US LLC + Panama resident

[D0naldDuck]

Hi guys,
I'm planning to form a US LLC and run it from Panama as a Panama resident. I'm a EU resident now and the business is a service business.

Afaik this should have the following consequences:
- Zero tax since disregarded entity by US and forgein sourced income in panama
- No VAT liability when charging Europe b2c clients, given you provide a service, not just sellling a product.
- b2c payments running through stripe to EMI or bank account of the US LLC, then distributed to panama (on individual level, not a company).

Now I'm wondering:
1. Will Panama watch this kind of income for sure as forgein sourced? Has anyone up to date information/experience on this?
2. Will there be problems with banks/emis/stripe in this structure?
3. I read they changed the requirements for getting the friendly nations visa. Would it still be sufficient to be employed by your own company to get the visa?

Would be great if you guys could share some thoughts! 🙂

 

[MiltonStone]

That would be a competition advantage‍ with Europe, if someone know if it is allowed or possible it's worth for large⁠ businesses to consider in their financial speculations.

 

[Marzio]

Be aware that running a‌ company from a territorial taxation country will make ti local sourced income.

If Panama decided‍ to not enforice this rule is another story but it doesn't mean that it wouldn't⁠ change in the future.

 

[Sols]

Since there is nothing exactly equivalent to LLC under Panamanian law,‍ check how LLC is treated there. Is it a partnership or is it a corporation?⁠

Not correct. There is/can be VAT⁣ liability. It's just not enforced much and as long as your business remains small, chances⁢ are no one will care.

Run it by a Panamanian tax adviser if you want︂ to be sure.

Panama has a history of leaving foreigners alone and not asking too many questions.

On the︄ other hand, Panama once accidentally removed its territorial tax system. It took them a few︅ months to sort out but they ultimately changed back.

Absolutely. Ever since the Panama Papers,︇ Panama is considered a high-risk jurisdiction. You will struggle to open and maintain accounts with︈ financial institutions.

 

[D0naldDuck]

Thank you guys for your fast answers.
Could you explain this statement in a⁠ bit more detail or add a few sources here?
If you imagine a non-EU company⁤ selling manually carried out services, for example translation services, (at least no physical products or⁣ electronically supplied services as defined by EU) to EU-B2C-customers, are you sure that this non-EU⁢ company needs to pay VAT in the EU?

 

[Marzio]

No because in case of services the place where the service is carried is taken‍ in consideration so in your case Panama.

 

[D0naldDuck]

Thats what I‍ thought as well actually.

 

[Marzio]

At the same time be aware that if services are rendered from Panama "technically" you‌ should pay 7% VAT to Panama.

 

[D0naldDuck]

Now imagine you hire‍ contractors from all over the world to do the actual translation (example) work in this⁠ case, so you are more or less a platform. Would you say its still considered⁤ "rendered" in Panama? Because now, the real service is executed in a third state, the⁣ one of the contractor. But since the relationship between contractor and the US LLC is⁢ B2B, not VAT should be levied here as well.

 

[Sols]

https://ec.europa.eu/taxation_custo...services/content/when-and-where-charge-vat_enhttps://beanninjas.com/blog/vat-eu/https://www.trade.gov/country-commercial-guides/eu-value-added-tax-vat

 

[Marzio]

@Sols doesn't this contradicts what is written here?

https://taxation-customs.ec.europa.eu/electronically-supplied-services_en

 

[D0naldDuck]

Thanks, Sols! 🙂

This source states that VAT‌ is levied when selling to Consumer in the EU (telecoms, broadcasting or electronic services):
https://ec.europa.eu/taxation_custo...services/content/when-and-where-charge-vat_en
I'm quite sure "(telecoms, broadcasting or electronic services)" refers to this rule for specific (mainly‍ very automized) electronically supplied services:
Electronically supplied services
https://www.eurovat.com/pdf/EVR_FactSheet_OnlineServices.pdf

Not to manually carried out services.⁠

 

[Sols]

Contradict what? On that page:

What is the contradiction?

 

[Marzio]

The contradiction or at least the‌ lack of differentiation between products and non automated services sold by NON EU Business to‍ EU consumers.

 

[Sols]

If you're sure about that,⁤ then you're good to go. Hopefully all relevant EU tax authorities agree and/or never pay⁣ you attention.

Maybe I'm︀ missing something but the information seems to align. Non-EU businesses selling electronically provided services to︁ EU consumers are subject to VAT.

 

[Marzio]

If the nature⁠ of services rendered is NOT automated then the VAT rate applicable is the seller's country.⁤

 

[Sols]

If OP is certain that the services being rendered fall outside of the definition of‌ electronically provided services, then VAT wouldn't apply. I missed the example of translation services earlier.‍ That seems like a type of service which wouldn't be subject to VAT in this⁠ setup.

 

[D0naldDuck]

Thanks guys.

Do you see any problems regarding VAT (or other taxes) here?
"Now imagine you⁣ hire contractors from all over the world to do the actual translation (example) work in⁢ this case, so you are more or less a platform. Would you say its still︀ considered "rendered" in Panama? Because now, the real service is executed in a third state,︁ the one of the contractor. But since the relationship between contractor and the US LLC︂ is B2B, not VAT should be levied here as well."

Structure like: B2C clients in︃ EU buy translation service --- US LLC in panama sells service without VAT --- Translation︄ service will be provided by contractors that US LLC hires, some in EU, some in︅ other countries all over the world.

 

[Marzio]

Probably not because you are not rendering any manual service in Panama instead you are facilitating‌ the service between the contractor and the end buyer.

It can be also said that‍ since you are not rendering any manual service in Panama you could fall into the⁠ automated services category and in this case you should charge VAT but i honestly don't⁤ know.