Moving abroad is an entrepreneurial endeavor, so it’s not surprising that expats often start a business abroad. When starting up a business abroad though, there are lots of issues to consider, including local and US tax filing implications, the legal structure of the business, and whether to register it locally or in another country. Legal structure Expats who start a business abroad have to consider what legal business structure their new business will have. Structures that are tax efficient in another country may be just the opposite in the US tax system, or trigger laborious US reporting requirements. For example, a single owner LLC registered in the US is automatically considered a disregarded entity so that the income can be reported on its owner’s Form 1040. A single owner LLC registered abroad isn’t treated as a disregarded entity unless its owner elects it to be, and will otherwise require the owner to file Form 5471. Furthermore, foreign registered corporations may be liable to the GILTI tax, dubbed the Apple tax after it was introduced in the 2017 Tax Reform intended to target large corporations like Apple that had cash piles offshore out of reach of the IRS. Jurisdiction While US tax filing is a requirement for all Americans, wherever they are living and wherever their business or other financial interests are, which country an expat registers a business in can impact how much tax they pay in terms of local taxes rather than US taxes. While for some types of business it makes sense to register the business in the same country where the owner lives, for some businesses, such as providers of services online where clients may be in different countries to the expat, incorporating in a low or no tax jurisdiction may make more sense. Taxes and reporting All American citizens have to file US taxes every year, reporting their worldwide income, and including their business interests. US tax filing from abroad can be complex, and expats should always seek specialist US expat tax advice to ensure that they remain compliant and also as tax efficient as possible. One reporting requirement for expats with a foreign registered business is FBAR filing. Expats who have or control foreign registered financial accounts, including bank and investment accounts, often have to file an FBAR (Foreign Bank Account Report) every year. This is a consideration for US expats starting a business abroad, as registering the business in the US won’t trigger an FBAR filing requirement, whereas registering abroad often will.
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