Hi all after some research, I’m considering going with this company for establishing a Singapore based company (where i live) with a US LLC as a passthrough entity for my small company which sells software globally. I am a US citizen so the passthrough will help me not have to pay taxes both as an individual and a company from the US. If anyone has experience with Tax USA, I’d love to hear any feedback before going with them. I realize Singapore taxes on global company income, but I have to stick with a Singapore based company for the time being for other reasons. In the future I may switch to one of the countries that don’t tax globally such as Seychelles, Hong Kong or BVI.
Specifically I’m looking at this package, but with an added cost for Singapore incorporation.
Thank you for any feedback on TAX USA, or other advice.
Let me just start off by saying that I don’t have any experience with Tax USA specifically, however that package seems extremely overpriced.
Let me start off by asking you some questions.
What’s your overall goal with this structure?
How long are you planning on sticking around in Singapore?
How come you need the US LLC and don’t just do the easy thing and incorporate where you live (Singapore)? Is it to make it easier for US clients? Is it for privacy reasons? Is it to access US banking or services (Stripe, etc)?
In which state are you forming the LLC and why?
How come you are using a US firm for incorporating in Singapore? My guess is you’d find much better (and more affordable) advice from a local partner—especially since you’re living there yourself.
How are you planning to pay yourself (you and your partner)? Salaries? Dividends?
A few observations:
Setting up a generic pass-through LLC in the US can be done for $200-300 in a day or so (consider New Mexico or Wyoming).
As a US citizen with a social security number it’s quick, easy, and free to get an EIN for your LLC online. It takes literally 5 minutes.
With an EIN in hand it’s quick, easy, and free to open a US bank account (see Mercury from this thread).
It’s probably a lot cheaper, easier and you’ll get more qualified advice by working with a local firm in Singapore for that piece of the puzzle. Getting banking set up for your Singaporean company as a Singaporean resident using a Singaporean service provider should be trivial and not costly. Or you can even stick with a Transferwise for Business account if you don’t need the company to hold SGD.
The LLC might not be needed at all unless you have a particular reason for it (see my question above).
If you haven’t already, you should check how Singapore treats a passthrough US LLC—not all countries recognize their passthrough status.
Thanks for your thoughtful reply. Some answers to your questions:
What’s your overall goal with this structure?
Primarily it is to avoid double US tax during formulative years for the company. As a US citizen of course I’m taxed worldwide. See my answer to your 3rd question for more detail. I need to incorporate in Singapore for gov’t grant and preferential treatment etc. Later I may consider setting up in another country and shifting ownership of the US LLC to that country. Because Singapore is taxed globally on software sales.
How long are you planning on sticking around in Singapore?
I have been living and working here for 9 years, and intend to stay. Wife is a citizen and I’ve applied for Permanent Residence.
How come you need the US LLC and don’t just do the easy thing and incorporate where you live (Singapore)? Is it to make it easier for US clients? Is it for privacy reasons? Is it to access US banking or services (Stripe, etc)?
Being a US Citizen I’m taxed globally. I don’t want to be taxed both on both personal income (which necessarily includes company income for foreign controlled companies), and company income. I expect the company to not make much in the first 2 even 3 years… Probably not more than the current 103 k that can currently be excluded via the LLC passthrough. Hence with the structure I plan to only be taxed once during the form stage of the company. At least that is my understanding of what this structure can offer. Let me know if you feel it won’t do this for me.
In which state are you forming the LLC and why?
Currently considering WY, DE, NM, FLORIDA, but I’m not really sure which will be best for my needs.
I really only intend on using the passthrough to avoid double tax as a US Citizen. So i would probably go with the state which has the easiest use, and least admin costs, but I’m not sure which that would be. I understand if i go with this package i’m considering they’ll discuss these options with me.
How come you are using a US firm for incorporating in Singapore? My guess is you’d find much better (and more affordable) advice from a local partner—especially since you’re living there yourself.
