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US Citizen doing business abroad

Asked by: Nikki  — 23 March, 2013

The potential client is going to Abu Dhabi for work and will get paid $1M tax free to create/launch a Health Institute (like a consultant). Nice… But since he is a US Citizen, he would have to pay taxes on worldwide income. Is there a better way to go about this? Become an employee? Or could this potential client set up a consulting company to minimize the tax liability he would incur as a US Citizen? If so, which legal entity would be best? LLC, S-Corp, or a C-Corp? What are the PROS and CONS? He may potentially have US employees too.

Answered by: admin  — 23 March, 2013


Any US taxpayer be it an individual or LLC, S-Corp or C-Corp is going to owe tax based on worldwide income. An individual can qualify for a foreign earned income exclusion, but the amount of exclusion is $97,600 for 2013 and earnings over that amount in any one year are taxable.

There is the potential to avoid or at least delay, US taxation through setting up a non-US subsidiary, but that is typically only temporary as any earnings would be taxable in the US if or when those earnings are brought back into the US. Depending on the long term goals of the taxpayer he might at least defer paying US tax, but if he intends to bring that money back into the US at some point it will probably be taxed as foreign profits. There are some methods to further defer or avoid US taxation of re-patriated profits, but it is a complex area of the tax code that is very specfic to the taxpayer’s situation and way beyond what I would attempt to explain here.

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