One of the biggest dilemmas for persons looking to set up a Tax Free Offshore Company is where to Incorporate.
Whilst it’s usually quicker and easier to simply form an International Business Company, for some persons, its not feasible to have a Tax Haven IBC owning/operating their business (eg on account of opposition or reluctance to do business on the part of suppliers or clients). If you’re looking to set up a tax free Offshore Company to own/operate an active trading business but don’t want your “face” corporation to look or smell tainted or suspicious (in addition to considering setting up a Hong Kong or Singapore Company?) it would pay to take a take a close look at the American LLC/IBC Combo option.
How it works is the LLC acts as your frontman giving you commercial credibility (ie it has the appearance and smell of a respected International Trading entity whereas, unbeknowns to all but a select few, it’s actually a Tax free Company).
Howso?
An LLC Is treated by the US Tax Authorities (“IRS”) as a Partnership ie as a flow through entity. Provided all the LLC”s pre-tax profit is distributed to the member (ie shareholder) of the LLC (and provided there is only one member and that member is not a US tax resident or a US controlled Foreign Corporation) the LLC should pay no tax in the US.
To attain that result all money will need to be paid from the LLC to the LLC’s member (ie shareholder) by taxyear’s end; hence you need the 2nd company (ie a tax free IBC) to act as member for the structure to work effectively (see below).
If you want to avoid having to pay tax in the US or at home on the LLC’s earnings then you’ll want to set up an IBC to act as the member of the LLC. Where to incorporate your IBC depends largely on your place of tax residence. If you want to minimise the chances of your IBC being taxed where you live you will want to incorporate your IBC in a country which has NOT signed a TIEA (ie Tax Information Exchange Agreement) with your home state.
Assuming you appoint yourself as an arm’s length contractor or consultant to the IBC or LLC you should only end up paying tax at home on money you draw down from the Offshore Company by way of wages or consulting fees (less allowable deductions of which a smart Tax Accountant should be able to find many given you’d hold self employed status). The rest of the IBC’s earnings could be held and or reinvested Offshore potentially tax free.
(and you needn’t have any privacy concerns over setting up an American LLC as most LLC jurisdictions do not require you to file or even declare beneficial owners details).
Local laws can have an impact. Hence you should seek local legal and tax advice before committing to act on such a plan.
