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Discussion Starter · #1 ·
OK, if you want the "official" explanation of all this, go to the IRS website and download Publication 54, which is what they send out to overseas residents.

Actually, the calculation is a bit different from what you indicate and it will depend on how you set up your business. Depending on the local laws wherever you wind up, you may do better to set up your business as a "company" there under the business rules and then set yourselves up as employees of the business. Then, there is no question about your salaries being "earned income" and subject to the earned income exemption. (Actually, you can just pay yourselves the amount of the exemption if you want and leave the rest of the money in the company or to cover company expenses.)

As a local employee, you'll be subject to local taxes and social insurances (health, retirement and whatever else there is) - which is actually not a bad idea at all. The good news is that the company itself is NOT a US resident and so is not subject to US taxes - just to the local business taxes.

If you set things up so that you're "self-employed" things get a bit more complicated, as there is the question of whether or not you have to pay US social security (at self-employed rates). Then again, some countries won't allow you to be "self-employed" for a serious business if you're going to be hiring other people and whatever.

In any event, if your earned income exceeds the current limit (and remember, if your wife is employed by the company she gets her own income exclusion in the same amount), you then take foreign tax credits for what you pay in income tax locally. The trick here is that foreign tax credits put you in line for the AMT (alternative minimum tax) calculation, which can lead to you paying tax to the US.

Basically, if you set it all up right, you shouldn't have much, if any, problem with double taxation.
Cheers,
Bev
Dear Bev,

I like your comments that setting up a company in Singapore is not considered a us resident, hence, no income tax is due. Can u double check on that?

my wife and I are trying to setup business in HK but were told there is company income tax to be due in additional to salary tax, similar to the us.
Is that true as long as this company is not affiliated with us or making money from US is ok?
Can u elaborate more? Thanks!

Jason
 

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Have moved you over to the Expat Tax thread. The thread you replied to was kind of "dated" (i.e. from 2010) and things have changed a bit since then.

You may have heard of some US legislation called FATCA, which has just recently come into full effect (bits and pieces have come into play over the last couple of years).

Assuming that you and/or your wife are US citizens (that's not what your flags indicate, but lots of folks get confused in setting those things up), then it depends on exactly how your company is set up as to whether and how you may or may not have to report the company financial results to the IRS.

IIRC, the thread you posted to concerned how to treat income from a company established overseas by Americans. And the comments I made at the time were in relation to how to make sure the income from a small company could be treated as salary, and thus subject to exclusion using the FEIE. Very often, if you set things up so that your remuneration is clearly "salary" the company/business itself will pay its own income and payroll taxes (to the government where the company is established).

Where things now get tricky is when one or more US citizen owners hold 10% or more of the company, in which case there are a bunch of reporting requirements under FATCA. However, even this doesn't make the company itself a US resident, nor is the business subject to US taxes.
Cheers,
Bev
 

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Discussion Starter · #3 ·
dear Bev,

thks for the quick reply. company wants to setup is an IT consulting providing IT HR services(mostly programming). me and my wifes will be the sole directors. what's the best way to setup this local company to optimize our tax benefits? I understand as a local company, we will be taxed on our salaries only. What about FATCA reporting, etc...the nine yards?

Ths,
Jason
 

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As "directors" you may wind up having to do some of the FATCA reporting - it depends on the precise set up of the branch or whatever in Hong Kong.

We've got a few members here with far more experience than I have, both with FATCA and with company taxes. Let's see if we can flag them down.
Cheers,
Bev
 

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Discussion Starter · #6 ·
thks

Thks bev n Dave....u guys made my day! Should u have any more info in setting-up a company with best information in tax savings, pls let me know. Sds like we are in the long-haul staying here!
 

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Discussion Starter · #7 ·
Can u advise once this oversea company is disposed or sold? what kind of tax reporting or tax due(if any) then to the directors?
 

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Discussion Starter · #8 ·
Bev,
Any update? hope I get as much info b4 setting up my company!
btw, any good accountant or lawyer familar with oversea expat company setup n tax matters u can advise, thanks so much!
 

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The various structures available can really affect your tax situation, so I would strongly recommend discussing with an accountant so that they can crunch some numbers and determine the pros and cons of each set up with you. Unfortunately with the few details that have been provided, it is impossible to determine the best route for you to take tax wise.

<snip>

Best of luck!
 

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As David said, you really need to talk to an accountant, not only for the US tax implications but for information on setting up a company in Hong Kong (or wherever) and the financial implications of that.

If you are Americans, you may want to contact the US Embassy or Consulate in Hong Kong. They may have information on accountants or groups that can help you in setting up a business there.
Cheers,
Bev
 
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