I would have to agree here, but I like the idea of a one stop place for managing all of this. I’ve spoken with several local secretarial services for ACRA accountability here in Singapore and they range from around 350 to 1k for yearly admin costs. I will also need to pay for an accountant to deal with the Singapore corporate tax which will be an additional 1k to 1.5k per year. Some have combined service to take care of both. I don’t believe USATAX will take care of my Singapore corporate tax filing. I believe I’ll need to do this myself with my own accountant here, but i’ll double check with them.
How are you planning to pay yourself (you and your partner)? Salaries? Dividends?
I would plan to pay myself a salary for a short period and then stop in terms of Singapore salary. My partner would take dividends from the start, and eventually we both take just dividends. But I am not sure which is the best option. I know I need a salary but only short term in Singapore for other purposes…I don’t think I have researched this bit enough to know which option will be the best long term yet so thanks for the question.
This is a very good tip about checking how Singapore treats passthrough LLC. I’m not actually sure, and am trying to research it now…, but not finding much information. What is the general effect if the country doesn’t recognize the passthrough? Currently I am expecting to have to pay with this structure, my use personal tax (as passthrough to llc),and singapore corporate tax, but I am just learning about of this now so let me know if you know I’m wrong here.
Another option I’m starting to consider is to just skip Singapore and incorporate in the US. I can still stay here in Singapore on a dependant pass through my wife. There are other benefits locally to running the business as a Singapore company such as free office space grants and other such perks. Weighing with the complication of setting up here though due to my US tax obligations, I’m not really sure what is my best option yet.
From a tax perspective here it’s no difference if the US LLC sells the product or the Singaporean company does.
Whatever the profits of the US LLC is, it’s just passed over to the Singaporean company as income for that year. The US LCC is tax neutral—that’s the whole point of a pass-through entity.
At the end of the day, you’re still a US citizen with direct ownership of a foreign corporation. But that isn’t necessarily such a bad thing.
I assume that what you’re afraid of is that you will be taxed on profits that remain in the company because you’re a US citizen (so-called Subpart F income for a CFC—controlled foreign income). But I don’t think that would apply in your situation.
First of all, if your business partner isn’t a US citizen or green card holder (you don’t specify), and you own 50% each, then it’s not a CFC affected by these rules. The rules only apply if US persons own more than 50% of the company. 50% isn’t more than 50%, so the rules doesn’t apply.
Second of all, even if it is a CFC, the tax is just applicable to profits you leave in the company—meaning what you don’t pay out as salary or dividends, or use to pay company expenses.
As explained above: No it doesn’t—it only applies to profits, not income. And it only applies to profits that remain in the company.
I assume you’re referring to the FEIE tax free allowance of $105,900 (as of 2019)? I’m not sure why you think you need an LLC at the bottom of the structure to be able to claim FEIE… You simply pay yourself a salary from the Singaporean company (up to the $105,900 limit), and that’s it. You can exclude it from US income tax. You still pay local income taxes in Singapore, of course.
And just in case it wasn’t clear, you don’t pay any corporate tax (either in the US or Singapore) on the money you pay out as a salary—this is a business expense. You only pay corporate tax on the money you pay out as dividend.
Note that you can’t claim FEIE for dividends, so you’re likely to be better off paying yourself a salary up to the FEIE limit before considering dividends (unless you’re taxed a lot for your salary—compared to dividends—locally in Singapore).
As explained above, I don’t see the need for any structure to only be taxed once. Pay yourself a salary, claim FEIE. Done. You only pay tax on the salary in Singapore.
If you just want cheap to and easy, I’d say go for NM or WY. NM has less reporting requirements (you don’t need to file an annual report) so it’s very cheap to maintain. But that’s if you need an LLC at all.
I’m not sure if you’re aware, but here’s a thing you need to know about dividends: You can’t pay a dividend to just one of the owners. If the company decides to pay $100,000 in dividends, and you own 50% each, you both get $50,000 in dividends that year.
Also, you can’t pay dividends the same way or as frequently as a salary. You can’t pay dividends until the company has turned a profit, which is at earliest after you close the first accounting year. And then you always need to wait until the next year before paying out, meaning that the profits you make in 2020 can first be paid out in 2021, and so on. That’s fine if you have loads of savings to live off, and don’t need a regular salary, but at least it’s something to be aware of.
