I’m new here, and came here because I’m specifically trying to find more information about how I should set up a company structure between here and the US such that my US citizenship is not detrimental to the company. Right now it just 2 of us, (myself and and Indian national), but we have working software we want to sell, and are looking to expand rapidly. Also any recommendations for inexpensive accountants, and secretarial services that would be knowledgeable of this particular situation would help a lot.
Any advice on how to properly structure our company to avoid tax pitfalls would be very helpful.
Hi @MagicBots, you have three things to look at (form the aspects I can advise about). The country you incorporate your company, where your partner lives and where you live.
Incorporating in Singapore is not cheap nor is it tax free. Consider incorporating in Hong Kong instead. You can still bank in Singapore or both Hong Kong and Singapore if you like. So long as neither you nor your partner lives in Hong Kong you will not be required to pay any tax in Hong Kong.
Where you/your partner lives/is a tax resident also affects your business. As a responsible and honest citizen, you will have to file to the IRS. Now if you are living or planning to live outside of the States, after a year, you are able to file and not pay tax for earnings below $103,900 per year (please confirm), the FEIE. Any sum over this is then taxed at the rate of the whole amount earned. It’s not a bad idea especially if your tax savings exceeds your cost of living in your new/current country of residence.
You did not say where you are living in as this also has tax implications. If you will be supplying soft copies of the software you will be selling, territorial and no tax countries are easy options to you. If you do have to send hard copies to your clients you will be exposed to taxes form territorial countries.
Hope I have been able to give you some ideas and wish you good luck with your endeavors…
Thank you for your Reply Akan for the suggestion about Hong Kong. The software we’ll be selling is strictly soft copy. I am currently living in Singapore and plan to stay if possible. My business partner will spend time both in India and Singapore. I am a tax resident of Singapore, and I suspect with the time put it in in Singapore, it should probably be the case for my partner too. So yes, I will be able to not pay tax on the first $103,900 as a Singapore tax resident because of foreign earned income exclusion, however I’m not clear on how exactly i’ll be taxed on company earnings should we start making over that amount per year. Is it then taxed on US corporate tax rate (20%), or is it taxed on personal tax rates given that the LLC would be a passthrough entity?
The other consideration of course is the cost and time commitment i’ll end up with with this seemingly complicate arrangement. Costs including secretarial service cost in both Hong Kong, and the US for the admin fees, and US tax preparation, compliance reporting. Would we also be subject to any type of tax reporting in Hong Kong as well? I’m just trying to put my finger on the ballpark expenditures if we go this route. Would you think the foreign owned LLC is the best route for me/us if is a small company earning less or slightly more than the Foreign earned income exclusion per year, and when we begin doing well with the software and making much more is it still the best company tax structure, or can we change structure at that point? Is the LLC the only reasonable arrangement for me? Or, are there other options? US tax citizenship seems to be quite a complication… and wondering if there is an affordable tax accountant that can properly deal with all of this US tax paperwork that I could ask for a quote?
I guess the other thing to consider is that I am on Entrepass in Singapore thus able to incorportate here. Otherwise, it’s typically required that a permanent resident or Singapore citizen is signed on as a Director. Are there similar requirements for incorporation in Hong Kong?
As you are already in Singapore, it will be a good idea to talk to some local certified professionals (accountants and lawyers). While it would be very tempting to incorporate there, it will give you the highest setup and maintenance costs. You will be paying up to 17% corporate tax plus 20% tax on each partner.
Setting up in Hong Kong means that your company pays zero to Hong Kong, zero to Singapore and zero to the US if you are paying yourself less than $103,900. You will have to file and send reports to both Hong Kong and US yearly regardless of how much you make.
Where you earn/pay yourself more than $103,900 the “stacking rule” comes into play. $103,900 will be subtracted from the total amount earned and you will be taxed on the balance but at the rate of the full amount earned. There is the opportunity for you to subtract some deductibles as is your right (especially if you have kids), for this reason I strongly advise you talking to a US certified tax lawyer.
The above link is for a company in Hong Kong I am interested in using but have not used them yet. They can assist you in the company formation, accounting & auditing, tax filing and Company Secretary. The cost for a Hong Kong company setup starts from $399. There are a number of such companies in Hong Kong, please research a few before picking one. The setup should take about an hour and you will only need to visit Hong Kong if you decide to open a bank account there for your new company. I would advise you to do this even if you plan on having an account or two in Singapore. In fact, if you can afford the minimum deposit, I would advise opening more than one account.
Another thing, because you are in Singapore on an Entrepass, if you did not make use of local funding, you don’t have to be there. With the same business plan you put in for your Entrepass, you can get a business visa in Thailand. You would save over 70% on the cost of living alone while maintaining the same/very possibly better lifestyle.