Hello!
I have a friend... He wants to set up a business in the United States. More or less, replicate a business he has in Europe. But this new one, would only be focused on US customers. It would be a Dropshipping ecommerce. Not with Amazon, but with a relatively new company that provides Dropshipping service in US.
The business will be set up with a partner. Both tax residents in Spain and with active business here. Although technically he could do the business with a Spanish company, he would like to use a US LLC type company. Why?
- For access to local banks and payment gateways, which he cannot access from outside the USA. This is important. He needs to work with PSPs like NMI Payments or Authorize-net.
- For reputation issues
- For simpler accounting
- For lower maintenance costs
- Because if the company only buys in the USA and only sells in the USA, it makes sense for the company to be from the USA.
He will not have an office or employees in the USA. The business would be managed primarily by a team of freelancers/contractors from LATAM. The company would not qualify as ETBUS.
It will be my first company in the USA.
He has consulted 2 consultants with experience in Spain and LLCs in the USA, and both have stated the following:
Being a non-resident LLC, the company will not pay taxes in the USA, but he will have to pay them in his place of residence. Not as dividends, but as income. So the % will be high. A tax hell. You know.
And when he makes his annual declaration and they see that he has declared income from a pass-through company, they will almost certainly open an inspection to check/analyze the origin of that income. Something quite uncomfortable. A pain. And they will take a close look at the accounting, especially the part of deducted expenses. And for that, the tax regulations he has to follow are the Spanish ones. And from what he understand, the US one is a bit more flexible and favorable.
You haven' t done anything wrong, but by declaring this kind of income, you already look suspicious of something...
So what good is the LLC for him? So it loses a little bit of the benefits, in his case, of course.
Well, then he hears some proposals...
He only have the obligation to declare the income, if there is income. If there is no income, no. Obvious. So the idea is that there is no income, so there is no obligation to declare anything. How? using the credit card with some cautions...
Or if the benefits are growing, then support yourself with some structure in Estonia.
This is all very appealing to him, but it sounds crazy to him.... And it coincides with a trend of Spanish influencers advocating to create US LLCs and leave them at 0 on December 31.
It smells bad to him.
He looks for a second consultant, and he confirms him that this is bulls**t, and that he run a lot of risk and there are many probabilities to do things wrong and get caught. He does not recommend it at all.
He recommends him to create an LLC but avoid the usual states like: Delaware, Wyoming or New Mexico and use other states with better reputation. And have the unique member be a PIF in Panama. This structure seems to make more sense than the previous one, but he still have doubts. And doing some research, he came across this article: Panama Private Interest Foundation & IRS: Is PPIF Taxed in US? and from what he reads, it seems that there may be issues.
Ugh.
So?
He knows what he really should do is change his tax residence. He knows. But it's not easy. Young kids, school, business with substance there... So in the short term it's complicated. But he is seriously considering moving in 1-2 years, to some country in the Caribbean or South America. But that is another story.
His goal now is to open a company in the USA as soon as possible to start invoicing. The revenue expected for first or second year is around $150-250K. See if he can take advantage of some configuration or structure to optimize, now that he is starting. And above all, to be able to sleep peacefully, living where he lives.
What do you think or recommend him?
I have a friend... He wants to set up a business in the United States. More or less, replicate a business he has in Europe. But this new one, would only be focused on US customers. It would be a Dropshipping ecommerce. Not with Amazon, but with a relatively new company that provides Dropshipping service in US.
The business will be set up with a partner. Both tax residents in Spain and with active business here. Although technically he could do the business with a Spanish company, he would like to use a US LLC type company. Why?
- For access to local banks and payment gateways, which he cannot access from outside the USA. This is important. He needs to work with PSPs like NMI Payments or Authorize-net.
- For reputation issues
- For simpler accounting
- For lower maintenance costs
- Because if the company only buys in the USA and only sells in the USA, it makes sense for the company to be from the USA.
He will not have an office or employees in the USA. The business would be managed primarily by a team of freelancers/contractors from LATAM. The company would not qualify as ETBUS.
It will be my first company in the USA.
He has consulted 2 consultants with experience in Spain and LLCs in the USA, and both have stated the following:
Being a non-resident LLC, the company will not pay taxes in the USA, but he will have to pay them in his place of residence. Not as dividends, but as income. So the % will be high. A tax hell. You know.
And when he makes his annual declaration and they see that he has declared income from a pass-through company, they will almost certainly open an inspection to check/analyze the origin of that income. Something quite uncomfortable. A pain. And they will take a close look at the accounting, especially the part of deducted expenses. And for that, the tax regulations he has to follow are the Spanish ones. And from what he understand, the US one is a bit more flexible and favorable.
You haven' t done anything wrong, but by declaring this kind of income, you already look suspicious of something...
So what good is the LLC for him? So it loses a little bit of the benefits, in his case, of course.
Well, then he hears some proposals...
He only have the obligation to declare the income, if there is income. If there is no income, no. Obvious. So the idea is that there is no income, so there is no obligation to declare anything. How? using the credit card with some cautions...
Or if the benefits are growing, then support yourself with some structure in Estonia.
This is all very appealing to him, but it sounds crazy to him.... And it coincides with a trend of Spanish influencers advocating to create US LLCs and leave them at 0 on December 31.
It smells bad to him.
He looks for a second consultant, and he confirms him that this is bulls**t, and that he run a lot of risk and there are many probabilities to do things wrong and get caught. He does not recommend it at all.
He recommends him to create an LLC but avoid the usual states like: Delaware, Wyoming or New Mexico and use other states with better reputation. And have the unique member be a PIF in Panama. This structure seems to make more sense than the previous one, but he still have doubts. And doing some research, he came across this article: Panama Private Interest Foundation & IRS: Is PPIF Taxed in US? and from what he reads, it seems that there may be issues.
Ugh.
So?
He knows what he really should do is change his tax residence. He knows. But it's not easy. Young kids, school, business with substance there... So in the short term it's complicated. But he is seriously considering moving in 1-2 years, to some country in the Caribbean or South America. But that is another story.
His goal now is to open a company in the USA as soon as possible to start invoicing. The revenue expected for first or second year is around $150-250K. See if he can take advantage of some configuration or structure to optimize, now that he is starting. And above all, to be able to sleep peacefully, living where he lives.
What do you think or recommend him?