[jibjab]

That's a great reply. Thank you. Maybe you could save comments like these and put them on taxgeek.com :-).

I'm not trying to evade taxes. I'm European, and I pay taxes here. Still, even in Europe getting a Merchant Account is difficult. I'm simply looking at this because the cost (money/time) of starting and maintaining a Delaware Company might be less than the cost of setting up a Merchant Account over here.

Without US company:

1. Europe company sells subscription for 20/month

2a. Taxable income in Europe

2b. No taxable income in the US

With US company:

1. Sell subscription through a US company for $20/month

2. US company receives $18 (Merchant Account keeps 2)

3. US Company buys subscription at Europe company for $18

4a. Taxable income in Europe

4b. No taxable income in the US

Am I really "draining taxable income" if in the other scenario there wouldn't be any US taxable income either??

Is this what you recommend:

1. Sell subscription through a US company for $20/month

2. US company receives $18 (Merchant Account keeps 2)

3. US Company buys subscription at Europe company for $17

4. Profit of $1 per subscription per month

5. Business expenses (including accounting & tax return)

6a. (eg) 5% of total revenues is now taxable income in US

6b. (eg) 95% of total revenues is taxable income in Europe

Of course I would need a good accountant, but things still look pretty simple to me... The only thing I need to calculate business income / expenses is how many subscriptions were active during a month. Please do understand the cost (time/money) of getting a Merchant Account over here. I like to keep things simple too, and it might just be the US route is simpler.

[philiphodgen]

Until your revenues are huge I think your idea is fine. Keep as simple as possible. Leave a bit of profit in the Delaware company. Keep your paperwork straight.

This is pragmatism, pure and simple:

- you are making sales (yay)

- if you get audited the challenge will be on the basis of the price that your European company gets from the Delaware company. The worst case outcome probably isn't too bad.

- Unless you are making tens of millions, your Delaware corporation will be a tiny taxpayer among all of the corporations in the USA. Low profile. Clean paperwork. Don't attract attention etc. :-)

- one last thing. Look at the treaty between your country and the USA. Sometimes there are odd little things you can use to pull business profits out of the USA easily and without tax. Or less tax anyway.

If you don't make a sale you don't have a tax problem. So first make a sale.

[JoshTriplett]

> Am I really "draining taxable income" if in the other scenario there wouldn't be any US taxable income either??

If you're going to get involved in the complexities of a country's tax system, never make the mistake of attempting to apply rational logic to it. That's a quick way to get into trouble.