TOTALLY tax-free up to $85,700?

I'm a US citizen hoping to set up a business which I can run from a laptop from anywhere in the world. I want to do this because I love travel and living in different countries. I would also like to minimize my taxes at least until I have some measure of financial security.

I understand the gist of the Foreign Earned Income Exclusion, which would allow me to earn up to $85,700 in 2007 free of US federal income tax. Additionally, I know that if I was a resident of a state with no state income tax before leaving the US, I would also be free of state income tax obligations.

Next, my thinking is that if I form a corporation in a tax haven country, have my employer(s) and/or client(s) pay that company, and then pay myself as an employee of that (non-US) company, I can also legally avoid paying FICA & Medicare or Self-Employment Tax.

Finally, by taking care not to become "resident for tax purposes" in any other country (by never staying in any country long enough in any given year), I hope to also be free of any tax liability to any foreign country.

Essentially, I envision dividing my time every year between 2 or more countries - some countries allow you to stay up to 182 days/year without becoming resident for tax purposes, others allow only 90 days/year, or some other number. In this way I hope to be able to pay myself up to $85,700 this year totally free of income tax.

Questions:

1) Is the above scenario possible to do 100% LEGALLY? I don't even want to be in a "gray area" - I really value my sleep. If not, why not? If so, how should I arrange my affairs in order to be 100% in compliance with all applicable laws?

2) How much money should I expect to pay every year to retain the services of a US tax attorney, maintain full compliance with the IRS, and maintain my corporation in the proper manner? If the answer is 'it depends', please outline what it depends on and provide a ballpark figure for each scenario.

3) How should I go about finding a top-notch tax attorney who has a lot of experience in the area of US expat taxation and can keep me out of trouble with the IRS? How can I be sure I'm getting someone good and honest?

4)  Which are some of the best countries to form a corporation in order to do what I want to do?  What I mean by best is: 
a)  good reputation, reliable country (not "shady", money-laundering center, etc.)
b)  no taxes on my corporate or personal income
c)  lowest costs for set-up and ongoing maintenance of the corporation

As a US citizen most of what you suggest would present you with highly complex US and foreign tax planning issues.

You would almost certainly find US contolled foreign company reporting would lead to a significan US tax obligation plus you would owe taxes in most countries you visit because you would not be protected by double taxation treaties.

You would also not qualify for the foreign earned income exclusion as you would not have a tax home.

I agree with guya, especially on the point that you have to establish a tax home somehwere else in order to avoid paying personal US taxes.  You also have to find countries that are going to allow you to enter the country but not immigrate for the periods of times you are talking about.

In practice this is a lot more difficult then it sounds, because most immigration schemes are geared towards you becoming a permenent resident and if you don't then you risk losing your rights to immigrate.

You also face the difficulty of doing business dealings with corporations that are not incorporated in the country you are performing services.  In lots of instances, while a global group can have a subsidery in the country, they need to incorporate the subsiderary in that country in order to legally operate.  This causes a huge issue with corporate governance and reporting issues to ensure you don't run afoul of the law.

Unless you are a billion dollar corporation, you won't have the money or resources to pull something like that off and you will spend more time on accountants and lawyers to keep it all straight.  I am sure there are plently of people who would love to sap all your money to keep your books straight and even then, you might end up like Willie Nelson or Wesley Snipes.

Hiya,

Wouldn't we ALL love to be able to do this!!

Pretty much what Guya and KitsonK have said applies, I just wanted to add another point. You need to strike a balance between all the 'wants' you've put in your post and the 'reality' of the situation you hope to be in. It may be that you can evaluate what the real 'tax' cost is in varying situations.

Some of the elements mentioned by Guya, you'd need to legally be based somewhere (more than likely the US) so that would immediatley put you in a 'certain scenario', maybe then look at the second steps of which countries you can go 'work with your laptop in' without paying tax by living there less than a certain time, is it worth it? what happens if something goes wrong? the 'double taxation treaty' for instance only applies to a limited number of countries, how would that fit in with your plans based on what you'd like to do?

Then do all the same evalutations if you were based in a tax haven country, how do those same scenario's compare? what's the difference? is it worth it, is it worth not having certain rights etc and so forth.

You'd probably spend more time losing sleep thinking if a tax lawyer was indeed 'keeping you in the lifestyle you want' than basing yourself in a simpler scenario where you pay the minimum amount of tax which allows you to sleep healthily and run your business & keep you out of trouble with the various tax men!

Good luck!!!

DtM! West London & Slough UK!

