Using a Wyoming LLC as an Agency Company for US Merchant Accounts

Digital business (selling digital goods like training courses, music, movies, apps, e-books, etc.) can be extremely profitable. Digital goods are not much different from ordinary goods from a legal point of view. So a company that runs such a business is obliged by law to pay taxes.

But as soon as things get going in your internet-based business, and your company gets up and running (we have no doubt that with the right approach it will definitely happen), you will realize the new challenges. The tax authority will want to collect the maximum amount of taxes from your successful company. The higher your company’s sales and profits grow, the higher the amount of taxes you will have to pay. The total amount will be quite substantial: in some countries, this expense item may exceed 50%.

 

So, many owners of digital businesses ask themselves the question: Is there any legal way to reduce the tax burden, so that to be able to invest more in the business development or cover other needs?

In many cases, it would be difficult to reduce this pressure unless you change the tax residency or use some other legal tools to modify your business in some smart way. If only the digital business founders could foresee the forthcoming issues and plan it all well in advance! Let us help you design the right strategy.

Digital Business Concerns  

One of the first concerns any startup organizers face is the selection of the jurisdiction of incorporation for the new company. But of course, gone are the times when many offshore countries would be unchallenged in the global economic landscape in the way they attracted foreign investments. They provided zero taxation to lure company owners to register their startups and offshore offices. Nowadays, you have to be aware of the possible advantages and pitfalls that you will likely face in a particular zero-tax jurisdiction of your liking. God is in the detail, as they say. Unless you have a reliable, seasoned consultant, the choice of the country in which you should register your digital business can be a tricky task. 

Another important issue is the selection of the most appropriate international business structure to develop sales and other business operations in the most favorable foreign markets.

Yet another issue is the business accounts opening. Many owners of digital businesses get discouraged at the early stage when they face challenges in opening merchant accounts. Difficulties in negotiations with financial institutions are faced not only by high-risk merchant providers (indeed, banks are usually very scrupulous in scrutinizing papers of companies involved in high-risk dealings). Unfortunately, by and large, any company engaging web-based technologies in education, mass media, tourism, and other quite reputable fields, is seen by banks and domestic account providers as not quite sustainable. This is because of the likelihood of cybersecurity risk, data privacy risk, third-party risk, business continuity risk, and other forms of digital risks that add to the uncertainty of achieving business objectives.

However, you will be pleased to know that offshore merchant accounts are easy to open, discrete, and provide many tools you will need in your digital business. We will explain in this article how you can get hold of and benefit from this solution.

US Digital Business Option

Digital sales have become a prominent phenomenon in the world over the last 20 years, whereas in the 20th century they simply did not exist. Today’s digital goods remain a tough nut to crack for the tax code. Numerous subscription websites, various smartphone apps, training courses, e-books, movies, and music – all of these digital offerings have become especially in demand due to lockdowns imposed during the pandemic all over the world.

At the same time, the tax codes of many countries have not changed to accommodate the needs and specifics of this new industry that trades in digital goods. A typical example is confusion over the classification of a digital company’s tax status. It may seem that codification of the digital and conventional types of merchandise should be not an issue. However, this matter is one of the most significant for companies in the 21st century. Why do we think so? The answer is simple if you consider the company’s country of tax residency.

Let’s take, for example, a company shipping its physical goods to the US. It will be definitely considered as the one engaged in US trade and thus will be subject to US taxation. 

However, the good news is that if this company sells an all-digital product, it may be easily entitled to the perks of “going offshore”.  

The matter is that an all-digital product does not have a title, so there are no title ownership issues. Therefore, it is no problem to prove to the IRS (the US tax service) that your company registered abroad is not engaged in US trade. 

This article recommends you a combo model for building a digital business registered in the form of an LLC (Limited Liability Company) in an offshore haven and selling digital products in the USA. 

First, you will set up an offshore LLC that 

• deals with all-digital goods, 
• is incorporated in an offshore jurisdiction, and 
• does not do business with citizens of that offshore country. 

For this particular combo model we decided to choose Belize, though your business consultant may recommend some other offshore jurisdiction, considering your circumstances and ambitions. 

