As a US-based LLC, how to properly account for offshore service providers


1

I am currently an owner of a US based single member LLC in Delaware which is in the startup stage. I am a US citizen, for what it matters.

Physically, I am living in Poland, which is part of the EU. My LLC requires many small web and graphic design services (template building, icon design, etc). Naturally, I would prefer to work with local (to me) contractors in Poland. They are physically close, and less expensive.

What do I need to do in order to be able to properly account for these services? I will most likely be paying cash, in local currency (PLN) as SWIFT transfers for such relatively small amounts of money will be expensive.

I can have them sign a contract, if necessary for documentation. However, if not needed, I would prefer to avoid any unnecessary paperwork.

Do I need to keep a petty cash account in PLN? Or do I expense it out of a USD petty cash account at the day's avg. forex rate?

They will not provide me with W-9's as they are not US persons. Do I need to issue 1099-MISC's to them? If not, do I need to report to the IRS these payments for services in some other way?

Any other considerations?

Outsourcing Accounting

asked Feb 10 '12 at 20:45
Blank
Ever Tabs
108 points

2 Answers


1

Can you pay for them yourself, then book it to the business as out of pocket expenses?

For the exchange rates, just batch them up and at month end, or quarter end, reimburse yourself at the prevailing rate.

answered Feb 10 '12 at 21:47
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Steve Jones
3,239 points

1

What you mostly do is open yourself up for prosecvution by the polish government.

Because you run an unlicensed business in poland. Point. You make all decisions in poland and obviously havea busienss presence there, yet your delaraare llc has no reigstration in poland for running an office there. WIth you being the owner / only worker and living in poland you can also not claim that you are not making the decisions. Your LLC has to pay income tax in poland at least for all business it does in poland. and as all adminsitration is doen in poland (through you) you can not claim to just get the benefits, ESPECIALLY when you also hire local other companies and meeth them there etc.

Theey can invoice you ,and you give them oney - but you are legalyl liable for paying polish VAT. The "goods" do not exit poland and your hole "I am a delaware us company" will be seen as tax evasion because eu law is quite strict on foreign jursdical setups that ONLY are a postal address. The lLC is void, you are personally liable with your own moeny for all business you conduct in poland and you run an unregistrered business.

This is goign to explode in your face the moment you et a tax check at one of your suppliers and they start to investigate, which theys may do the moment you want a vat free invocie for being a none european entity. You LIVIGN in poland (most of the year at leaast) means you are fuly taxable for income tax in poland.

I strongly advice you to seek legal advice in poland. I foudn the polish tax offices to be quite ok as long as you have decent income and do not try to btray them openly - but you are two steps across the line with the delarware thing taht just cries "tax evasion" - at least for the polish government.

Note as discplaimer: I am a german national living in poland and running a 6 people company in poland. We work with zero polish customers and do business only international incvluding some "red flag" business for taxes. We are also midly profitable i european standard,s which means very porfitably bsy polish standards and thus get regular tax reviews.

answered Feb 10 '12 at 21:58
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Net Tecture
11 points
  • THis is by law totally irrelevant. You being in poland and the LLC not having a physical office means the company makes all business decisions where you live, which means it has to pay income tax in poland. As such, it needs a legal registrattion in poland. Noone in poland gives anything about those sometimes not smart us laws in this regard. – Net Tecture 8 years ago
  • The LLC will pay income tax in Poland. Single-member LLCs flow their profits to the individual. I will declare all the profit to Polish tax authorities. The LLC will not be selling its services in Poland. It is a US entity selling services to US firms. Currently, the only thing in Poland is me physically, working for the US LLC. My question is specific to the services. If the LLC contracts Polish contractors, the services will exit Poland as their result is not used to generate any profit in Poland. The LLC does not do business in Poland. Does this change the situation at all? – Ever Tabs 8 years ago
  • Still running a non declared business. If you want to avoid that - have fun ppaying SWIFT transfers o keep the paperwork straight. Also make sure you dont ever name a polisha ddress or anything. And get an accountant - make sure you do NOT pay income tax at all for that. Pay only 19% flat tax. – Net Tecture 8 years ago
  • I currently do operate a software development business in Poland (separate from the above LLC entity) and pay the flat 19% tax. I will seek advice of an accountant knowledgable in such international matters, as my current one is not. – Ever Tabs 8 years ago

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