Moving a business abroad as a US owner.

The United States taxes citizens and green card holders on worldwide income wherever they live. Forming a company in a low tax jurisdiction does not change that, and leaving the country does not either. So the first question in any US relocation plan is what happens to the owner, and only then what happens to the entity.

That is the opposite order to the way most offshore formation material is written, and it is the reason so many structures cost more in compliance than they ever save in tax.

A foreign corporation is a controlled foreign corporation where US shareholders holding at least 10 per cent each together own more than half its vote or value. A single US founder owning a company in Dubai, Singapore or anywhere else clears that threshold on formation.

Once a company is a CFC, two regimes reach into its profits. Subpart F picks up passive and related party categories such as interest, dividends, royalties and certain sales and services income. GILTI picks up most of what is left above a routine return on tangible assets. Both can tax the US shareholder on profit that stays inside the company and is never distributed.

There are elections that change the arithmetic materially, including the section 962 election for individuals and the high tax exclusion. Which of them helps depends on the local tax rate, the asset base and what you intend to do with the cash. They are modelling decisions, not defaults.

Form 5471 is filed with the annual return by US persons who are officers, directors or shareholders of certain foreign corporations. The failure to file penalty begins at 10,000 US dollars per form per year, and an incomplete return can stay open beyond the normal limitation period. Add Form 8992 for GILTI, Form 8858 for foreign disregarded entities, Form 1116 for foreign tax credits, and FinCEN Form 114 for foreign accounts above the reporting threshold.

None of this is optional and none of it is cheap. Before a structure is approved we price the annual filing burden alongside the projected tax saving, because a plan that saves less than it costs to report is not a plan.

If you live and work abroad, the exclusion can shelter a capped amount of salary earned personally for services performed outside the United States, provided you meet the bona fide residence or physical presence test. Housing costs may also be excluded within limits.

It does not shelter profits retained in a foreign company, dividends, interest or gains, and it does not remove the self employment charge for a sole proprietor absent a totalisation agreement. Treating it as a general offshore exemption is one of the most common and most expensive misreadings we see.

A foreign company that is directed from a US home office is exposed on two fronts. It risks a US trade or business or state nexus finding, and it fails the economic substance conditions its own jurisdiction now imposes. Free zone regimes in the UAE, and the substance rules across most low tax jurisdictions, require real people, real premises and real decision making locally.

Where the board genuinely meets, who has authority to commit the company, where staff and customers sit, and how decisions are recorded matter more than the incorporation certificate. Read our offshore company formation briefing for how we test that before recommending a jurisdiction.

Some clients keep the US entity and open a foreign subsidiary for genuine overseas operations, accepting CFC reporting in exchange for clean commercial structure. Some move personally under the bona fide residence test while the company stays put. Some look at Puerto Rico, which keeps US citizenship intact while changing the sourcing analysis for genuinely relocated activity, subject to real presence conditions.

A smaller number, usually those already living abroad permanently, examine expatriation and the exit tax that comes with it. That is a long horizon decision with consequences far beyond tax, and we only model it when the personal facts already point that way.

We map the owner's residence and filing position first, then the entity and where value sits, then the destination shortlist against real substance requirements, then the annual compliance cost of each option side by side. Only then do we recommend a route, and we put the technical position in writing before anything is filed or formed.

US federal and state returns are prepared by your US filing agent. We work alongside them on structure, destination and treaty position, and on the international side of the plan. Start a conversation if you want the numbers modelled before you commit.