If your Belize offshore LLC is going to run a digital goods business within the US, while remaining transparent to the US tax authority IRS, you can do the following:

• register (for your Belize LLC) an administrative company (Agency) in a suitable US state (for example, Wyoming, often called the most favorable offshore haven in the United States; 
• let this US Agency provide administrative services for a fair fee/commission and hire US citizens
• let your offshore LLC pay its US administrative company in Wyoming fees for services;
• enjoy the benign taxation in Belize for your LLC, while its status and maximum distance from the U.S. will effectively exempt it from U.S. taxes.

So, the suggested combo model for an offshore business operating in the US market rests on the following building blocks:

a Belize offshore LLC + an administrative Wyoming LLC  

Is it all that simple? Not really. The practical implementation of the described strategy requires your focus on certain details.

Zero Taxation Opportunities

Incorporation of a Belize offshore LLC and an administrative Wyoming LLC for your digital business in the USA is going to be a winning strategy as long as you take into account the following considerations:

• US citizens cannot avoid US taxation, but you can defer your US taxation indefinitely by incorporating your company outside the US. That’s what Google, Facebook, and General Motors do.
• When you merely sell goods to US customers, this does not constitute your engagement in US trade or business. For example, if you are a hotel owner in some offshore island state, and your room is rented by an American couple, you are not subject to US taxation. 
• You need to make sure you do not have any physical presence (brick-and-mortar office) in the USA. Otherwise, your Belize company will be subject to US taxation, even if the business is digital. 
• Your Belize company cannot hire US-based employees. US-based contractors are OK. However, you can make arrangements for hiring staff through the Wyoming LLC (administrative company). 
• Make sure you don’t have a US-based physical server. There are some tax-related reasons for that avoidance. Instead, let us recommend Amazon Web Services as an excellent web solution to digital companies of any size.
• Your Belize offshore company must be a foreign corporation for US tax purposes and not a foreign LLC or a partnership. 
• Your foreign company (Belize offshore LLC) must be truly and totally a classic offshore entity, and it must not be run from the USA. 
• You can stay in the USA, but only if your website doesn’t require any active management from your side (which is rather unlikely). 
• If your business will require active management (which is highly likely), and you keep managing your business from the USA, then your business will be qualified as US-based, i.e. subject to US taxation.
• Some of you may find the hereby combo model too sophisticated. But you may as well consider forming a US-based administrative company that will provide key administrative services to an international corporation. It may hire a US-based workforce and even a non-US professional manager (not you).
• The most important task is to ensure that the Belize offshore LLC and the US administrative LLC have an “arm’s length deal,” i.e. they should interact as if they were completely unrelated.
• Your US administrative LLC needs to receive from your Belize offshore company fees at fair market rates for the services it will provide. Otherwise, the IRS will tax it as any other US-based company.

Register a Belize offshore LLC

Any zero-tax jurisdiction would work for building your offshore digital business. We have chosen Belize as your LLC’s jurisdiction of incorporation just as an example. On the other hand, apart from being one of the best destinations for offshore company formation, Belize is a very attractive option in many ways. Our experts recommend a Limited Liability Company (LLC) for startup businesses in Belize, as this flexible offshore structure brings together the features of a corporation and a partnership.

Here are some of our experts’ insights into why you should choose Belize for your offshore company registration:

• Stability of Belize’s economy, politics, financial system, and international relations
• State support available to offshore businesses
• Inexpensive and simple registration of LLCs in Belize
• Belize offshore LLCs and their shareholders are exempt from local taxes (income, withholding, business, asset, gift, capital gains, dividends, inheritance, property taxes) – if they generate income only from activities abroad
• Belize LLCs do not have to file annual tax returns, or financial statements, and their accounting records may be kept outside Belize
• Belize LLCs are not required to hold annual general meetings, and those can be held outside Belize
• Shareholders’ liability is limited by the value of their shares 
• 100% foreign ownership is allowed
• The minimum authorized capital for a Belize LLC can be as low as USD1
• A Belize offshore LLC does not need to have a TIN
• A Belize offshore LLC is not required to have economic substance.
• A Belize offshore LLC will not be considered risky business by OECD and the EU 
• A Belize offshore LLC can be founded by 1 non-resident person
• A Belize offshore LLC can hire professional directors and shareholders
• A Belize offshore LLC are protected by law from the shareholders’ debts 
• Privacy of personal information is a priority. A Belize offshore LLC needs to file only the Charter with the Registry. 
• Decisions of foreign courts may not be applied against a member or manager of a Belize offshore LLC. 
• Redomiciliation of LLCs to/from Belize is allowed.

