Best country of incorporation for a SaaS business with partners

[OffshorePhantom]

Don said:
Foreign-owned LLC that is owned by only one member is that it would be treated as a branch of the foreign parent company for U.S. tax purposes. Under U.S. tax laws, the U.S. imposes a 30% branch profits tax on a foreign corporation's U.S. branch earnings and profits that are effectively connected with a U.S. business, to the extent that the profits are not reinvested into branch assets. A U.S. branch would be taxable at the federal and state level. At the federal level, the branch profits tax at the rate of 30% is levied on the effectively connected earnings and profits of the U.S. branch.
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I have specified in my answer that you should not be engaged in a US trade or business, namely having a US facility or employees or have FDAP income and in this case, the taxes transparently are passed on to the US LLC members since the LLC is tax transparent.
The setup with a single member disregarded US LLC is used by a lot of foreigners that do not have direct trade or business in the USA for example they use it to do freelancer activities without being to the USA.

 

[Marzio]

Don said:
profits that are effectively connected
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In my experience if there's no office, no dependent agent, no staff and no work is rendered in U.S. those profits can't be considerd ECI.

OffshorePhantom said:
or have FDAP income
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Having FDAP income doesn't mean you are engaged in a US trade or business.

It only means that the income is US source income.

 

[OffshorePhantom]

Marzio said:
Having FDAP income doesn't mean you are engaged in a US trade or business.

It only means that the income is US source income.
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Yes, in fact I put an OR in my sentence 🙂

FDAP income for example is royalties, dividends etc and it is subject to WTH tax so both the US source income connected with an effective trade or business in the USA but also FDAP income are subject to taxation in USA.

 

[Marzio]

I found this definition that could be helpful "FDAP income consists primarily of passive investment income, including interest, dividends, rents, royalties, etc. In contrast, ECI generally consists of income from active trade or business activities."

https://www.irs.gov/pub/int_practice_units/RPWCUP_081_02.pdf

 

[juul2]

Delaware C Corp
Each of your shares owned via Cyprus company

5% withholding tax on dividends for C corp, no Cyprus CIT, 2.65% GESY, no capital gains

Depending on your aims for the business, the 21% US CIT can be worth it for ease of access to VCs and capital