I'm a US citizen hoping to set up a business which I can run from a laptop from anywhere in the world. I want to do this because I love travel and living in different countries. I would also like to minimize my taxes at least until I have some measure of financial security.
I understand the gist of the Foreign Earned Income Exclusion, which would allow me to earn up to $85,700 in 2007 free of US federal income tax. Additionally, I know that if I was a resident of a state with no state income tax before leaving the US, I would also be free of state income tax obligations.
Next, my thinking is that if I form a corporation in a tax haven country, have my employer(s) and/or client(s) pay that company, and then pay myself as an employee of that (non-US) company, I can also legally avoid paying FICA & Medicare or Self-Employment Tax.
Finally, by taking care not to become "resident for tax purposes" in any other country (by never staying in any country long enough in any given year), I hope to also be free of any tax liability to any foreign country.
Essentially, I envision dividing my time every year between 2 or more countries - some countries allow you to stay up to 182 days/year without becoming resident for tax purposes, others allow only 90 days/year, or some other number. In this way I hope to be able to pay myself up to $85,700 this year totally free of income tax.
Questions:
1) Is the above scenario possible to do 100% LEGALLY? I don't even want to be in a "gray area" - I really value my sleep. If not, why not? If so, how should I arrange my affairs in order to be 100% in compliance with all applicable laws?
2) How much money should I expect to pay every year to retain the services of a US tax attorney, maintain full compliance with the IRS, and maintain my corporation in the proper manner? If the answer is 'it depends', please outline what it depends on and provide a ballpark figure for each scenario.
3) How should I go about finding a top-notch tax attorney who has a lot of experience in the area of US expat taxation and can keep me out of trouble with the IRS? How can I be sure I'm getting someone good and honest?
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15-01-2007, 10:54 AM #1
TOTALLY tax-free up to $85,700?
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15-01-2007, 11:08 AM #2
1) Certainly not if Hong Kong is one of the countries you plan to come to (which I assume is why you are asking this in a HK forum). You would presumably be entering on a visitor/tourist visa and it is therefore illegal to undertake your employment in HK whilst on that visa.
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15-01-2007, 11:24 AM #3
It is however, ok for you to start your company here and do business overseas and use HK as a tax shelter, as income from overseas sources and work is generally not taxed here.
There is a fair bit of stuff that you can do as an offshore director / owner and there is a fair bit you cannot do.
I'd recommend speaking to an advisor who is familiar with US and international jurisdictions and coming up with a plan. Overall, very much possible to do what you're trying to do.. just make sure that the i's are crossed and the t's are dotted.
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15-01-2007, 11:31 AM #4
So which countries allow you to undertake your employment on a tourist visa then? I reckon you'd need at least two and preferably three places in the world where you have the right to work in order to have a chance of making this work "100% legally" as the OP says.
Last edited by PDLM; 15-01-2007 at 11:32 AM.
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15-01-2007, 11:56 AM #5
Man that is mind boggling. I know US Citizens working here are charged local and US taxes. I really doubt this plan of action can be fully legal. Esp as PDLM mentioned with the whole work visa thing. Ya, that may be a problem for the OP.
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15-01-2007, 12:39 PM #6
>> undertake your employment on a tourist visa then
You don't need to undertake employment to use HK as an offshore location.
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15-01-2007, 12:48 PM #7
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15-01-2007, 02:14 PM #8
the effort to save less than 10% (i.e. taxable in hk for USD86k) at 8k usd is going to cost you much more in terms of the travel expenses and transitions. there will likely be other time cost and opportunity cost involved when you are immigration or visa 'jailed' (i.e. trapped in or out of a location to satisfy visa requirement, a famous Hk scenario before the 97 handover).
if you are looking at saving the 30% tax of 500k usd and above then i guess it would makes sense...
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15-01-2007, 02:15 PM #9
Indeed not - but the difficult part is not where to place a company so that it isn't taxed, it is where the person himself physically can be when being employed in the work of the company and not be either in breach of his tourist visa or liable to tax under an employment visa.
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17-01-2007, 02:14 PM #10
Just to clarify - I wouldn't be "seeking employment" in Hong Kong or any other country I spend time in, nor would I be employed by any local firm.
I was thinking I'd set up a corporation in a place like Cayman Islands, Bermuda or some other tax haven I don't actually want to spend time in. This would probably be some kind of internet business - not sure what kind yet.
I was thinking I could work this business from a laptop from anywhere in the world, travelling as a tourist and just getting the visa on arrival and not staying longer.
I figure that if I'm not actually "employed" by any local company, I wouldn't be in breach of my tourist status. Please correct me if I'm wrong?
Originally Posted by KnowItAll:
