VOICEOVER
This podcast channel is about you – successful international entrepreneurs, successful expats, successful investors. Sponsored by HTJ.TAX
DERREN
Alright, we’re live. Thank you for joining us this evening. And today, we’re going to talk to you as entrepreneurs, as business owners, about moving your technology company from Singapore to the US. So, taking your tech company to the United States. Thank you for those joining us on Zoom, as well as on other platforms like Facebook, LinkedIn, and stuff like that. Thank you for those who submitted your questions in advance. So, we cannot give advice, but we can have them as a point for discussion.
Remember, we may be tax consultants here at htj.tax, but we’re not yet your tax consultants. Which mean that you need to get advice, actionable advice from someone who knows your situation inside out. So, whoops. Okay. Sorry. I’m just changing around my view screen here. Gallery. Yeah. It’s not allowing me. Let me put this spotlight on myself, spotlight for everyone.
Okay, great. So you need to get advice from someone whom you properly retained and who understands your situation inside out. That is, do they qualify to give that advice?
So with that in mind, I will start with Question Number 1.
Hi, my name is I’m going to not call your name and my business partner, and I have an online business selling a service to a global marketplace. Can a US entity help me save taxes?
Those who join, please keep… I’m gonna make sure you guys stay on mute. Please remain on mute. All right. Okay. Thank you. Can a US entity help you save on taxes? It really depends. It depends on which jurisdiction you’re in. If it is as is the case you are in Singapore, Singapore is not exactly a high tax jurisdiction (as we discuss in this article about American tax Singapore). It is a relatively low tax jurisdiction, and that the headline corporate tax rates are 17%, which compares favorably with a sequel in the US, which, for which they have my rate would be at 21%.
And it should be increasing, probably by the end of this year or early next year. But for now it is 21%. So, I’m not sure how just forming company in the US is going to make a difference in terms of your tax burden. If it is that you do form an LLC, or even if you do form a C Corp, then the question remains. Do you have what we call substance in the US? Do you have boots on the ground in the US or is it that you just formed the shell company? You just went on one of the many websites that do it really quickly and really efficiently and, you know, whatever, and that’s it.
So you just have a company in the US because when you look at the Inland Revenue Authority of Singapore, IRAS, with the income tax act in Singapore, the two tests that they look at would be one, management and two, control. So even though your company may be incorporated in another jurisdiction, if management and control is deemed to be exercised from Singapore, one can argue that you have a Singapore company and therefore it should be taxable by IRS in Singapore, even though the clients are abroad, or the product is of service. In your case, it’s a service, is being rendered outside of Singapore.
It’s still would be taxable in Singapore because the creation of the service or management and control has been exercised from Singapore. So to answer your question, can it save on taxes? I’m not quite sure it would, but of course I don’t have all the facts. So that’s just my opinion.
Next question. So from the same person, so we did Part A, so, Part B, a consultant recommended a C Corp or an LLC. What are my thoughts?
Okay, well, you know, there are a number of entity types available, when you want to form an entity in the United States. For those who are not US persons, so they don’t have a US passport, they don’t have a green card, or they don’t trigger a substantial presence in the US, they tend to be limited.
There are, mainly there’s a lot. But just for the simply… keeping it simple, you tend to be limited to either C Corp or an LLC. What does that mean? You know, like what’s the difference, right? So, a C Corp is readily identifiable because that will be equivalent to, roughly equivalent to Singapore, private limited. So, it is a separate legal entity with rights and responsibilities of its own. It has its own tax ID, whatever. The other option would be a limited liability company. So, a limited liability company is a creature of the state.
So essentially whether you’re going to form a C Corp or an LLC, the processes are the same. You tend to go; you need to choose what state you’re gonna incorporate. And that would be not just, I know everyone rushes for Delaware because of the brand name recognition, presumably, but I would recommend that some more thought be given, especially if you’re going to do business in the US and if you’re going to have any US Nexus, chances are, you may want to consider whether you’re going to form that initial entity in the state, in which you would trigger some sort of connection. But anyway, let’s just talk generally. So an LLC, it’s called a limited liability company, but you can make an election for it to be treated like a C Corp.
