UK/International Business Paypal & American Private LLC Company | Tax Law Advice

Hi there.

I will briefly provide you with some background information on the future of my virtual goods business, and then I have a couple of questions.

I am from the UK, therefore have a UK business Paypal. The UK Private Limited company that I registered and used with the paypal is now dissolved as I am moving to China in a little under 2 months from now.

Due to the complexities of wiring money in and out of China due to very strict limitations and financial laws for expats, it would be hard for me to operate a business from China with the VISA type I will hold. As I will have no fixed address in the UK I will not be able to easily run a company from the UK, plus I would rather not anyway for private reasons.

To put a long story short and keep all of the laws out of it, this is what my business partners and I have been discussing:

- My Paypal has the ability to have offshore bank accounts added to my Paypal. A USA bank account will be added which in combination with my UK bank account creates what is known as an International Business Paypal Account.

- My American business partners are going to aid in setting up an LLC in Delaware, where out-of-state income is not taxed.

Questions:

1) Would it be best for me to register a fresh Paypal in the name of the company?

2) As the entirety of sales are online, would all income be considered "out-of-state"?

3) In the USA is there a tax free bracket on the first $10k earned like there is in the UK?

4) So even if people actually located in Delaware purchase gold/services from us, if the total number of buyers from Delaware is less than $10k for example, would that also be tax-free?

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I have no experience with American tax. From my understanding, there is both a federal corporate tax rate, and a state corporate tax rate. So even if your sales to non-Delaware residents were taxed at 0% on the state level, they would still be taxed on a federal level.

Furthermore, I have no idea what you mean by an "International Business Paypal Account". Do you have a link which outlines the details of this account type?

Another concern is that your Paypal account was originally created under the UK Private Corporation that you say is now dissolved. I don't think you will be able to simply operate it under the control of a new company, especially one in a different country (USA vs. UK). I suppose if they had the exact same names, and you attached a bank account that matched the company's name in the UK, it may be difficult for them to tell the difference.

However, if they asked for documents supporting it, and you showed them a separate USA company as the new operator of the Paypal account, I would assume that would be a major problem.

If you make a new Paypal account for the US company, you're also in a position where your account is under the control of another person or people in the USA. These people could very well take control of the account at any time and bar your access, and take the funds. So you're putting a lot of trust in these people. They would also be responsible for filing the taxes and paying them. Essentially, you're really mixing yourself up with these people, so I hope they are people you trust.

It's very difficult to set up a business Paypal account in a country where you are a non-resident. I've looked into it myself. If you are going to be a resident of China, I suggest you look more deeply into opening a business there and operating out of China.

 

Thank you for your thoughts I will respond to some of the points you have made just to clarify in further detail.

Beginning with the "International Business Paypal". The term is not solid. It began by me researching if I could have 2 bank accounts added, 1 from the US, and 1 from the UK or China. I was told that the only way to do this is to call paypal up and they can accept the addition of a US Business bank account, but it can only be added from their end.

There are two partners in the United States. Both I trust very well, and one of them I have trusted with a little over $80,000 in total over the past couple of years. The other is more of an advisor and will be ensuring our business accounts are up to scratch, and he will be responsible for all tax related responsibilities and/or issues that may arise.

The guy handling the business accounts and tax for us may not have access to the Paypal which will be set up by the first guy who I have trusted in the past with lots of money and we have a more personal relationship than business.

The guy handling the accounts will be taking a 20% (although not a final agreed percentage) of net profit through the additional payment processors that G2APay and some other cart plugins enable us to have. All paypal transactions will be taken through our customized paypal cart software that is separate from G2A. With the fraud prevention plugins and buying limits we plan to impose, it will be better for us to take PayPal outside of G2APay. Long story short, the guy will not have access to the paypal funds as if he does have access to the paypal it will be on a restricted employee login.

When it comes to the accounts for paypal, he will be provided with full detailed PDF/Excel reports monthly to track income, expenses, and losses etc.

The problem with operating out of China it is quite complex and restrictive with what a foreigner can do, especially with my Visa type. Wiring money out of china is very difficult to do as a foreigner unless you are approaching the end of your visa and are soon to leave the country, thus require your RMB (yuan) to be converted into your home currency. On a side note, I did consider operating from Hong Kong as it's easier to wire money through HSBC, however the expenses with this outweigh the positives, and the required permissions and paperwork could make the process unfeasible.

The most probable outcome will be that my business partner in the USA that I have a long relationship and good level of trust with, will be the one controlling the Paypal and although I have most of the final say with most of the business operations I will be considered an employee of the company.

I hope that helps understand the scenario a bit better. I wish I could provide more information as of now but we are still discussing with the other guy who is being somewhat an advisor in relation to setting all of this up

 

2018 Tax Brackets | Center for Federal Tax Policy | Tax Foundation

Assuming you’re a partnership or an S Corp. Additionally, Delaware may save you on state income tax but you’ll still need to pay federal income tax

 

@Lime I think your setup will be highly complex. You're asking a lot of these people. Specifically the guy who is registering the company under his name. But maybe you have no other option. Why are you moving to China?

 

I've been interested in the culture and have been learning the basics of the language for a couple of years. Since I traveled there in 2016 I've always wanted to go back as it has so much more to offer than the UK when it comes to manufacturing and business.

It's my only option to do this deal for now, atleast until I have been in China for a while and have networked well enough to even consider starting a company out there as a foreigner

 

I would advise not to setup this company in the USA.

For one the United States Supreme court just ruled online sales can now be taxed from anywhere in the USA. This means sometime in the future (not sure how long you want this llc to operate) sales tax will be owed on sales from most US states. It does not matter what state you operate out of. If you operate out of Delaware and sell something virtual to someone in New York you would owe sales tax. Sales from other countries wouldn't be subject to this, just USA based sales. Delaware charges no income tax, correct, but Federal obligations are massive.

Secondly, setting up a legit LLC with foreign partners in the USA can be rather difficult and costly. There is no $10k limit or much assistance that I'm aware of. The USA really favors US citizens. Namely when it comes to taxation. Since you will be hit hard by federal withholding taxes. You will be required, as a foreign partner, to withhold 35% of any income your share generates for Federal Tax. If you suffer a loss during a business quarter this doesn't matter, you just have to claim a refund at the end of the year. Having foreign partners can open your business to far more scrutiny from the IRS.

I could go on and on about why it's not a good idea. Just do a little research about what I said and see if you want to dive into that.