The above-mentioned advantages are not exhaustive reasons to start a Belize offshore LLC. Registration of your business in Belize can mean reasonable costs, privacy guarantees, reliable asset protection, minimal tax burden, and tons of other great benefits.

Set up a Wyoming LLC in the USA

Registration of an LLC in the United States will offer you a mix of tax advantages, privacy, and easy access to global banking and payment systems. It is no secret that the USA is one of the most prominent offshore financial centers in the world. US banks do not have to disclose offshore merchant account holders’ private information (with a few exceptions). Of all the US zero-rate corporate tax states,  Florida and Delaware are especially popular as offshore havens. But Wyoming comes first. 

In our opinion, so far, Wyoming (USA) has not been widely recognized as the best destination for offshore business development. However, it definitely deserves your attention.

Wyoming maintains the most business-friendly taxation system and features the most business-friendly environment in the USA. 

A Wyoming LLC is the most favorable business structure in the USA, as it offers the best features of a corporation and a partnership. 

Here are some other reasons why you will appreciate Wyoming as the registration place for your administrative company and should book our professional help with the application for a Wyoming LLC incorporation:

• Limited liability and safe asset protection. Your limited liability regarding a Wyoming LLC will be well protected by the law, even if it has only one member – you.
• Privacy.  Your Wyoming LLC will not be required to share the owners’ personal/financial details with anyone. 
• Special ownership structure. Wyoming LLC members will be entitled to percentages rather than shares. The percentage is specified in the Operating Agreement – a private document, not filed anywhere. The Wyoming LLC members may hold membership certificates as proof of their contribution to the company.
• A particularly beneficial tax system. Your Wyoming LLC will be taxed as a partnership, i.e. the company members will share the company’s profits regarded as private income. Non-residents of the USA whose income is not sourced within the USA are not taxable in the USA. Taxes may be due in their place of residence.
• Numerous tax benefits. There is no corporation tax, no tax on intangible assets, no excise tax, etc.
• No taxation of private trust companies in Wyoming. They exist and do business outside the Federal tax system.
• The “life span” of trusts in Wyoming is up to 1,000 years.
• Trusts can be of any type – regulated and unregulated
• Simplified and inexpensive registration/renewal of any Wyoming LLC. It takes about 1 week in Wyoming to register a Wyoming LLC, which is much faster than in other states
• No restrictions on Wyoming LLC owners’ nationality.
• No minimum capital requirements.
• No AEOI liability. While the US does not participate in the automatic exchange of information within the OECD, Wyoming offers the most privacy of all states.

Offshore Merchant Accounts with Stripe и Wise (Transferwise) Payment Systems 

Most non-resident owners of Wyoming LLCs wish to open an offshore merchant account with US banks. Yes, anyone can open a US business bank account to do business in the United States and take it abroad on behalf of a US company, but certain exceptions apply. 

The only potential issue with the model for building your digital business on the basis of a Belize offshore LLC + administrative Wyoming LLC can be the opening of a business bank account. 

The matter is that as soon as you open a Wyoming LLC with any U.S. bank, you may become liable to pay taxes. The U.S. Internal Revenue Service (IRS) monitors such offshore merchant account holders very carefully.

If you open an offshore merchant account in any offshore or midshore jurisdiction, you may have issues with payments in USD. Banks in offshore jurisdictions avoid such clients, and financial institutions in midshores and classical onshores also tend to distance themselves from such clients. The reason is they would rather avoid the potential risks of becoming subject to very meticulous monitoring by FATCA.

So your Belize offshore LLC and administrative Wyoming LLC may very well be left without banking services if you don’t think through these issues in advance. There are no easy answers to complex questions, and the chance that banks will “like” customers who could potentially attract the attention of the IRS in the USA is very slim. Especially when the parent company is located in Belize.

In this tricky situation, an offshore merchant account with Stripe or Wise payment systems is quite a fortunate solution for a Wyoming LLC, a Belize offshore LLC (or any other company) running a digital business with a focus on the USA and seeking to reduce or even zero out taxes. A combination of these two payment systems can be an ideal option that reduces the risks to almost zero.

How does this work? The point is that these services have slightly different focuses. 

