Comment by sdrinf
2 years ago
Given the number of founders I've seen running into this problem, I think it's worth calling it explicitely out: the problem with US incorporation as a foreign person isn't just your local tax code, but: US LLCs/partnerships (a very common structure for incorporating) require witholding (ie taxes) for foreign holders 30% (which is one of the highest rates) (keywords for googling: Federal Withholding Tax for Foreign Nationals ). You can write this off from your local taxes, but generally you'll still end up paying more, than if incorporated locally.
This means, that eg as a pass-through partnership incorporated as an llc, getting money out from the company will incur a 30% tax plus state plus local taxes.
There's additionally a problem (more for small corps), that the paperwork on the above will involve at least 2 accontants -one from US, one locally, meaning non-trivial startup costs.
None of this is to disencourage you to go with US; just do so with open eyes, and it's worth sitting down with an accountant in potential target country _before_ incorporation.
30% if there’s no tax treaty. Treaties trump laws (if ratified). So you’ll have to read through each treaty with your employees’ country to see what needs to be withheld.
So for OP, for operational simplificity, a domicile with the least number of treaties would be best (but possibly horrendous for tax efficiency).
> witholding (ie taxes)
The witholding rate is not the tax rate... if your actual tax burden is less than 30%, you file a tax return in April and Uncle Sam writes you a check for the difference. There's a time-value-of-money cost, but not an actual cost.