If you don’t make that election, the default is that it’s a pass through. So it’s kind of like a hybrid entity. So the equivalent in Singapore, if I had to, I’d say, it’s like, if it’s a single member, LLC, so there’s just like one person who owns, it will be like a sole proprietorship. If more than one person owns it, it’ll be treated like the Singapore equivalent of a limited liability partnership or an LLP. So that’s what an LLC is. What’s the difference? One is passed through. So, the income that the LLC earned is not taxable in the hands of the LLC. So the difference is tax. It’s actually taxable in the hands of the members of the LLC, whether it’s you guys as individuals, or if you may hold your membership in that LLC via a Singapore entity, for example, or BVI or some other structures. So, it will be taxable in the hands of whoever’s behind the LLC, not the LLC.
Whereas a C Corp, it’s taxable in the hands of the C Corp. It does get a bit more involved in it, but that tends to be the key difference. The C Corp is viewed as a more formal structure. And if it is, especially if you want to bring in their property investors, they tend to prefer C Corp. When I say formal, I mean that the compliance burden is slightly higher and that, you know, I mean, either way, you’d want to make sure that everything, you know, you do meetings and meetings are minuted.
You have a separate bank account, you know, all the normal, let’s say financial hygiene that you want to exercise in running an entity would apply in either of them. But the bar slightly higher and when it comes to C Corp. In addition to it, a C Corp is subject to double tax of the income. What do I mean by that? So, when the company earns a profit, it files its own return to C Corp. It files its own return, pays corporate tax at 21%, and then, the dividends can be extracted by the shareholders. And when the shareholders received those returns, it is often subject to taxes as well. So the income is being taxed twice, one in the hands of the company, and then with dividends extracted is going to be taxed again in the hands of the shareholders.
Whereas when it’s an LLC, the LLC doesn’t pay tax, only the members behind it. So I hope that helps, but I would normally say that in order to make a recommendation, we would need to understand the business model inside out. So, that’s where having a better idea of what your main objectives and the nature of the structure of the businesses, the business, et cetera. Basically, see a pitch deck or business plan that will help us advise accordingly. So those are my thoughts on C Corp versus LLC.
Part C. So this person had like four parts, right? So A, B, C, and D. C what are the tax implications or tax obligations?
Well… It depends, right? So remember we’re saying that if you have no Nexus in the US, everything is going to be taxable by IRS and Singapore. Right? But let’s put that to one side and let’s say that, you know, you do have, you do trigger some sort of presence in the US. I think everyone is well familiar with the direct taxes. So you’re familiar with corporate taxes. So if it’s a C Corp, it needs to file its own return. If it is that you guys hold it in your own names and to an LLC, and it starts with your hands as an LLC, you don’t file a corporate return. You file a non-resident return.
So a 1040 NR for non-resident, as well as a 5472, to let the IRS know about the LLC. If it were a C Corp, it will be an 1120. So if your LLC was not held in your own names, but through a Singapore or some sort of corporate structure, it might be an LM 20F. So, it really depends on the paperwork, but essentially, a corporate return is due, or an entity return, sorry. Cause it could be an individual, an entity to return is due to declare direct taxes. But what is not often discussed is indirect taxes.
I guess back in 2017, there was a landmark court ruling in, I think it was during 2017 in the US. We call it Wayfair case, W Y F A I R. You can Google it. So essentially, what it did is that it shifted the burden or the Nexus requirements for indirect taxes, what in Singapore is called GST- Goods and Service Taxes. In the US or in Europe, it’ll be VAT. In the US, it’s sales and use taxes. Now, typically, historically sales and use taxes used to be triggered by physical presence, but after 2017, we’ve seen a transition towards economic activity.
So even though you’re providing a service, I would still recommend that you engage a team of professionals. Not necessarily, yes, we can do it, but whoever you feel comfortable with, and you engage a team to do what we call a nexus study, which is understand your business model inside out, and try to identify whether you have any sales and use tax requirements. So a reporting or liabilities as a result of your business activity. So, those are the points that you need to consider in terms of your tax responsibilities. So both the US and Singapore perspective.
And D, can you reduce your taxes?
That’s what everybody asks, right? That is a great question. We need a benchmark. So, once we, because we made a number of assumptions, I don’t know your situation inside out. So once we understand what they, as is position is. So, whether it is you guys are holding the shares in your own names and you’re using a multi-member LLC in a given jurisdiction, and therefore, these are the tax consequences. Then we have a benchmark, and then we can say, well, okay, given this structure, these are the liabilities that you now face, and then we can make recommendations to reduce it.
