Hi everyone!
is there any benefit of starting my small business in Taiwan vs US when it comes to tax es while being a dual citizen? It’s a small business but it’s growing into a good side hustle 
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Taiwan has in general 5% VAT rate, in USA it be 0% to more than 5% dependent on local rates
Income Tax in USA vary by location too. USA in general has higher taxes
Taiwan refunds the 5% tax when you export your product. Overall Taiwan is a much better place to do business than the US. The US has low import duties so it’s a good country to export to.
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As a dual citizen, because he would be >10% owner, he retains that compliance cost. Get ready to pay your CPA 5 to 10 grand a year (USD) .
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What is the 10% rule and the compliance cost rule for dual citizens? Also, it’s she haha
Good
Disclosure requirements to IRS and FinCEN are egregious. Depending on the business structure you choose, branch, subsidiary, independent limited company… there are forms to be filed. Big expensive forms. 5471 and 8858 can cost you more than your tax savings by having a foreign company. I suggest talking to a knowledgeable CPA on the front end, before making your decision. If you are service based and not in the millions of revenue, it can still be advantageous, but not cheap or headache free. There are a handful of US women running businesses here that I know of; they still find it worth it. Me included. Cost of living is better, so I don’t mind the tax burden as much.
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So it doesn’t fall under foreign income exclusion?
If she’s talking about forming a company, it is company, not her salary that makes the paperwork a pain. She personally coukd use FEIE if she qualifies.
So you can’t simply file it under other income, or is this an actual company like a LLC or corporation, not simply self employed work?
For US taxes, you can elect to treat a Taiwan corporation as a disregarded entity, basically like how an LLC works in the U.S. You still need to annually report a balance sheet for the company on the tax form for “foreign” controlled corporations, but the income is taxed as passing through to you as an individual.
Form 8832 is the form to elect to treat a foreign corporation as a disregarded entity:
That also means that as long as the company’s profits are related to your active work at the company, then the income counts under the Foreign Earned Income Exclusion.
The other thing to consider is self -employment tax. If you are employed by a non-US company and live outside the U.S., then you don’t have to pay US payroll taxes (Medicare and social security). Income from a U.S. LLC might be subject to self employment tax, however I’m not familiar with how U.S. LLCs work.
Would you then have to pay an additional ~15% self employment tax on that foreign company? This is in addition to the ~20% Taiwan corporate tax, and the 15% self employment tax is not eligible for any foreign tax credits? Plus all the penalties that go with forgetting one of those foreign controlled corporation forms.
Can you use corporate tax paid in the foreign country to to offset your personal tax in the US if you elect that foreign corporation to be a pass through for US tax purposes?
Sounds complicated. US foreign business ownership compliance is a headache that would keep me up at nights.
If your tw limited company (disregarded in US) pays you a salary in Taiwan, you can avoid US self-employment tax. Your salary can then qualify for either FEIE or tax credit. If you have remaining profit that you didn’t zero by giving yourself a bonus, that will be subject to SE tax AND tw corporate tax. Best to bonus yourself.
This strategy doesn’t preclude a big expensive form though, just the biggest one.
Yes, but not SE tax
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