Hello Friends
Any experiences of incorporating a pvt. ltd company with USC/OCI ?
I am told that if majority of promotors (>50%) are foreign citizens then the entity becomes a foreign entity and taxation might be higher.
Also all the documents (passport/OCI ) have to be notarized by US consulate and they charge 1260 Rs per notarization.
Any pointers appreciated ....
Thanks In Advance
Taxation of Indian business income of USC+OCI
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bostonwhizkid
- Posts: 30
- Joined: Fri Jan 12, 2007 7:06 pm
Taxation of Indian business income of USC+OCI
There is no thread that specifically discusses the tax issues for setting up a business in India or even an independant consulting firm in India. I do know there are at least a few in this forum who are interested in this. For one there is DosaiLvr. Wanted discussions on some of the challenges especially in the worst case of both spouses as USC+OCI:
1. If you are self-employed then over and above the GOI tax of ~33% you have to pay 15% SS and medicaire tax. The SS tax is on income upto 94000. The 80000 foreign earned income exclusion does not apply here. This will result in almost 48% as tax. What are the strategies to minimize this really unfair burden legally? One way is to take lesser salary and get a good part of income as dividend distribution.
2. If it is setup as a private ltd. company in India in partnership or by single then there are other issues like being deemed a controlled foreign corporation or a disregrded entity. Want some discussions on the tax strategies related to this. what are the taxes like SS that you cannot really get double taxation credit in this case?
Double taxation is not too much of an issue for someone employed in a big company or small for that matter. It can come to bite you real bad. The US tax laws are really punitive against those US persons residing abroad with such stupid rules like the TD F form filing requirements. That said, we are not in a position to change the laws, the only options are strategies to legally avoid unfair taxation. For example the 33% GOI taxes is fair, the 15% IRS charges is patently unfair. Wanted some discussions on this.
Hoping for the tax gurus to chime in. I was exploring the possibility of becoming an independant consultant - not to make millions but more to have a lifestyle where I can work a few months, take a few months off etc. But with such taxation issues I am better off working at an IBM or a Tata or not being a USC at all if there is the promise of a really succesful business.
1. If you are self-employed then over and above the GOI tax of ~33% you have to pay 15% SS and medicaire tax. The SS tax is on income upto 94000. The 80000 foreign earned income exclusion does not apply here. This will result in almost 48% as tax. What are the strategies to minimize this really unfair burden legally? One way is to take lesser salary and get a good part of income as dividend distribution.
2. If it is setup as a private ltd. company in India in partnership or by single then there are other issues like being deemed a controlled foreign corporation or a disregrded entity. Want some discussions on the tax strategies related to this. what are the taxes like SS that you cannot really get double taxation credit in this case?
Double taxation is not too much of an issue for someone employed in a big company or small for that matter. It can come to bite you real bad. The US tax laws are really punitive against those US persons residing abroad with such stupid rules like the TD F form filing requirements. That said, we are not in a position to change the laws, the only options are strategies to legally avoid unfair taxation. For example the 33% GOI taxes is fair, the 15% IRS charges is patently unfair. Wanted some discussions on this.
Hoping for the tax gurus to chime in. I was exploring the possibility of becoming an independant consultant - not to make millions but more to have a lifestyle where I can work a few months, take a few months off etc. But with such taxation issues I am better off working at an IBM or a Tata or not being a USC at all if there is the promise of a really succesful business.
Taxation of Indian business income of USC+OCI
I am not sure of this. That is why I wanted this discussion. I think Vernon Jacob's of offshorepress.com sells a booklet which deals with these issues. One thing I am sure of: If you are a USC anywhere in the world, and you are self-employed (which a consultant could be) then SS taxes is mandatory. and it is 15% as it would be here. It becomes a double whammy. Maybe starting a pvt ltd. company is far fetched, but going solo is not that uncommon. plenty of IT consultants here go solo once they get a GC. No reason why we cannot do a sole prop business there. So this discussion is not without merit. hoping for more posts.
MeraNaseebR2I;44866Interesting discussion. Folks keep this alive.
nand.
Didn't quite understand the SS and Medicare tax piece. Shouldn't this be mandatory for a US corporation and not a India based company.[/quote]
Taxation of Indian business income of USC+OCI
Do income arising from bank interests, rents, profits from land investments, income arising from businesses etc. in india, eliglible for SS and MEDICARE taxes for those USC/GC-R2i's?
Taxation of Indian business income of USC+OCI
#4
Do income arising from bank interests, rents, profits from land investments, income arising from businesses etc. in india, eliglible for SS and MEDICARE taxes for those USC/GC-R2i's?
The answer to the above is NO. A related extract from the official site www.ssa.gov
Q. What is the Social Security tax rate for a self-employed person?
A. The self-employment tax rate is 15.30%. The employee tax rate is 7.65%. The 7.65% tax rate is the combined rate for Social Security and Medicare. The Social Security portion (OASDI) is 6.20% on earnings up to the applicable maximum taxable amount. The Medicare portion (HI) is 1.45% on all earnings
Do income arising from bank interests, rents, profits from land investments, income arising from businesses etc. in india, eliglible for SS and MEDICARE taxes for those USC/GC-R2i's?
The answer to the above is NO. A related extract from the official site www.ssa.gov
Q. What is the Social Security tax rate for a self-employed person?
A. The self-employment tax rate is 15.30%. The employee tax rate is 7.65%. The 7.65% tax rate is the combined rate for Social Security and Medicare. The Social Security portion (OASDI) is 6.20% on earnings up to the applicable maximum taxable amount. The Medicare portion (HI) is 1.45% on all earnings
Taxation of Indian business income of USC+OCI
Good topic.
As you already mentioned it, you can't change the law. You can try to play with the rules. Form a corporation and start acquiring assets for your company. Increase the liability column for the company and show reduced income. Buy a property. If you form the company in US, you can depreciate (1/27) of its value every year.
Suppose your income is let's say $50000, and you own a property worth $500,000
The P&L statement of LLC will look like as follows.
Income - 50000
Dep of asset - 18500
Debt servicing - 10000
Other expense (xport, supplies etc) - 5000
So, effectively, you have to pay tax for around $17000. You have to form the company in US to take advantage of the depreciation clause.
As you already mentioned it, you can't change the law. You can try to play with the rules. Form a corporation and start acquiring assets for your company. Increase the liability column for the company and show reduced income. Buy a property. If you form the company in US, you can depreciate (1/27) of its value every year.
Suppose your income is let's say $50000, and you own a property worth $500,000
The P&L statement of LLC will look like as follows.
Income - 50000
Dep of asset - 18500
Debt servicing - 10000
Other expense (xport, supplies etc) - 5000
So, effectively, you have to pay tax for around $17000. You have to form the company in US to take advantage of the depreciation clause.
Taxation of Indian business income of USC+OCI
I am not sure whether you have to pay SS tax if you form a corporation in India. The corporation in India is bound by Indian tax laws. You will show up as an employee of the corporation. Being the employee of the corporation you need not pay the SS tax.
Taxation of Indian business income of USC+OCI
layman - dont the assets need to be connected to your business? It can be a factory building or a office building but can it be a house or jewellery? I dont think so. Also I think SS taxes are payable if the majority owner of the FOREIGN company is a usc.
layman;45152Good topic.
As you already mentioned it, you can't change the law. You can try to play with the rules. Form a corporation and start acquiring assets for your company. Increase the liability column for the company and show reduced income. Buy a property. If you form the company in US, you can depreciate (1/27) of its value every year.
Suppose your income is let's say $50000, and you own a property worth $500,000
The P&L statement of LLC will look like as follows.
Income - 50000
Dep of asset - 18500
Debt servicing - 10000
Other expense (xport, supplies etc) - 5000
So, effectively, you have to pay tax for around $17000. You have to form the company in US to take advantage of the depreciation clause.[/quote]
Taxation of Indian business income of USC+OCI
nand;45302layman - dont the assets need to be connected to your business? It can be a factory building or a office building but can it be a house or jewellery? I dont think so. Also I think SS taxes are payable if the majority owner of the FOREIGN company is a usc.[/quote]
You form companies A, B and C. Company A owns B and C. Company B is where your consultancy business is. You register company C for investment in residential house or jewellery or whatever you want. Now, the P&L of of A is consolidated P&L of B and C. The more you make money in B the more you build assets and build depreciation and debt in C so that it smoothens your net tax.
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mumbaite05
- Posts: 18
- Joined: Wed Jun 20, 2007 1:55 am
Taxation of Indian business income of USC+OCI
a quick question on the 15.2% SE tax, in case of sole-proprietership or partnership operating in India - is it paid on net income or on incoming revenue?
to rephrase, if the business has multiple arms say consulting, education & training, etc, how is the SE tax calculated?
e.g. say consulting brings in money ($X per annum) with minimal expenses (say $0), while education & training brings in less money (say $Y) with huge costs (say $Z)
in that case the net income for the sole-proprietership will be $(X + Y - Z)
Is SE tax calculated & paid on $(X + Y - Z) OR is SE tax paid on $(X + Y)?
- mumbaite05
to rephrase, if the business has multiple arms say consulting, education & training, etc, how is the SE tax calculated?
e.g. say consulting brings in money ($X per annum) with minimal expenses (say $0), while education & training brings in less money (say $Y) with huge costs (say $Z)
in that case the net income for the sole-proprietership will be $(X + Y - Z)
Is SE tax calculated & paid on $(X + Y - Z) OR is SE tax paid on $(X + Y)?
- mumbaite05