But until we know the situation, we know what the as is position is, it’d be hard to make recommendations as to how we can reduce our tax burden. So hope that helped. So, I was pretty involved. Thanks for submitting that questionnaire. I appreciate it.
Moving on to question two. Hello team. Hi! Hope you’re doing well. We are. Thank you very much. I’ve recently registered, name given. LLC in Wyoming via a certain service provided online whose name I won’t mention, but he’s given it, he or she has given it.
So it seems to be one of those service providers that just, you just go to them and they’re like an LLC mill. They don’t need to know too much about you. They just say, oh, you want an LLC. This is the price. And they just turn them out, you know, dozens per day or whatever the case may be. But as we mentioned before, the choice of the entity, as well as the state in which it’s registered, because it can register in any one of the 50 states, right. That typically has given a bit more thought and consideration. But anyway, we are a company with operations in an Asian country. I won’t name it.
I’ve got a couple of questions and would appreciate it. If you can help. We will surely give you some points for reflection, not answers, but points of consideration. So, and you go into A, B and C as well, so, okay.
What are the annual reports due?
So this is an interesting question, right? So this person, as I can tell from the way you phrased it, that you’ve done some research, which is good. This is a good thing. So, you are clearly aware that there are tax forms as mentioned earlier, in response to the previous question, but there are also annual reports.
So many secretaries of states, depending on what state you have opened. You created your LLC, and there may be a tax return due if there are, you know, if there are taxable events, whether direct or indirect taxes – tax forms due, but there are also annual reports due, which more or less identify, you’re required to identify, you know, who are the members? You know, who’s the manager and whether it’s still in good standing. And then he pays some…usually small amount. In Delaware, it’s like $300 and California can be, it could be higher franchise tax fee.
I think it might be as high as $800. It varies. It varies by state. But, you do have to file often enough in most states, a sort of annual report that let them know that you’re still in business, more or less. And you’re still in good standing. This is separate from taxes. So, that distinction needs to be made. So, good point.
Part B. What tax forms need to be filed?
Well, it really depends. As I mentioned to the previous person that asked a question, it depends on the nature of your structure.
So you mentioned you had an LLC, so we could ignore the 1120s that will be due if you had a corporation or if you’d like to have a corporation. So you have an LLC. If it’s a single member LLC it’ll be a 1040 NR and a 54 72. But you know, if it is that you have activity in the US, you may need to do a 10 65. If it is that your entity is not owned by you guys in your names, it may be owned by another entity. So that entity that holds your interest in the LLC, then it may be an 1120 and I’m 20 AF.
So it really depends. It really depends on the forms. So the first thing we would need or whoever you’re working with to get your taxes, right, we’d need to understand the business model and we need to understand your corporate structure. And then we can make recommendations. Of course, the same principles as previously discussed would apply. We tend to pay attention to areas where people don’t, they tend to miss the track. And one of the things that people fall down on to no consequence of their own, it’s just something that’s overlooked, is indirect taxes. So we’d probably need to, we’ll encourage you as the responsible person, right? To engage in some sort of nexus audit, just to see, whether you have sales and use tax obligations, given your business model. So, hope that helps. That’s part B.
Part C. I read back, you know, as I said, I can tell that you’re doing a lot of reading, which is good. You know, as these are important financial decisions, that’s always a good sign. I read those profits from the LLC are passed through. That’s correct. There’ll be tax in my home country, as personal income tax. Is that the best option for non-resident alien LLCs? Also, will the U S government deduct any TDS and TDS as defined by this questioner as tax deducted at source when I transfer the money to my Asian bank account?
Okay. You’re absolutely correct. An LLC is a pass through. As mentioned before, the equivalent would be, if you are a single member LLC, so you’re LLC is owned by one person, it’d be the equivalent of like sole proprietorship. If your LLC is owned by more than one person, then it’s a multi-member LLC.
So it’s more than one member LLC. So, it’s considered like, it will be treated like a partnership, right? But, it’s a part suited, always taxable in the hands of the person behind the LLC, not the LLC itself, when it comes to direct taxes. When it comes to indirect taxes, the LLC may be responsible. The responsible person, it tends to have to identify responsible person within the LLC who has responsibility for making sure the LLC is compliant with the indirect taxes, which we’ve touched on. So that’s that plain. If you’re a non-resident alien and you are responsible for management and control, the question is, well, where are you managing and controlling the LLC?
