Cross border independent consulting- how's it work?
October 16, 2012 5:09 PM
Cross border independent consulting- how's it work?
Lately there are so many stories about people from the US who get the travel bug and start up some sort of business that they run while traveling from country to country internationally. The book "The $100 Startup" is full of them- one example I remember is someone who travels around helping people, one client at a time, completely immerse themselves in a foreign language.
Anyway, I'm in a situation where I need to start understanding the logistics of this kind of thing. I have three specific questions:
1) Do you need anything beyond a tourist visa to do this? If your company is based in the US (or some off-shore place, see question 3) and you receive money in that bank account, do you need rights to work in that country? I'd like to do this where I am now, where I have the right to live but not work.
2. Do you only have to worry about tax implications in the country where you receive the money?
3. Should I be setting up company in an off-shore place like the British Virgin Islands or something? I wouldn't do anything illegal like not report income, but I guess I can control when I pay myself salaries from the company this way?
So basically I want more details about how these international 1 man show entrepreneurs do this in terms of visa and tax issues. Please help!
Lately there are so many stories about people from the US who get the travel bug and start up some sort of business that they run while traveling from country to country internationally. The book "The $100 Startup" is full of them- one example I remember is someone who travels around helping people, one client at a time, completely immerse themselves in a foreign language.
Anyway, I'm in a situation where I need to start understanding the logistics of this kind of thing. I have three specific questions:
1) Do you need anything beyond a tourist visa to do this? If your company is based in the US (or some off-shore place, see question 3) and you receive money in that bank account, do you need rights to work in that country? I'd like to do this where I am now, where I have the right to live but not work.
2. Do you only have to worry about tax implications in the country where you receive the money?
3. Should I be setting up company in an off-shore place like the British Virgin Islands or something? I wouldn't do anything illegal like not report income, but I guess I can control when I pay myself salaries from the company this way?
So basically I want more details about how these international 1 man show entrepreneurs do this in terms of visa and tax issues. Please help!
Not legal advice, not a lawyer, etc, etc. But I've worked a lot while traveling. I may be screwing something up horribly, but my tax woman says I'm doing everything right and I've never gotten undue attention in the 7 years I've been doing it.
The short version is this: As long as you pay the taxes that the US is expecting you and your business to pay, no one will care.
My business is based in the US, has a US mailing address, phone number, etc. I use an American bank (one that has no fees for using foreign ATMs and gives a market exchange rate). All the money I earn is through the US bank and paid out through the US bank to me.
I travel on tourist visas but maintain my "tax home" in the US since its the only address I have that doesn't change. The IRS is apparently cool with that, even if I don't set foot in the US in a given year. They really just want to make sure they get their cut.
The only real drag is doing expenses since I have to convert them back to US dollars.
Other countries aren't going to care or even notice. It's the equivalent to traveling to the country for a business conference. Yes, you're doing "work" there, but you're not an employee for a business in that country. You're just visiting and happen to send some emails and make some calls back to your company while you're there. Like any modern executive on vacation.
Don't overstay your visa and no one will care.
To answer your questions:
1) Not in my experience, no.
2) I receive the money in the US to my US bank account and that's what I'm taxed on. Withdrawing it to spend in another country doesn't matter.
3) No, not really. The IRS is wise to that kind of tomfoolery and will give you extra special attention. It's also a giant hassle, takes particular expertise to deal with correctly, and takes things out of your control. Just pay your taxes, consider it the price of having a friendly consulate available in every country you visit. Talk to an accountant to see what you can expense, deduct, and otherwise do to reduce your tax burden. You might be surprised at how low you can get it when you run a business.
posted by Ookseer at 9:00 PM on October 16, 2012
The short version is this: As long as you pay the taxes that the US is expecting you and your business to pay, no one will care.
My business is based in the US, has a US mailing address, phone number, etc. I use an American bank (one that has no fees for using foreign ATMs and gives a market exchange rate). All the money I earn is through the US bank and paid out through the US bank to me.
I travel on tourist visas but maintain my "tax home" in the US since its the only address I have that doesn't change. The IRS is apparently cool with that, even if I don't set foot in the US in a given year. They really just want to make sure they get their cut.
The only real drag is doing expenses since I have to convert them back to US dollars.
Other countries aren't going to care or even notice. It's the equivalent to traveling to the country for a business conference. Yes, you're doing "work" there, but you're not an employee for a business in that country. You're just visiting and happen to send some emails and make some calls back to your company while you're there. Like any modern executive on vacation.
Don't overstay your visa and no one will care.
To answer your questions:
1) Not in my experience, no.
2) I receive the money in the US to my US bank account and that's what I'm taxed on. Withdrawing it to spend in another country doesn't matter.
3) No, not really. The IRS is wise to that kind of tomfoolery and will give you extra special attention. It's also a giant hassle, takes particular expertise to deal with correctly, and takes things out of your control. Just pay your taxes, consider it the price of having a friendly consulate available in every country you visit. Talk to an accountant to see what you can expense, deduct, and otherwise do to reduce your tax burden. You might be surprised at how low you can get it when you run a business.
posted by Ookseer at 9:00 PM on October 16, 2012
I live abroad as an independent consultant with clients in the US and other countries that aren't the country where I live. Like Ookseer, I'm incorporated in the US (as a one-person LLC), have a US mailing address and phone number with EarthClassMail and Skype, and have US bank accounts. I access my money in other countries through ATMs.