Also be sure you keep visa requirements in mind for these various countries in which you're thinking of working...

Thanks to everyone for the replies.

You guys have raised 3 issues:

1)  *I need to have a foreign tax home, i.e., be resident SOMEWHERE.*

But my understanding is that if I qualify for the Foreign Earned Income Exclusion using the Physical Presence Test (rather than the Bona-fide Resident Test), I would NOT need to have official residence (or a "tax home") anywhere - rather, I'd simply need to be physically present outside of the US at least 330 days per year.  Isn't this correct?

2)  *visa issues in the various countries*

I don't see why this would be a problem - most countries in the world grant visa-free access to US passport holders - usually for 90 days, sometimes for 180 days, etc.  Officially, I'd be a tourist wherever I went.

I wouldn't actually be employed locally in any of these countries, so I don't see why I'd need a work visa. 

As for "doing business" and requiring a business visa - isn't there a way to structure my business so that I wouldn't officially be doing business in the countries I'm actually present in? 

For example, my corporation and corporate bank account were in Bermuda, and I was visiting Hong Kong for a couple of months, and while in Hong Kong I bought something with my corporate credit card and then sold it to a US customer over eBay (with the money going to my corporate account in Bermuda), or over my own web-site. 

Example #2:  I am a translator, and while visiting the UK, I work on my laptop, translating documents from Japanese to English for a client in Australia.  Again, the client pays my corporation in Bermuda. 

Legally speaking, in the above examples, would I be in violation of my tourist visa?  Would I need a business visa to do something like that?  And is there some other way I could operate my business so as to not have to get a business visa?

3)   *US contolled foreign company reporting would lead to onerous reporting requirements and a significan US tax obligation*

This seems to be the only real kink in my plan, as far as I can tell.  If any of you can explain this in more detail, I'm all ears, and would greatly appreciate your effort.

Is there any way I could get around such reporting requirements?  For eample, what exactly is the definition of a US controlled foreign company?  Suppose my wife, who is not a US citizen, owned it - then what?  And what would the US tax obligation be on a Bermuda corporation, even supposing it were owned entirely by a US citizen?   

In order.

1)  Yes.
2)  Example 1)  Ask a multi-national immigration lawyer.  That's a legal question, not a tax question.
2)  Example 2)  Possibly Australian tax would arise from this situation.
3)  Your wife is a related party, resulting in an indirect ownership of the corp.  It'd have to be someone who isn't a blood or marital relative.  You'd want to get paid, so you'd end up getting taxed somehow somewhere along the line when you try to get money out of a corporation that you don't own.  I'd say you should talk with an international tax specialist, who understands multiple countries including the US. 

Is this material?  If you're income is under $82,500 (approx, it's indexed annually for inflation), you're not going to pay tax in the US anyways (provided you aren't in the US more than 35 days).  So why set up all this convoluted stuff?

Move to Dubai .  Totally tax free and you can set up a company fairly easy.  There are many free zones where you can set up your company.  When you set up the company you receive a resident visa automatically and only have to be in the country every six months to keep the valid visa.  Every three years, you have to renew it.   Also being based in Dubai, you have direct flights, to Asia, USA, and Europe.   I actually saw a promotion for setting up a business in Ras Al Kaima, http://www.rakftz.com/en/ or the most popular one where most of the multinational are based such as Microsoft, Oracle, and HP is Dubai Media City http://www.dubaimediacity.com/  ....Alternatively, if you don't want to set up a company here, you can just buy an apartment of house and you will automatically get a resident visa again.  Not too much bureaucracy.   

Good luck.   


Billman

2)  *visa issues in the various countries*

I don't see why this would be a problem - most countries in the world grant visa-free access to US passport holders - usually for 90 days, sometimes for 180 days, etc.  Officially, I'd be a tourist wherever I went.

I wouldn't actually be employed locally in any of these countries, so I don't see why I'd need a work visa. 

As for "doing business" and requiring a business visa - isn't there a way to structure my business so that I wouldn't officially be doing business in the countries I'm actually present in? 

Example #2:  I am a translator, and while visiting the UK, I work on my laptop, translating documents from Japanese to English for a client in Australia.  Again, the client pays my corporation in Bermuda. 
  

technically speaking, if you are physically present in the UK as a tourist, then you cannot do work.  This is regardless of where you are paid, what address is on the raised invoice, and where the client it.

Vicky

Yes, and most countries consider you employed where you are physically present.  You cannot come to the UK (or most other countries) and just work.  It is where the work is being performed where you need to have the right to work.