UAE FZ + USA LLC, best way to structure

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jazzybell

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Aug 8, 2022
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I am trying to find the best way to set up the following structure for my IT service business: the US entity (LLC) to serve as a client-facing company (e.g. be a sales agent or a money processor) in a combination with FZCO that will accumulate most of the profits.
Have somebody had any experiece with such a set-up? What could be the pitfalls?

How to prove to the IRS that the company is an agent or maybe it is better to make FZCO own the US entity but to achieve the passthrough somehow? Would appreciate your recommendations!
 
Definitely doable,︀ don't complicate it by making FZCO owns your US entity, I would structure a management︁ / consulting company in Dubai and establish traffic.
 
Thank you for your response!
I’m just wondering how do you suppose to minimize the⁠ taxable income of US LLC?
I suppose if you use your US LLC as a⁤ payment processor and get a 1-5% fee, you can get in trouble with IRS, they⁣ probably will ask a lot of questions if you send 95% of profits to FZCO.⁢ Otherwise, you have to pay US corporate tax + can you advise how to distribute︀ dividends as US and UAE do not have double taxation agreements? Isn’t it a case︁ of withholding tax applied by the US for UAE residents?
 
WTF are you complicating things with a Dubai company when you could register yourself as‌ a private entrepreneur in Ukraine and pay 5% tax on your LLC profits?
 
Since you are resident and citizen as well? of Ukraine, the IRS will not ask︁ questions about you sending
"profits" out since the LLC is a disregarded entity for US︂ tax (if you perform consulting or programming work from outside US).
 
That sounds like the best solution if he wants to continue to⁠ live there.
 
First of all, there is a limitation on your turnover as PE⁠ in Ukraine (not income), now it's around $175K which doesn't work for me if you⁤ exceed this limit you are no longer 5%.
Secondly, because of war, there are some⁣ banks' limitations on spending, for sure they should keep economics alive but it's not safe⁢ for doing business

I don't have

If I got your point right the main point is to keep LLC as︁ a single member and have pass-through taxation to pay taxes in Ukraine.
What if you︂ pass through to UAE as a tax resident of UAE? There is no DTT between︃ US and UAE, is it a case to apply a withholding tax to you by︄ the US?
 
No, the LLC is not being︂ considered as a separate entity by the US, it is disregarded. It is basically just︃ you and you need to pay all its income tax where you live.
 
Ok you pay 5% on your turnover as private entrepreneur⁣ up to 175K.

What if the turnover is at the LLC level and you pay⁢ 5% on LLC profits? Are you still over 175K?

Second thing, how Ukraine sees US︀ LLC?

Is the US LLC seens as a transparent entity or opaque?

If Ukraine sees︁ US LLC as an opaque entity you will pay 5% only up to the profits︂ you decide to pay to yourself and in this case up to 175K.

The remaning︃ you couldretain in US LLC.

Also, you don't have to transfer 175K to Ukraine, you︄ just transfer enough money to pay Ukraine taxes which is 5% of whatever sum you︅ decide to declare.

If instead Ukraine sees the US LLC as a transparent entity you︆ can't retain any earning in your LLC and declare all the LLC profits so you︇ will need a different solution but in any case you will not be able to︈ run a UAE company fro Ukraine.

You will need either to move to UAE or︉ hire at least a director there + renting office space.
 
Do you think it's‍ possible? If you pass taxes to Ukraine, I suppose you have to pay Dividend tax⁠ or effective corporate tax which is 18% instead of PE 5%.

Lately, CFС was announced and this year⁣ companies starting to report. If there is no information exchange between Ukraine and US right⁢ now, it's just a matter of time.

Can you explain what do you︃ mean by opaque vs transparent and how to know check how Ukraine sees your US︄ LLC?
 
Hello Marzio, i saw that︆ you are expert in set up a llc in usa, i also have an ecommerce︇ business in UAE and resident in uae as well, i need to set up a︈ usa llc to use it as a gateway provider since its hard to find a︉ gateway rovider in Uae who works properly, in the case i set up usa llc︊ should i pay corporate taxes in all profit which usa company earn or i can︋ decide to transfer them to a business uae account and avoid paying usa taxes
 
US LLC can be taxed as a pass-through entity (taxes are paid as if the‌ owner of the LLC had sent the invoice), or as a corporation (LLC is taxed‍ as an entity of its own).
Best option for you is probably to make the⁠ US LLC transparent, then you pay tax where the owner is.
You can use the⁤ UAE company as the owner of the LLC, then - for the US tax authorities⁣ - it will be the same as if you had sent the invoice from the⁢ UAE company. But there is something called Effectively Connected Income (ECI), which is money you︀ make from "doing business in the US". Usually, when you don't work from US soil,︁ it is not ECI. But some people say there could be some hypothetical risk, especially︂ if you sometimes travel to the US etc.
If there is ECI, then there is︃ US tax. And if there is ECI and the LLC is owned by a company︄ (instead of an individual person), then there is something called branch profit tax on top︅ of it.
But there probably won't be any ECI anyway. I'm still mentioning it just︆ in case.
That's the US side.

Then there is the UAE side - no tax︇ (unless something changes), should be good.

But then there is the Ukrainian side. If you︈ were living in a high-tax Western country, your US or UAE company would still have︉ to pay tax where you are. You cannot avoid taxes by simply registering a company︊ in a country without taxes, it's not that simple.
I would assume it's the same︋ in Ukraine - in theory. But probably enforcement is very lax. They have other stuff︌ on there mind, and if you should get caught (unlikely), you could probably just bribe︍ them to let you off the hook?
So in that case, why bother with a︎ UAE company? Just set up a US LLC with yourself as the owner? You can️ choose a state where your identity doesn't appear on the internet (Wyoming or New Mexico,‌ for example, I think).
Should be good enough?
 
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