The US taxes the world-wide income of its citizens. As long as you remain a citizen of the US, you must pay taxes to it, even if you never set foot in the country again. However, the foreign earned income exemption means that you don't pay tax on the first $91,500 (or so, don't remember exactly) of earned income if you're technically a resident of another country. There are various ways to determine residency for US tax purposes; the simplest is that you haven't spent more than 30 days in the US in the last 12 months (not sure I'm remembering accurately; check the link from Ookseer).
If you become a non-resident of the US for tax purposes, you would still have to pay the 12% (?or so) FICA tax, and you still have to pay quarterly estimated tax just as you would if you were running your business in the US. It's just that the quarterly tax you pay is a lot less than you would pay in the US. Last year I didn't make the quarterly payments and was only slightly penalized.
Whether you owe tax to the country you're in depends on the country. Many will have a tax treaty with the US so you don't end up paying tax to two countries at once. Filing requirements will also depend on the country. For example, you might be required to file but not to pay.
Whether you can legally earn money from the US while in the country also depends on the country. And even if the rules say that you can't have any sort of earned income while there, the reality may be different, because the rules might not be applied to people earning money remotely, with no local clients or employer.
I relied on local lawyers to decide what to do where I live, which is to have a "pensioner" visa. That visa requires me to have an income from the US to qualify, but they don't look at whether that income is earned or is passive, from investments. They just look at recent bank statements to make sure you have enough money coming in to not be a burden on their social services. I don't accept any clients in the country in which I live or do anything else that remotely resembles work for a local employer.
There's no reason to incorporate off-shore if you're going to have a normal sort of income. There's also no need to set up the kind of corporation that pays you a salary unless you're going to be consistently making enough to justify the hassle of all the additional requirements.
The simplest setup would be a one-person LLC incorporated in a tax-free state of the US (Florida, for example). You might need to establish residency in the state first. The LLC legally protects you a bit, at least enough to be worth the usually-minimal filing fee. You register the LLC in that state and get a business bank account that doesn't charge a lot for international withdrawals, and you're set.
A one-person LLC is a "disregarded entity" by the IRS, which means they view you as basically a person with some business income and expenses. This means you file the usual personal tax form plus a few extra statements. I do it with TurboTax online in a couple of hours. An S corporation or other more advanced setup has more complicated taxes.
If you're thinking of staying out of the US long enough to end your tax residency, there's useful information at US Taxation of Americans Living Abroad.
posted by ceiba at 12:23 PM on October 17, 2012
The US taxes the world-wide income of its citizens. As long as you remain a citizen of the US, you must pay taxes to it, even if you never set foot in the country again. However, the foreign earned income exemption means that you don't pay tax on the first $91,500 (or so, don't remember exactly) of earned income if you're technically a resident of another country. There are various ways to determine residency for US tax purposes; the simplest is that you haven't spent more than 30 days in the US in the last 12 months (not sure I'm remembering accurately; check the link from Ookseer).
If you become a non-resident of the US for tax purposes, you would still have to pay the 12% (?or so) FICA tax, and you still have to pay quarterly estimated tax just as you would if you were running your business in the US. It's just that the quarterly tax you pay is a lot less than you would pay in the US. Last year I didn't make the quarterly payments and was only slightly penalized.
Whether you owe tax to the country you're in depends on the country. Many will have a tax treaty with the US so you don't end up paying tax to two countries at once. Filing requirements will also depend on the country. For example, you might be required to file but not to pay.
Whether you can legally earn money from the US while in the country also depends on the country. And even if the rules say that you can't have any sort of earned income while there, the reality may be different, because the rules might not be applied to people earning money remotely, with no local clients or employer.
I relied on local lawyers to decide what to do where I live, which is to have a "pensioner" visa. That visa requires me to have an income from the US to qualify, but they don't look at whether that income is earned or is passive, from investments. They just look at recent bank statements to make sure you have enough money coming in to not be a burden on their social services. I don't accept any clients in the country in which I live or do anything else that remotely resembles work for a local employer.
There's no reason to incorporate off-shore if you're going to have a normal sort of income. There's also no need to set up the kind of corporation that pays you a salary unless you're going to be consistently making enough to justify the hassle of all the additional requirements.
The simplest setup would be a one-person LLC incorporated in a tax-free state of the US (Florida, for example). You might need to establish residency in the state first. The LLC legally protects you a bit, at least enough to be worth the usually-minimal filing fee. You register the LLC in that state and get a business bank account that doesn't charge a lot for international withdrawals, and you're set.
A one-person LLC is a "disregarded entity" by the IRS, which means they view you as basically a person with some business income and expenses. This means you file the usual personal tax form plus a few extra statements. I do it with TurboTax online in a couple of hours. An S corporation or other more advanced setup has more complicated taxes.
If you're thinking of staying out of the US long enough to end your tax residency, there's useful information at US Taxation of Americans Living Abroad.
posted by ceiba at 12:23 PM on October 17, 2012
This thread is closed to new comments.
You generally have to worry about paying taxes both where you earn the money and where you are a citizen, though that might vary depending on the specific countries in question. I certainly am not personally familiar with the tax laws of all countries on the planet.
A one man operation is usually a sole propietorship, which doesn't involve incorporation. (But maybe that is not what you meant by "setting up a company"?) In the U.S., sole propriatorships tend to involve registering a fictitious business name with the county (assuming it has a fictitious business name, which it may not), and opening a business checking account. I guess you could have an offshore business bank account but I have no idea why you would wish to do that.
I never got really farther than that. Hopefully someone who knows more will chime in shortly.
posted by Michele in California at 8:27 PM on October 16, 2012