And in that jurisdiction, indirect taxes will probably be triggered to correct. So if you’re in Singapore, then you probably need to let the Inland Revenue Authority of Singapore know that you are running a foreign company from within Singapore and declare and pay taxes accordingly. That’s it for number two.
Moving to number three. And for those of you who just joined, feel free to also type your questions below, and I will have a look at them, and they will in which you type them. And, we can use it as a point for discussion. Again, this is not intended to be advice. What we’re doing is identifying what I think are the key points that you want to take up with your preferred advisor. And as always, it’s always great to get professional advice. Yeah.
Question 3. I want to set up a US LLC as a subsidiary of my Singapore private limited. Okay, that’s fine. Should the LLC, when first incorporated, have my Singapore entity as a member? if so, how does this work in terms of banking in the US?
That’s a great question, right? Like most jurisdictions, so, well, first of all, if it is that the LLC is going to be a subsidiary of the Singapore private limited, it is going to be a subsidiary of Singapore private limited, right? It is what it is. As this person is probably aware, you know, banking is becoming progressively more challenging regardless of which jurisdiction you’re operating in. So, no matter where you are in the world, banking remains a challenge. And it’s not necessarily a bad thing, is that there are people that have abused banking privileges, and they did things that were not ethical, or perhaps illegal. As a result, banks have been held responsible and the compliance burden has been increased.
So therefore, the banks pass that increased compliance burden onto us, as customers. They have…. what they call enhanced betting. They have increased responsibility for understanding its customers. So KYC. They need to know your customers. They need to know their customers. And so when you went on board on to a bank, the onboarding process is pretty rigorous. So be prepared to sit and answer questions for an hour. I’ve seen it take two hours. So, it’s basically like a job interview. That bank officer needs to be like 100% clear as to who you want and the nature of your business and the purpose for which you require an account.
And they will ask as many questions as it takes to understand your business. And for people who have certain types of businesses like, let’s say adult entertainment or anything related to crypto, or, you know, some people who work in a certain other consulting field, let’s leave it that way. You may find that some banks may be less enthusiastic in your business. So the default position is that… If they don’t understand it, or if they don’t like it, or if they have any reason to believe that it’s in a gray area, the default position is no. We don’t need your business, so please check elsewhere.
I know it comes across a bit arguably sometimes but consider it this way. If you could, if you think about it this way, it helps you help yourself. The bank is doing you a favor. I know you, I mean, your kind of like going to be typing away the comments below, but that is essentially what it is. They don’t… the way banks are structured, right? They don’t… Their position is that they don’t need you. And, that’s why it’s so much of a rigorous interview process. But anyway. So, when you get to the US, there are online banks, so there are challenger banks that you can do… that you can contact online and see whether they’ll do your banking.
So like Revolut or Wise, which used to be TransferWise. It’s now Wise. Some of my clients use Mercury. So you can take one of those non-traditional banks, but typically, you know, I’m neither for, nor against them. Don’t get me wrong. But typically, there’s a limit to what can be done with them. And invariably, you would need a traditional bond to work in consult with that bank. So I, you know, could be wrong, but this is my perception. This is my understanding.
So it’s a good short-term solution, but in the long-term, you probably want a traditional bank, especially if you want to move away from like Stripe and PayPal in terms of payment processing, and you want to move to another payment processor with lower fees, they tend to mandate that you work with a traditional bank. So anyway, so if you are going to work with a traditional bank, you’d need to be there in person, and you’ll need to go through the interview that we discussed. You need to bring all the paperwork from the company. It’s best to contact the bank in advance so you don’t waste time, right? What do they need to see? They tend to need to see, like, you know, the operating agreements, they need to see resolutions, board resolutions that authorize whoever it is to act on behalf of the entity and open and close accounts.
You know, they need to, you know, they need to see lots of paperwork. Best to contact the bank in advance. And so, you know what they require, and everyone doesn’t waste each other’s time. So, right. So that’s how it works in terms of banking.
So then next question, and it’s a natural follow-up is… How can I enter the US to set up banking?
Well, as we know, we live in unprecedented times. I can’t say the word. Otherwise, we’ll get blocked on certain platforms. But obviously, we know that there’s a health crisis going on. So right now, the US, like many other jurisdictions, they’ve restricted, non-essential travel.
