Selling digital products can be an extremely profitable business! However, the government knows that, too. As soon as your business becomes successful enough, it will try to impose the largest possible amount of taxes on it – sad but true. In some countries, you may have to part with more than half of your profits! No wonder entrepreneurs are seeking ways to reduce the tax burden in a legal way and discover that they exist: it requires changing your tax residency or using some other efficient tools, though. If you are wise enough, you will take care of all these issues in advance, and in this post, we will discuss how you can set up an appropriate structure for this.
Please visit our portal where you can read a detailed article on the use of a Wyoming LLC for US merchant account agencies. You may also be interested in other topics we write about, which include asset protection, tax optimization, investment (including citizenship by investment), international business and banking, and more. We have specialists who can help you with any issues related to the above area, and you can schedule a free meeting to discuss your situation and find the solution that fits best of all. You may as well delegate all administrative steps to us, and we will open an account or set up a company for you on a turnkey basis.
Digital Business: Primary Concerns
- Choosing a jurisdiction. Offshore destinations were once a universal solution as they offered really beneficial conditions, including low taxes. However, you have to consider the possible implications of offshore company establishment nowadays, and a reliable consultant’s assistance is invaluable in this case.
- Selecting a business structure that will be the most appropriate for your business operations.
- Opening a merchant account. This is the stage where many entrepreneurs get discouraged by challenges in negotiation with banks that they face even if their business does not belong to a high-risk category. The matter is that the banking institutions see different digital risks and thus consider companies that rely on web-based technology as not very sustainable.
An offshore merchant account is a great tool that can solve the problem, so let’s look at it in more detail.
Digital Business in the US
The solution we recommend is a powerful duo: you set up a digital business in the form of a Limited Liability Company in a tax haven and sell digital products in the USA.
First of all, you will need to establish an LLC in an offshore country that:
- Deals with all-digital products
- Is registered in an offshore destination
- Does not derive profit using the citizens of the said offshore country
A good example of such a jurisdiction is Belize, but your consultant may offer something else under your circumstances.
And here is what you will need to do if you want to sell digital products to US citizens and remain transparent for the IRS at the same time:
- Register an administrative company (Agency) for your LLC in Belize in a US state that offers beneficial conditions for business (for example, in Wyoming).
- This Agency will render administrative services for a reasonable commission and employ US citizens.
- Your Belize LLC will pay the required fee to your Wyoming company.
- Take advantage of low tax rates offered by Belize while being at a sufficient distance from the US not to pay taxes to it.
Looks easy? However, you will need to focus on certain details to implement the plan.
No Taxes Paid
The above-mentioned combo for your digital business in the US will only work well subject to the following considerations:
- Selling something to a US citizen does not make you liable for US taxes (like renting your room in Paris out to an American couple).
- US citizens cannot avoid taxes in their country, but their payment can be deferred for an indefinite period of time if a company is incorporated outside the US (this is what General Motors, Facebook, and Google have actually done).
- Your Belize company must be a foreign corporation for US tax purposes (not a foreign partnership or LLC).
- You cannot employ US-based workers for your Belize company (while dealing with contractors based in the US is allowed). You can hire employees via your Wyoming company, though.
- You are not allowed to have any physical office in the US or your Belize company will be liable for US taxes regardless of what it does.
- Your Belize company cannot be run from the US.
- Avoid having a physical server in the US. You can use Amazon Web Services instead for your digital business.
- You can stay in the US if your website does not need any active management on your part.
- The most important thing is to ensure an arm’s length deal between your Belize and Wyoming companies (that is, they should interact as absolutely unrelated entities).
- The fees that your US-based company will receive for its services should equal average market values or the IRS will require your Belize company to pay standard US taxes.
Sounds complicated? Do not hesitate to click on the above link and get in touch with our experts to ask your questions!
Conclusion
If you intend to launch an international digital business, we strongly recommend the combo of a Belize LLC and a Wyoming LLC (for administrative purposes). The profits of your Belize company will not be taxed on the condition that they are derived outside Belize. The income generated by your Wyoming company will remain in your pocket, too.
The costs required to set up such a structure are quite affordable, while the savings will be considerable. However, your tax reporting is going to be more complicated, and you should be prepared for this.
Seeking professional assistance would be a wise move in this case as mistakes may be very expensive in this case, making you pay much more than a fee for the expert’s services. You are welcome to click on the above link to read the full text of the article or get in touch with us straight away to discuss the details!
