Superficially, you seem misinformed. Matter of factly, a great problem would be that you're requesting advice on tax evasion on a public forum.
Ask HN: Should a German founder with a green card set up a holding company?
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Re: Ask HN: Should a German founder with a green card set up a holding company?
#22Superficially, you seem misinformed. Matter of factly, a great problem would be that you're requesting advice on tax evasion on a public forum.
"minimization" it is called
Re: Ask HN: Should a German founder with a green card set up a holding company?
#23For a German resident with options in a US company, would I also be able to transfer those options to an UG and then get taxed 5%?
I am neither a lawyer, nor tax advisor, but my layman understanding is:
If you transfer them (as in, you already own them as a private person and give/sell them to your UG), you will generate a taxable event where you might have to pay personal income tax on the current market value of the options. You probably don‘t want this to happen.
If you don‘t yet own them, then you might be able to set it up with your employer that shares are held my your holding. There are some explicit rules around being actively involved in the company and whether the 5% rule applies. I don‘t know the latest status quo of this and whether employee options would generally qualify for the 5% rule.
You only pay 5% of the tax. So if the corporate tax rate is 20%, your effective tax rate is 1%.
Re: Ask HN: Should a German founder with a green card set up a holding company?
#24The answer is No (as you can easily confirm by googling this). You should hold the shares personally.
Holding your shares through a US entity is not an advantage. Holding your shares through a foreign entity will cause you to get penalized if you continue to remain a US tax citizen.
The only situation where I could see an advantage would be if shares were held through a foreign entity and you hold them there (without an liquidation event) until you have surrendered your greencard and no longer meet the substantial presence test for US tax purposes and the resulting tax situation for you would be better than it was when you were a US citizen for tax purposes.
For example, if you held equity through, say, Malta, Panama, or the Caymans and you leave the US permanently, surrendering your greencard, and become a resident of a tax-advantaged jurisdiction for long enough that you are no longer taxable by the US, and only THEN your company exits, generating capital gains that could/would be distributed to you would be tax advantaged.
Re: Ask HN: Should a German founder with a green card set up a holding company?
#25For a German resident with options in a US company, would I also be able to transfer those options to an UG and then get taxed 5%?
That's a good question! I don't see a reason why it shouldn't work. There shouldn't be a difference between a founder holding shares and an employee holding shares. Not sure how options play into it though.
Re: Ask HN: Should a German founder with a green card set up a holding company?
#26The greencard doesn't really matter except for making it simpler to get a tax ID for your new company in the US. but its not really a hurdle or benefit or factor, since non-greencard non-citizens can be tax persons to the US, which is really the most complex part. The holding company is just for limited liability, as well as being incorporated domestically in the US simply makes it more familiar for banks and the tar…
Interesting, thanks for your comment. The question is then if the US will also tax my German holding company even if I don't withdraw any money from it to my personal account. If the US also taxes my holding company as if it were my personal income then there is no point in setting up a holding company for which I have to fly to Germany to make the signature ;)
Re: Ask HN: Should a German founder with a green card set up a holding company?
#27Superficially, you seem misinformed. Matter of factly, a great problem would be that you're requesting advice on tax evasion on a public forum.
I am still in team Europe and believe that taxes are important and that rich individuals can't take better care of public infra. I just don't want to make stupid mistakes at the beginning with my company structure.
Re: Ask HN: Should a German founder with a green card set up a holding company?
#28For a German resident with options in a US company, would I also be able to transfer those options to an UG and then get taxed 5%?
That's a good question! I don't see a reason why it shouldn't work. There shouldn't be a difference between a founder holding shares and an employee holding shares. Not sure how options play into it though.
You have to own at least 10% of the company for the so called „Schachtelprivileg“ (5% tax).
Don‘t think this applies to options at all.
Re: Ask HN: Should a German founder with a green card set up a holding company?
#29The answer is No (as you can easily confirm by googling this). You should hold the shares personally. Holding your shares through a US entity is not an advantage. Holding your shares through a foreign entity will cause you to get penalized if you continue to remain a US tax citizen. The only situation where I could see an advantage would be if shares were held through a foreign entity and you hold them there (without…
Do you know how you would get penalised?
Is there no similar instrument in the US which allows you to not withdraw money & delay the taxation event?
Re: Ask HN: Should a German founder with a green card set up a holding company?
#30Slightly offtopic, but in US how you should go if you want to do small investments in other companies or just assets? Like angel investing. Should I set up an independent LLC just to simplify account on my personal taxes? Would be it be easier or more complex in this case? How it's taxed? How it's usually done?
Google mega-backdoor Roth IRA
I agree that a mega-backdoor Roth is a potential approach, but to be clear, there are a LOT of hurdles that your 401k administrator has to jump through to allow this, so it's an example of an "if you're lucky enough to have an amenable 401k provider" suggestion, not an "everyone should do this" suggestion.
Angel investing from a Roth account is a more universal possibility; not all Roth administrators allow arbitrary investments, but you can roll over Roth balances to an IRA that does all this.