UAE clarification of Freezone Qualifying Income
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USA LLC own 49% under my my personal name and 51% by UAE holding company........by this structure ...Can I avoid 9% corporate tax on USA LLC ?
Do 49% ownership make me passive investor ?
USA LLC own 49% under my my personal name and 51% by UAE holding company........by this structure ...Can I avoid 9% corporate tax on USA LLC ?
Do 49% ownership make me passive investor ?
Thanks for reply.....Can you suggest any setup to avoid CFC and avoid paying tax for single person USA LLC for Dubai resident ?
The UAE does not have CFC rules.
You can use a director in another country, so you can claim you are only a passive investor. But that could trigger tax in the country where the director is located.
You can use a director in another country, so you can claim you are only a passive investor. But that could trigger tax in the country where the director is located.
so what would suggest to make single person USA LLC tax free for Dubai resident ? any structure or setup
You can use Estonian director for this possibly even with zero substance. The benefit is that it's not blacklisted jurisdiction so easier on banking compliance.
Based on the treaty the US LLC will not become a tax resident in Estonia, as tax residence is based on domicile/place of incorporation, noting that there is no management and control test for the purpose of determining corporate residency in Estonian legislation.
Its only theoretically possible (based on the place of management) that the︀ company would need to register a PE or a branch, so Estonian-sourced profits attributed to︁ PE can be taxed in Estonia. Even if you do all business from Estonia with︂ US LLC, there will be no tax payable in Estonia until profits are distributed/taken out︃ from the branch/PE.
Estonian Director can show the tax office a POA to a representative︄ outside Estonia who is making key management decisions, has access to bank accounts, etc.
Because it's not treated as a resident company local cfc rules don't apply either, and no︅ need to submit public accounts for a registered PE.
Companies can have multiple PEs where︆ profits are arising. Maybe some of the company's business is done in the Bahamas, Bermuda,︇ Vanuatu, BVI or other nice places even from temporary offices rented through Airbnb.
As a︈ bonus, by investing a little in substance, it is possible to get reliable EU banking︉ and apply for a local residence permit. Substance locally can be a great way to︊ access EU banking at reasonable fees. Everything can be managed online, including branch registration (if︋ desired).
For US banking, EIN and a visit to e.g., NY is required.
feel free︌ to pm
Based on the treaty the US LLC will not become a tax resident in Estonia, as tax residence is based on domicile/place of incorporation, noting that there is no management and control test for the purpose of determining corporate residency in Estonian legislation.
Its only theoretically possible (based on the place of management) that the︀ company would need to register a PE or a branch, so Estonian-sourced profits attributed to︁ PE can be taxed in Estonia. Even if you do all business from Estonia with︂ US LLC, there will be no tax payable in Estonia until profits are distributed/taken out︃ from the branch/PE.
Estonian Director can show the tax office a POA to a representative︄ outside Estonia who is making key management decisions, has access to bank accounts, etc.
Because it's not treated as a resident company local cfc rules don't apply either, and no︅ need to submit public accounts for a registered PE.
Companies can have multiple PEs where︆ profits are arising. Maybe some of the company's business is done in the Bahamas, Bermuda,︇ Vanuatu, BVI or other nice places even from temporary offices rented through Airbnb.
As a︈ bonus, by investing a little in substance, it is possible to get reliable EU banking︉ and apply for a local residence permit. Substance locally can be a great way to︊ access EU banking at reasonable fees. Everything can be managed online, including branch registration (if︋ desired).
For US banking, EIN and a visit to e.g., NY is required.
feel free︌ to pm
It would also be possible to use an Estonian company, but then only salaries would not be taxed in Estonia, and just like in the UAE, you can't pay out an outrageously high salary.
Does the treaty really apply if the︁ LLC is not tax resident and does not have a PE in the US? I︂ would doubt that.
But then you'd have 20% (22% from︇ next year) tax in Estonia.
But if you tell the Estonian tax office that︊ the company is really managed from the UAE, wouldn't you again risk the company being︋ taxed in the UAE?
There are EMIs that accept US LLC's, but an︍ EIN would always be required.
Does the treaty really apply if the︁ LLC is not tax resident and does not have a PE in the US? I︂ would doubt that.
But then you'd have 20% (22% from︇ next year) tax in Estonia.
But if you tell the Estonian tax office that︊ the company is really managed from the UAE, wouldn't you again risk the company being︋ taxed in the UAE?
There are EMIs that accept US LLC's, but an︍ EIN would always be required.
The tax office probably said that no tax in EE applies if the director is only located in EE, but no activities take place there, i.e. it's just a nominee who doesn't really work for the LLC.
Which I guess is possible, but then where do the activities take place? If EE think the activities take place in the UAE, then you risk taxation in the UAE again (even if it's unlikely that the UAE tax authority would be︀ able to catch this).
Which I guess is possible, but then where do the activities take place? If EE think the activities take place in the UAE, then you risk taxation in the UAE again (even if it's unlikely that the UAE tax authority would be︀ able to catch this).
I will try to be more clear. The Estonian tax office confirmed that even if a US LLC, which is disregarded for tax purposes in the US, has all the activities in Estonia, it will not be considered an Estonian tax resident, but it will need to register a PE (meaning all locally sourced profits will be taxed in Estonia, but only when they are taken out of PE).
The same US LLC can also earn profits outside the︀ local PE. It works out like territorial taxation.
Based on the residency of the director︁ alone, there is no need to register a PE. So you can have US LLC︂ disregarded for tax purposes in the US with an Estonian director and UAE member.
