[toast0]

The problem with a person doing this style of tax avoidance is that the barrier to entrance is much higher than the gain.

Assuming general principals of US tax law, if you're already working as an independent contractor, you could legally set up a local company and an overseas company, have the local company bill the client, pay you a reasonable amount, and pay the overseas company the remainder for the use of its name (or whatever justification you like).

Your local company would have no net income, but may pay employer side taxes on your wages, and any minimum taxes on corporations in the local jurisdiction.

Your overseas company would have a net income, but you picked an overseas jurisdiction with low taxes, right?

You would have recognized income of the wages, and unrecognized capital gains in the overseas company. At such time as you take the money from the overseas company, that would be recognized as a capital gain.

At the end of the day, you have to run two companies, one in an unfamiliar jurisdiction, and you get to defer recognition of income and change the character of the income from normal income to capital gains. You may also have paid taxes to the overseas jurisdiction that I'm not sure qualifies for a foreign tax credit. It's a real gain, but it may not outweigh the costs.

If you're a direct employee of a company, it's also not an option, since you can't redirect your wages out of your recognized income.

[eloff]

You're right that it is a lot of hassle, but you're also missing the fact that it's a lot easier for Google to defend itself to the IRS than for you to do so. The amount Google would need to pay lawyers, in that case, is so much smaller than what they save on taxes, that it makes perfect sense for them. The opposite is true for you. For example, the IRS will probably call you on your name licensing trick and charge you with tax evasion. Even if you could afford to defend yourself, you'd probably lose the case.

Also, I'm not an expert on the subject, but I seem to recall reading that in some countries, corporate tax tricks like that don't work for one-person companies. It depends on how many full-time employees the company has.

I think it's ridiculous that big megacorps can eliminate huge parts of their tax burden while the regular Joe cannot. The system is overly complex and tilted in the favor of the rich and large companies. That's not what the people agreed to when they accepted a taxation system during and following the first world war.

[charlesdm]

Yes, if you're making $50k a year. But not if you're an entrepreneur pulling in $1m a year. Everything involving intellectual property rights is generally very fluid and easy to move around.

A smaller scale example would be living life as a perpetual traveller°: an internet based entrepreneur who makes $200k a year and bases him/herself in a jurisdiction that does not tax income. Or who travels around between countries to avoid tax.

Instead of paying 40% tax on $200k (= $80k gone, poof) you put that in your pocket and use that to pay for travel expenses. "Going into tax exile" essentially ends up paying for itself, and then some. That is why companies (and individuals) participate in tax avoidance.

°: exception; this doesn't apply to Americans. You get to pay US taxes wherever you reside, above a certain income threshold.

[csomar]

How does this apply to other countries? Aren't you supposed to get residence in some country before losing the residence connection of your original country?

That being said, there are countries with loose taxation like Thailand where you can establish residence and avoid taxes as long as you are not operating in the country itself.

[charlesdm]

Not really, but it's better to have official residency somewhere, though. Some countries are quite flexible on residency, however. Cyprus offers residency after spending 60 days per year in the country, and exempts foreign income from tax. In Malta you can get residency by paying €20k a year (no requirement to spend any time in the country), and foreign income is also exempt from tax, etc.

> That being said, there are countries with loose taxation like Thailand where you can establish residence and avoid taxes as long as you are not operating in the country itself.

I believe you can run foreign companies from Thailand without having to pay tax there, as they have no CFC laws. So the example the poster above gave basically applies, but you would book all your income in ForeignCo and take a small salary in the Thai company from fees you charge ForeignCo. That's essentially a zero tax country then.

[eloff]

Panama also does not tax foreign income. I worked remotely from Panama for many years and it was lovely. My take home salary was better than what could be achieved working for the likes of Google or Facebook, stock compensation not considered. I met my wife there too. But the threshold to get residency is higher.

[seanmcdirmid]

No countries tax foreign income but the USA and Eritrea.

[eloff]

Not true at all. Canada, for example, taxes your worldwide income.

USA and Eritrea are unique in that they will tax your worldwide income even if you no longer live in those countries (are non-resident.) No other countries in the world have the brass balls to do that.

[jaclaz]

>USA and Eritrea are unique in that they will tax your worldwide income even if you no longer live in those countries (are non-resident.) No other countries in the world have the brass balls to do that.

But to be fair there is a rather large exemption, around US$ 100,000 per year, the nuisance is that you have to file some tax forms anyway:

https://www.irs.gov/individuals/international-taxpayers/us-c...

https://www.americansabroad.org/us-taxes-abroad-for-dummies-...

>The Foreign Earned Income Exclusion (FEIE, using IRS Form 2555) allows you to exclude a certain amount of your EARNED income from US tax. For tax year 2016 (filing in 2017) this exclusion was $101,300.

[charlesdm]

The US is probably also realistically the only country in the world that would be able to do this and get away with it.

(Pretty sure Eritrea isn't collecting much from abroad..)

[seanmcdirmid]

Only if you are resident in Canada. A lot of countries do that. The USA will tax you even if you aren't resident as long as you have at least a green card or other immigrant visa.

How many people are collecting income from a full time job while living in Canada anyways? Doesn't foreign income (vs. say capital gains) generally imply non residency?

[sgt101]

From what I understand they will rebate your tax based on the local taxation you have paid, provided you can prove that.

Alternatively you can give up your citizenship... I think very few people with US citizenship ever do that.

[csomar]

The scheme you are suggesting is money laundering. The reason it might work for some big names is that those have stronger reasons to bill the off-shore jurisdictions.

For example, a Starbucks LLC in "NewTown","Small-EU-Country" is fine billing an "off-shore" company for the use of Starbucks name.

The same is not fine if you are opening a local coffee shop.

[charlesdm]

His example wasn't perfect. But say you create an app. You can definitely hold those intellectual property rights (+ sell it on the App Store) through a foreign company.

Different countries have different laws to combat the use of foreign companies, though. It might end up not being worth it because there are other costs associated with setting up an entity (e.g. some substance requirements)