Creating an LLC/LLP to avoid taxes? Beware the trap!
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1/ These are tax-transparent companies
The structure itself pays no tax:
but the partners/members must declare all their income in their country of tax residence
and cannot "leave" it in the company
2/ No professional tax does not mean no personal tax
The classic mistake = Believing that if the company doesn't pay tax, neither do you. That's not true!
You will be taxed where you live
You will even be subject to social security contributions if it is considered a professional activity
You will be subject to a personal tax audit (not a company audit) in the event of an audit or adjustment
Example of declarations to be filed in France:
Form 2047: This is your income declaration
Form 2047 (2): The income in question must also be subject to social security contributions (CSG and CRDS)
Form 2042C PRO: The income amount must be reported on declaration no. 2042 C PRO, and it is the net profit that will be declared
Form 2042C: The income now declared on forms 2047 and 2042 C PRO must also be reported on form no. 2042 C
3/ These are often just mailboxes
This is also why it doesn't Costs nothing to create
On-site? No permanent establishment or dependent agent within the meaning of international law
4/ There is often no economic substance
Economic substance is the fact that a company actually exists in the country where it is registered:
It must have a physical address, local staff, and real economic activity (customers, management, decisions)
If it is just a mailbox with no local activity:
no office
no staff
etc. * It may be considered fictitious by the tax authorities.
5/ Tax treaties will not apply.
It's a "real" offshore company.
It doesn't belong to anyone.
The United States or the United Kingdom will not recognize it, and therefore will not protect you.
6/ You will ultimately have no tax optimization benefits.
You will be legally taxed as a company in the country where you are located:
VAT
corporate income tax
social security contributions and deductions
URSSAF (Social Security Fund)
dividends
etc.
7/ Summary & Misconceptions
When you're told LLC/LLP = 0 tax
It's simply because people don't declare anything
It's illegal, no judgment on that, but it's important to be clear 😉
Misconception VS Legal and Tax Reality
Misconception VS Legal and Tax Reality
LLC = 0% tax ❌ False → Tax transparency = you are taxed personally
No local tax = no tax ❌ False → Your country of residence taxes all your income
LLC = undeclared = invisible ❌ False → Filing is mandatory
LLC = automatic tax haven ❌ False → No optimization
You can create and maintain an LLC/LLP on your own if you want, but now you know, among other things, why I don't recommend them for optimization...
8/ The strategy I use?
→ A hybrid solution, with tax-neutral or traditional companies:
corporate income tax: only 15% or 3%
there is no tax on capital gains: neither on sales nor on investments (ETFs, bonds, cryptocurrencies, stocks, etc.)
and 0% tax on dividends: or only 5% if I am a French tax resident
→ Balance sheet?
I pay my corporate tax of 15% or 3%
I pay no tax on my capital gains
and I pay my dividends only where I am a tax resident
"This makes for a total tax rate of between 3% and 19%, regardless of where I am in the world 😉"
🔔 This is not suitable for everyone or for all activities