgia is the only country that satisfy your needs but be aware that territorial taxation in‌ Georgia is ONLY for natural persons, non companies.

The best way to structure this would‍ be to be the single member of a US LLC with tax residency in Georgia.⁠

The only downside is that you have to become Georgian tax resident.

 

[SmartestSmarty]

Thank you, would the US LLC not then be liable for tax⁣ on the royalties, before they are distributed to myself as a Georgian tax resident?

 

[Marzio]

Royalties generally are considered passive income.

What kind of royalties are you‍ generating?

For example lets say you are a Youtuber and Google pays you royalties.

While it's true that royalties are considered passive income it is also true that those royalties⁠ are the result of scripting, shooting and editing work.

If you do any work in⁤ Georgia your US LLC becomes tax resident in Georgia and taxed at 15% (upon distribution).⁣

 

[SmartestSmarty]

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[Marzio]

I already answered you.

US LLC will be liable for tax in Georgia (not US)‌ if you perform any work in Georgia to geneate those royalties.

 

[SmartestSmarty]

Hi, they’re royalties from Amazon.com and Amazon.co.uk on historic work, so no new work will‌ be taking place.

However, I’m not sure if I would move to Georgia to become‍ tax resident. How many days per year are required? If it’s more than half, I’m⁠ not sure I would enjoy staying there, along with a family and English potentially is⁤ a very minimally spoken language. I’m not sure it’s ideal for me.

I was considering⁣ this option if it were possible to set up a company but not reside there.⁢

I looked at Hong Kong as well, which seemed like a good option, only to︀ find no double taxation agreement with the US.

So essentially, what I’m trying to achieve︁ is this:

Royalty income from US and UK with no withholding tax.
Paid to a︂ company that doesn’t tax income outside its territory.
> then distribute the profit to myself︃ in a country with low or no dividend tax.

I have considered living in Romania︄ and wonder how that could fit into this equation.

This is new to me.︇ I did not know a company could be taxed in a different country to its︈ incorporation. Glad to learn something new. Is this generally for US LLCs, or this is︉ quite common in many countries?

 

[Marzio]

183+ or you‌ take the HNWI route which doesn't require any minimum stay BUT one of the new‍ criteria is ownership of assets in Georgia with a value of at least 500k USD.⁠ I'm not sure you want to invest 500K in Georgia.

The only option is⁣ Georgia.

If you don't like styaing 183+ days or owning $500K asset in Georgia you'll⁢ need to form a company on which you'll pay corporate income taxes and personal taxes︀ on dividends distribution.

Romania has 10% US WHT then you'll︂ have to pay corporate income taxes in Romania + personal taxes on dividends distribution.

You'll end up paying 19% if your royalties income is under $500K / year.

A better︃ option both from taxation and lifestyle perspective would be to move to Portugal under NHR︄ where foreign income isn't taxed.

You'll end up paying 10% because there's 10% US WHT.︅

The real problem is that i don't know how easy would be for you to︆ move to Portugal, if you have a EU passport it's the second best option after︇ Georgia.

 

[SmartestSmarty]

Thank you, I do not have an EU passport but believe I︅ can enter Portugal on digital nomad visa and then apply for the NHR scheme.

How about the Cypriot IPBox scheme which brings tax down to 2.5% I believe there is︆ no WHT in the US under the double taxation agreement.

 

[Marzio]

You can't access the IPBox even if KDP could be seen as "non obvious, useful or‌ novel rights" because you don't have any R&D expenditure in Cyprus.

https://ipbox.cy/
The best solution‍ is personal tax residency in Georgia.

Second best is NHR

 

[SmartestSmarty]

I see, and as a Georgian resident, the WHT would be 0% but I⁠ would require a limited company to offer protection. Based on your comment of the beneficial⁤ owner being the determining factor of WHT under the treaties, how would I slot in⁣ the company in the middle? I can’t be based in Georgia as it would attract⁢ 15% tax, where could it be based?

If it is a US LLC there would︀ be no withholding tax I assume, and then I distribute the profit from there to︁ myself in Georgia?

 

[Marzio]

US LLC will give you all the protection you need.

A single member US LLC is‌ treated as a disregarded entity in US, this means that all income will flow to‍ the member and will be taxed where member is resident.

There would be no WHT not because it's a US LLC but because you are tax⁤ resident in Georgia.

 

[SmartestSmarty]

Ok thank you for this, it makes sense.

If I positioned myself in this way,‌ would this be correct:

Establish a company in Hong Kong, input the beneficial owner on‍ Amazon's/IRS tax interview questionnaire as Romania.

Incur 10% WHT, no corp tax in Hong Kong,⁠ and then distribute profits from the company by way of dividend and pay 8% dividend⁤ tax in Romania?
Major issue with this is 10% WHT is off the revenue (before⁣ advertising etc...) rather than profit.

Not the most tax effective, but just trying to find⁢ a way if I do move to Romania to limit the tax.

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Alternatively register︀ the company in Romania, 10%WHT in US, pay 1-3% corp tax on revenue in Romania,︁ but I believe the dividends are then untaxed. Is this correct?

 

[Mr Gus]

If you want to got to Romania just go with the micro company thing︂ if you revenue is low enough, you can get tax credit for tax paid abroad︃ as well so that may vanish your corporate tax burden in Romania completely. Dividends are︄ taxed at 8% since 2023.

 

[SmartestSmarty]

What about a Swiss company?
Thank you.

Considering the WHT is 10% and the tax on revenue will likely be⁣ 3% without any employees of the company, how likely is it that the tax credit⁢ will be 10% and equal a 3% offset and 7% refund?

Or is it only︀ likely to eliminate the 3% tax and the remainder carry over to to future tax︁ years.

Also apparently there is no dividend tax in Romania if one owns more than︂ 10% share of the Romanian company for at least 1 year. Is my understanding correct?︃

 

[Marzio]

So we started with

when reality is

Please stop the fantasy setup game.

If you move to Romania, forming any offshore company (Hong Kong, Switzerland, Singapore)⁠ and managing it from Romania it will make it tax resident in Romania.

If you⁤ move to Romania you have to use a romanian company.

 

[SmartestSmarty]

Thank you, that’s something⁤ I learned today. I did not know that managing a company from another made it⁣ a tax resident in that country. I thought a company was a separate entity and⁢ regardless of who managed it and where they were, it was an entity of said︀ country.

My initial enquiry was not based on my location hence why I asked where︁ would be best ‘for a company’. It quickly became apparent that foreign income untaxed was︂ for a resident of Georgia not a Georgian company.

As I said, I’ve learnt something︃ new, and all I have tried to achieve here is efficiency, not a ‘fantasy set︄ up game’. I also believe most people on this forum are here for the same︅ reasons.

Thanks for your input.

I’m considering the Romanian micro company structure. Do you happen to know if dividend︉ tax is disregarded for someone that owns at least 10% of company. Is this correct?︊

 

[LimitlessPossibilities]

If you tell Amazon that you are an LLC disregarded⁣ entity, they will ask for your ITIN.

https://www.taxesforexpats.com/arti...azon-resellers-their-u-s-tax-obligations.html
If you use a non-US company, you⁢ will incur WHT tax.

The best option to pay less taxes on amazon is to︀ be an NHR Portugal.