So if you were like on a visa waiver and you were like on an esta, you probably can’t enter the US right now. If you have a B1 B2, you probably can’t enter the US right now, I believe. But if you have a business visa, if you have a residence or work permit, you may be able to enter the US. So, the US visa system is relatively complex. I believe there are like 130 visa categories. So we work with US immigration attorneys. We’re not immigration attorneys, but we do work with them.
So if you want, you can email me, and I will introduce you accordingly. Because if you’re opening, or if you already have a business in the US, and it’s a going concern, and you’ve been compliant or whatever, you may be able to apply for one of the L Visas L1 L2, maybe, or depending, if you hold a Singaporean passport, one of the e-visas as well may be open to you. So, there wouldn’t be business-related visas connected to your investment that you can use to attend to the US to do your banking and see clients, et cetera. So, just contact us separately, and we will let you know, introduce you accordingly.
Next question, and the final question…I have an LLC in the US as I want to build up my real estate portfolio. Of course, the US is the destination of choice for investors and especially, real estate investors have so many clients who are based in, not just Singapore, but Southeast Asia and have invested in US real estate. So anyway. So, I have an LLC and it’s owned by Singapore, private limited, just like the previous question. Okay. Would getting an item help with my credit rating?
Okay. I see what that mean. We’ve got this question that some people want to use leverage. Some people want to, some people go in all cash. Some people use leverage, so they use debt as well, but they source that debt from Singapore, from Singapore financial institutions, to going with them on the US real estate. Or some would like to get loans from US banks. So then, the problem that you’re going to have is that, well, if it is that you have an LLC, which clearly you do, because you said you do, when someone does a credit check on the LLC, if there’s no score, if you, you know, if it’s brand new or something, then obviously either it would fail or just won’t show up, right? You won’t get access to the credit that you need.
Now, when you speak about, getting an ITIN help, and ITIN is an individual tax identification number. It’s kind of like in Singapore, if you are working, living in Singapore and you’re Singaporean, you have an IC. So the IC is what we call in the US a social security number. So this is something that’s given to people who are citizens, residents, per law, per permanent residents, like green card holders and stuff like that. If it is that you are a non-resident investor in Singapore, you might get a FIN number or foreign identification number or foreigner identification number. I think it means.
So the equivalent of that is the item, which you’ve asked for. So what is crystal clear is that the item, a place, individuals, not companies, a company would have an EIN or an Employer Identification Number. So that’s probably what you would be looking for to make sure that your LLC has an EIN. Now, when an LLC is brand new, obviously it won’t have any scoring, but as you operate the bank account, the performance of the bank account would lead to you getting a score. So you operate your bank account well, you know, you speak to your banker about access to credit, whether it’d be an overdraft or some sort of lending facility, and you might start off small, and then you make sure you pay that back and you service it as agreed. That helps.
So, it’s really a function of your relationship with your bank, with your traditional bank, as opposed to the non-traditional bank. So it’s a function of your relationship with your traditional bank. So you’re looking for an E I N not an ITIN, an E I N for your LLC, and you’d want to focus on building up a great history with your LLC, because your LLC, as you pointed out, is owned by a Singapore private limited. So EIN, not ITIN, hope that helps.
Now what I’m going to do is I’m going to take a quick look on so many other platforms to see if there are any other questions. Oops, delay, delay. Okay. You move in very slowly. Nothing here, nothing here, nothing here.
Okay. Seems like that’s it. Thank you very much for those who asked questions. If you want to follow up, please drop us a line at help@htj.tax. That’s help@htj.tax. We have regular livestream Q&A’s like this one. So the next one is towards the end of August with immigration attorney Mike Dye, who also has an office in Singapore. He has an office in Singapore, Kale, Jakarta, as well as Dubai.
So he’s very much… he has a great Asian presence. So he’s quite familiar with the needs of the Asian investor, business owner, who wants to make that step towards the US. So please join us for that one or any of the other livestreams that we have throughout the, towards the end of the year. I think we have 16 more as we progress towards the end of the year. Thank you very much. HTJ.TAX. See you next time. Bye bye now.
VOICEOVER
Here are four ways we can help you.
- Sign-up for free webinars on US Expat Taxes and International Entrepreneur Taxes at www.htj.tax.
- Stream premium educational videos at www.htj.tax
- Contact us for tax optimization consult over Zoom.
- High Net Worth? We can quote for doing your US International Taxes Returns
Our books and upcoming events are available at htj.tax.
Please subscribe, like, share and comment below. Or email us at help@hjt.tax to engage us to advice on international tax or business matters.
