Living in Dubai, want to open an internet business with a US account

[danb1985]

Hey guys

This is a really simple question, and I'm asking it on behalf of my cousin. He lives in Dubai in the Arab Emirates, and intends to start an Internet-based business selling machinery. He has a US bank account with an attached PayPal account, but is worried about tax issues. If he sets up the HQ for his business in the UAE with the finances in the US, where does his tax responsibilities lie?

Any help here would be massively appreciated, even if it is only to link me to a helpful webpage.

Thanks

danb1895

[TaxationWeb@BritishA]

Whether or not US filings are required depend on whether he has a business presence in the US.

Business presence is defined under domestic law, as is no US tax treaty with Dubai. It is a facts and circumstance test, he either meets the definition or he does not.

He should discuss with a US accountant what the specific boundaries are and what steps he would have to take to maintain no business presence. He should have this meeting annually, as tax laws change and he wouldn't want what works this year to scupper him two years down the line.

Assuming he has a physical presence, he would need to file an annual US tax return for any US-source income. The forms to file would depend on his business structure (sole proprietor? corporation? etc.). Choosing the right structure would reduce his tax considerably. This is another issue to discuss with the US tax expert.

Other issues: He will need a Taxpayer ID Number to avoid having 30% tax withheld from the interest generated by the US bank account.

I wouldn't want to go into any more detail, as there are too many unknowns in this case, but on the positive side, an initial consultation and planning session shouldn't be very expensive. Thereafter, annual consults range from £100 - £500, depending on whom you see and their price list. Tax returns vary widely, and are highly dependant on the structure of the business.