Let me start by saying it is possible to move all or part of your otherwise US business offshore. You have to follow the rules and you may find that you still need to pay some U.S. tax. You’ll pay more for business set-up and maintenance and your tax reporting will be more expensive.
Let’s go over what I call the Easy C’s. First up, customers. Where are your customers from where do you fulfill the service and work? If you have a store-front coffee house in your home state, you’re going to have a harder time trying to show you have customers and fulfillment out of the country. The easiest way to do this is with a website that was developed and fulfills out of the US.
Second, capital. Who owns the company? This is an easier thing to set up because all you need is a foreign entity. You still need to report your ownership, but that alone will not mean you owe tax.
Third, cash. If you bring money back into the US, you’re probably going to pay tax on it. That means if you have a debit card and take money out in the US, you’re going to pay tax. And if you think you’re not going to get caught, you are wrong. It was illegal before and now it’s illegal and easy to catch, thanks to FATCA.
You can set up a company to have income in another country, under the right circumstances. You need to work a US tax expert, not necessarily a foreign tax expert for the US part. After all, the point is not to pay tax in another country. The point is to reduce your taxes in the US.
It probably sounds like I’m on a soap box here, and the fact is, I am. I can guarantee that at least half of a conversation I have with a new client about moving a business offshore will include dispelling the ‘tricks’ you can use to avoid tax. You can’t. The penalties are huge if you try. And you will be caught. Follow the rules right from the start and you’ll avoid expensive headaches.
UPDATE! The House, Senate and President have apparently reached some kind of deal on extending the “Tax Extender Bill for 2014.” In exchange, the corporate tax code is slated to be overhauled. If this goes as plans, there will be sweeping changes to corporate tax law, particularly in the international arena. Make sure you have a tax professional who is current on tax changes involved in international tax planning.