“Kathleen, I live in the United States now but plan on moving to Panama sometime next year. I am starting an Internet-based business, an online education site.
“Can I do this as an overseas business at this point? I have not registered the business yet, as it is still in the making, but it should be up in a few weeks.
“What is the first step toward making this an international venture even though I’m still residing in the States (if that is a possibility)?”
— Peggy D., United States
Our resident international tax and business expert replies:
In fact, setting up the business offshore now, in advance of your international move, will save you time, expense, and hassle when you do move abroad.
You can form an international business corporation in, for example, Nevis, set up your web hosting and other services in the company name, and open bank account(s) in the United States and abroad. While you are living and working in the States, 100% of the income earned in the corporation is taxable in the States.
Once you move abroad, however, you can begin to use the foreign-earned-income exclusion to eliminate personal income tax on the first US$91,500 of salary, as well as the self-employment tax of approximately 15%.
In contrast, if you begin life as a U.S. corporation, and then move your business abroad, you may need to sell that U.S. company to the foreign corporation. This transfer may need to be valued, and you may be liable for tax on the gain (growth in the value of the business while living in the United States), as well as for other tax and accounting complexities.
By planning your exit ahead of time, you eliminate these issues. You also maximize asset protection from day one.