Stripe will help your Belize offshore LLC to efficiently process credit card payments. With Stripe, your customers in the USA can legally pay for digital goods, and you can receive that money just as legally. But Stripe specializes in processing bank card payments and is not suitable for opening a corporate account. 

Wise, on the other hand, is much better at corporate tasks. You can manage and dispose of your assets without any limitations, and in several currencies at a time if you hold an offshore merchant account.

2 Keys to Your Digital Business Paradise 

The recommended strategy of setting up a Belize offshore LLC and its administrative Wyoming LLC is quite feasible and legitimate. However, in case of some mistakes at the stage of its implementation, IRAS may perceive your company as one engaged in US trade and business thus subject to US taxation. To avoid such a risk, please follow professional recommendations.

Here is how the model can help you:

Your Belize offshore company

• digital business and ownership of the intellectual property
• revenue of up to USD1,000,000
• expenses of up to USD505,000
• US administrative company commission of USD50,000
• Taxable income USD445,000
• Total tax USD0.00
• Net income USD445,000.

Your US administrative Wyoming LLC

• revenue of up to USD50,000
• expenses of up to USD2,000
• US administrative company commission of USD50,000
• Taxable income USD48,000
• Total tax USD8,000
• Net income USD40,000

While you can have the total net income of USD485,000 (compared to USD350,000 in the 100% US-based scenario), you will save over USD135,000 every year by implementing the recommended combo model.

In terms of tax savings, an administrative Wyoming LLC will be a very beneficial option for your digital business. The offshore LLC can be registered in Belize or any other suitable offshore jurisdiction. For advice, please book a free private online consultation with our expert.

To implement the recommended combo model successfully, please make sure that  both companies are independent of each other in decision-making and doing business. Another piece of advice is not to set the rates payable for your US administrative company’s services too low.

Costs you should expect to incur

The double advantage of the recommended combo model is as follows. On the one hand, in Belize, your offshore company will not pay taxes unless the business is conducted locally. On the other hand, in the U.S., quite benign taxes will be payable if the administrative company is registered as a Wyoming LLC (subject to the principle of pass-through taxation). Profits from the business will be transferred directly to the founders of the LLC, i.e. you. Consequently, to avoid any claims from the U.S. Internal Revenue Service, you need to pay personal income tax.

As long as you have no other income or tax liability in the U.S., only the amount of $48,000 will be taxed (see above). The current tax rates and the tax sum (USD 8,000) payable are very low, compared to the amount (USD 150,000) that could be charged from your million-dollar digital business if you did not involve the US administrative company. 

Other expenses of running your digital business will include the fees for opening and maintenance of a corporate bank account, the annual renewal fee, and the maintenance costs.

The actual amount of costs depends on the number of transactions and the need to involve professional accounting services, some other factors. If you have appropriate competencies and experience in running a company, you may be able to keep your digital business costs well under USD 5,000.

The Main Takeaways

This article recommends a combo model for building and maintaining an international digital business on the basis of a Belize offshore LLC and its administrative Wyoming LLC (USA). 

– The income of the Belize offshore LLC  will not be taxed as long as it is generated outside Belize 

– The income of your administrative Wyoming LLC will be passed directly to its members (i.e. to you), so your personal income tax brackets will apply.

The overall costs of building such a combo structure will be quite reasonable, while the total savings can be very rewarding. However, you should accept it and keep in mind that the complexity of your tax reporting will go up. 

To avoid mistakes that can cost you a fortune, you are welcome to order our professional services. This approach will spare you of any errors and provides answers to such questions as How much time and money will the registration stage take? What documents do you need to prepare? What do you need to pay special attention to at the pre-planning stage – to avoid wrong steps? How to distance yourself as much as possible from the IRS without coming into conflict with it? Isn’t it risky to start 2 companies at once – a Wyoming LLC and a Belize offshore LLC?

We have not provided you with more specific figures, timelines, or other details in this article because there is none and cannot be any simple and unambiguous answers to most of the above-mentioned questions outside a case-by-case discussion. 

Therefore, we strongly recommend that you should order a FREE private online session with our expert to discuss whatever practicalities you may need to know. Just send us a request to our e-mail address (info@offshore-pro.info) or contact us in the messengers given at the top of this page.

Offshore Pro provides US banking and signatory services and can also help with merchant accounts for all types of businesses. Fees are usually based on a small percentage of turnover.