I expect that for you (as a US citizen) it would make more sense to pay yourself a salary up to the FEIE limit, and only consider dividends thereafter.
Of course, that may not be the same for your partner. He may want dividends and you may not, which can be a challenge—especially if you both own the company directly.
Some ideas for how to get around this problem:
You can own your share of the Singaporean company through a personal holding company, which can then distribute either dividends or salary according to your preference. Of course, this is extra overhead and will add costs and complexity.
You keep the US LLC as the main business entity, then you can use the Singaporean company as your “holding company” and your partner gets a holding company where he’s resident. Then those two companies can be the members of the LLC.
You just stick with dividends. The main drawback for you here is that dividends aren’t excluded under FEIE, but you’d still get credits for whatever you dividend tax you pay in Singapore when you file your US taxes.
You can both stick with salary, or a mix. Receiving salary might be a drawback for your partner depending on where he’s a resident and where he does most of the work for the company.
It’s not necessarily a big deal, as long as you actually pay all the profits from the US LLC to the Singaporean parent company every year.
Again, not sure how this would help you (at least from a tax perspective). And if by “incorporating” you mean forming an LLC, you will probably be worse off as you might have to pay self-employment tax—even on the income you receive that’s excluded under FEIE.
Many Thanks @tkrunning for illuminating me. So from this information I’m no longer thinking an LLC will be necessary. I guess my main misunderstanding was that of CFC rules. I thought that if I was holding any percentage of a foreign company the rules would apply to me. My partner is not a US citizen or Green card holder, however she lives back and forth between India and Singapore so I’ll be sure and check with her about the salary pay out which does seem to be my best option. The split was meant to be 30/70 split in my favor but we were thinking of bringing in a 3rd founder. Is my understanding correct that I would just need to own 50 percent or less to not have the CFC apply to my US tax requirements? Or is it the case that I can’t have the majority share? We are both on Entrepass here so can incorporate without a Singapore citizen or permanent resident, but were considering finding a marketing person with citizenship or permanent residence to secure the company better in the case that we don’t meet our Entrepass renewal requirements some year. The requirements can be quite stringent. I guess the reasoning for finding the 3rd founder just got stronger.
You can be the majority shareholder, as long as you don’t own more than 50%.
And while the rules can be a real PITA if it is indeed deemed a CFC, as long as you distribute any profits as salary or dividends every year the company (or you) shouldn’t be taxed any extra. At least that’s my understanding—but then again I’m not an expert when it comes to the US tax system. So if you do get in a situation where you own more than 50% (by shares or votes), you should definitely consult a US-based tax advisor specializing in expat taxes to be sure that you understand the reporting requirements that would apply as well as the specifics of what you should and shouldn’t do to avoid getting into a tricky situation.
I still have not incorporated, but plans are now more concrete. Sorry to bring up such an old post, but you were very knowledgeable and helpful so I thought I would ask another question about company structure as plans have changed. The plan now is to incorporate both in Seychelles, and Singapore, and not at all in the US. There are 2 founders, and each will own 50% of both companies. The Seychelles company is because we are selling a product and we don’t want to be taxes on global sales. Singapore taxes on global sales. The Seychelles company will pay the Singapore company for its services in helping to create its software, which will pay me a salary as it’s CEO. I live in Singapore. The other founder initially will not draw a salary as he is in more of a passive role, and least to start with. I’ll of course be subject to US tax as well as Singapore on that salary, but will cover US by FEIE on my salary. Both founders now live in Singapore. Do you see any issues with this tax structure? I’m us citizen he is australian.
Planning to incorporate next week, and currently looking for a good service to help open up the Seychelles company setup if you know of one?
Hi @MagicBots, I’m not an expert on how Singapore would treat that Seychelles entity. Not sure if they are as likely to deem it a resident Singaporean company as many western countries would do (especially since you’re both living in Singapore). You should check with a local Singaporean advisor regarding this, and if you’d create a local PE (permanent establishment), etc. Also, at the very least any payments between the companies would be subject to close scrutiny and any transactions would need to clearly be “at arms length”. I would back that up with a third party opinion.