When it comes to potential audits the director should be able to point fingers somewhere regarding︃ where profits are arising, but when you don't register the PE it will likely stay︄ under the radar. If banking is in US, then as far as I know US︅ will not provide its ‘reciprocal’ FATCA partners any information about the following types of accounts︆ held at US financial institutions:
The same US LLC can also earn profits outside the︀ local PE. It works out like territorial taxation.
Based on the residency of the director︁ alone, there is no need to register a PE. So you can have US LLC︂ disregarded for tax purposes in the US with an Estonian director and UAE member.
When it comes to potential audits the director should be able to point fingers somewhere regarding︃ where profits are arising, but when you don't register the PE it will likely stay︄ under the radar. If banking is in US, then as far as I know US︅ will not provide its ‘reciprocal’ FATCA partners any information about the following types of accounts︆ held at US financial institutions:
- Depository (i.e., cash) accounts held by entities. This includes entities︇ that are resident in the FATCA partner country, or,
- Non-cash accounts (e.g., brokerage accounts), whether︈ held by individuals or entities, even those that are resident in the FATCA partner country,︉ unless the accounts earn so-called US-source income.
Yeah, but then it's as I said:
US will say: Not taxable in the US as there is no activity in the US (clear case).
EE will say: Taxable only in EE if there is activity in EE - so where is this activity? UAE? Then no tax in EE.
UAE will say: Taxable only in UAE if there is activity in the UAE - so where is this activity? EE? Then no tax in the UAE.
So then you could get lucky because the UAE will think it's taxed in EE and EE will think it's taxed in the UAE. But if you're unlucky,︀ then you will end up with taxes either in EE or in the UAE, because︁ either tax authority may demand that you declare where the activity really takes place and︂ expect it to be taxed there. They may not talk to each other, so it︃ may just end up not being taxed anywhere, but I wouldn't consider that a compliant/legal︄ setup.
If you only want to get 200k or so out without paying taxes, then︅ it would be better to just use an EE company with a resident director. The︆ company would clearly be tax resident in EE and it would be extremely unlikely that︇ the UAE would be able to attribute a taxable UAE PE to the company. You︈ only need a good employment contract in EE. This should also help with banking.
US will say: Not taxable in the US as there is no activity in the US (clear case).
EE will say: Taxable only in EE if there is activity in EE - so where is this activity? UAE? Then no tax in EE.
UAE will say: Taxable only in UAE if there is activity in the UAE - so where is this activity? EE? Then no tax in the UAE.
So then you could get lucky because the UAE will think it's taxed in EE and EE will think it's taxed in the UAE. But if you're unlucky,︀ then you will end up with taxes either in EE or in the UAE, because︁ either tax authority may demand that you declare where the activity really takes place and︂ expect it to be taxed there. They may not talk to each other, so it︃ may just end up not being taxed anywhere, but I wouldn't consider that a compliant/legal︄ setup.
If you only want to get 200k or so out without paying taxes, then︅ it would be better to just use an EE company with a resident director. The︆ company would clearly be tax resident in EE and it would be extremely unlikely that︇ the UAE would be able to attribute a taxable UAE PE to the company. You︈ only need a good employment contract in EE. This should also help with banking.
End of the day... taxation typically follows the principle︅ of "taxation where value is created". In the case of audits, companies need to explain︆ this. Cross-border audit is quite expensive so tax authorities need to have resources and see︇ a high ROI to proceed with this.
Note that even in the Bahamas permanent establishments︈ carrying on taxable activities from within the Bahamas with an annual turnover in excess of︉ 100k must register locally.
Note that even in the Bahamas permanent establishments︈ carrying on taxable activities from within the Bahamas with an annual turnover in excess of︉ 100k must register locally.
I think it's not necessarily a bad idea, but there clearly is some risk involved. The EE tax authority could demand to see proof that the company was indeed taxed in the UAE (just as a formality to be able to close the case - but as you say, they may not check this if no PE has to be registered and there are no FATCA reports), and then you're screwed. I think the chance of success is quite high, but some risk remains, EE is not a banana republic.
Wouldn't it be better then to use a director from a country that really doesn't︀ care? E.g. a director from Bahrain or some other tax-free country where offshore companies don't︁ have to be registered.
Wouldn't it be better then to use a director from a country that really doesn't︀ care? E.g. a director from Bahrain or some other tax-free country where offshore companies don't︁ have to be registered.
How Dubai Government will know that I own single person USA LLC ?
https://www.offshorecorptalk.com/th...-know-that-i-own-single-person-usa-llc.41945/
Bahrain looks good indeed, but its︂ more difficult for banking. Zero-substance banking is getting more difficult each day. This is what︃ made UAE great.
Wherever you have a director, in theory as a passive owner you︄ might still need to prove to UAE that you are not actively involved in the︅ business (e.g., how the value is generated).
You can have this setup alongside UAE freelancer setup (which you might need anyway️ for residence). Invoicing the llc for some services not exceeding 375k AED year to remain tax free.
You can always have more directors (e.g. one in Georgia, Kosovo, Pakistan). Where is company resident?
Wherever you have a director, in theory as a passive owner you︄ might still need to prove to UAE that you are not actively involved in the︅ business (e.g., how the value is generated).
You can have this setup alongside UAE freelancer setup (which you might need anyway️ for residence). Invoicing the llc for some services not exceeding 375k AED year to remain tax free.
You can always have more directors (e.g. one in Georgia, Kosovo, Pakistan). Where is company resident?
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