Taxes and Companies

Hi everyone !

I have seen that many of people in this forum are making quite a lot of money from their apps.
I’m kind of person, who likes to plan everything up front before doing anything, so my concern is about actual taxes which has to be paid in case of a high revenue.
I’m planning to open company in Ireland.

So here are the questions:

Are you paing your taxes on a base of a regular person, or are you a registered company ?
If you are paying as a regular person, does that mean you providing your income to your tax office every month ?

If you are a company, how do you pay your tax ? Is it every month, or at the end of the year ? Do you have to pay a fixed amount of tax, or it depends on your income ?
I know it depends on the country you are living in, but when you are making a 1000+ a day, then it is very difficult to hide such a big income, and you probably would not like to brake the low.

Thank you all in advance !

When I was starting I didn’t have company, but when I started to monetize my apps - I created one. Of course type of taxes and their payment options is different in every country. You should read about taxes in your country or write here your country, so that maybe someone will be know sth about it. Best regards!

I’m a sole trader, not a company. This was the simplest choice for me. I did have to register for an “Australian Business Number” (or ABN), but that’s a very simple process and there is not much paperwork involved. Here’s my understanding of how the system works in Australia:

[li]Sole Trader means you’re not a separate entity (like a company). You’re just a single person running a business. All business income is reported on your personal tax return, and taxed using the normal income tax rates. The main difference is, as a Sole Trader you can claim any business expenses as tax deductions. So marketing/advertising expenditure, software purchases, and web hosting can all be deducted from your business income.[/li][li]You obviously have to pay tax on any money you make. This includes app sales, and advertising revenue. It’s your responsibility to keep accurate records and report this.[/li][li]Paypal income is treated just like normal income to your bank account.[/li][li]If your earnings are paid in different currencies (for example, ad revenue paid to Paypal as AUD, USD and GBP), you are taxed based on the conversion rate on the day you were paid this income.[/li][li]At the end of your first year of business, you will have to pay tax in retrospect for that year’s income. This means you’ll (potentially) owe a lot of money. From the second year onwards though, the tax office will get you to pay tax quarterly, so that you don’t end up with such a big bill.[/li][/ul]
So this has been my approach:

[li]During the first year: Register as a sole trader. Keep accurate records of all income/expenses. Set aside 20-30% of any income in a separate account, to cover the expected taxes.[/li][li]At the end of the first year: Submit documentation to the tax office, and pay the required taxes for the previous year’s income.[/li][li]For all subsequent years: Pay tax quarterly, based on estimated revenues for that period.[/li][/ul]

Disclaimer: this post reflects my personal opinion, and may not be correct (even for those of you in Australia). The laws are different for every country and you really have to speak to a professional accountant to find out what applies to you.

Thank you, david!

I’m living in Ireland(but I’m not a citizen of Ireland) and from what I’ve been reading, I can see similarities between Australian Taxing System and Irish one.
The only reason I was looking at company registration is because of a low tax rate(12.5%) where if you pay as an ordinary person/sole trader you have a much higher tax which can go up to 41%, which is almost half of the revenue.
I’m not quite sure if Irish law has anything about claiming money back.

Anyway, thanks for such a good explenation !

It is best to consult local accountant before doing anything.

Chat to a local accountant and probably a lawyer too.

I am in the USA, and did an S-Corp. This means there is limited liability, but all the income is treated as ‘pass through’ income (I record is as personal income). However I get to deduct legitimate business expenses but have to pay tax quarterly.

What I am more interested in however (and I have not been able to find anyone who knows how to do this!)… Google and most advertisers can pay in multiple countries. There should be a way to get the income paid offshore, and then use multiple companies in different tax jurisdictions to legally minimize your tax. Note that I said LEGALLY. Google/Apple/Microsoft/etc all do this. But how does the little guy do it ???

If you could reduce your nominal tax rate from (random numbers) 45% to 25%… and you earned $100k/year, you would make an additional $20k/year. So even if the thing took $20k to set up in legal fees, you would still profit after year #1.

If anyone knows anyone who knows about this… PM me pls.

“Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.”

You have to keep in mind that when you do that, the money has to remain in that country. Congratulations, you now have an Irish company with $20k in its account. As soon as you try to bring that money back into the US, it’s fully taxable as income.
From time to time the IRS has repatriation programs where they allow to bring in money for a reduced tax rate. But in general, it makes things much more complicated. Unless it’s millions of dollars, it might be better to just bite the bullet, pay the taxes and be done with it.

@Skurry: yep. Which is why it should be possible to re-characterize the income as investment income and bring it home and pay taxes on it at the reduced investment income rate. Romney style!

He doesn’t have to bring money back into the states…

@Bond: actually, I would probably still owe taxes on it. If you are a USA citizen or resident, you owe taxes on any income you have anywhere in the world… The only other country that does this is Eritrea… a nice little model for a dictatorship :slight_smile:

That’s true, but what’s the point of having money that you can’t access? Also, when you have control over a foreign company, annual tax audits are basically guaranteed.

Yeah, I know that, it sucks.
I think you should talk to this guy on The Fastlane forum. He can advise you on what to do, his job is helping guys on your situation…
View Profile: GlobalWealth - Millionaire Start Up Entrepreneur Forum

Audits depend on where he has the company.
As far as I know, he can use the money even If the company is abroad. That’s what credit cards are for…
Remember, he can setup a company in some country and a bank account for the company in another country…

Yeah, but all that sounds more like tax avoidance… the illegal part. I am more interested in tax minimization. The legal part!

You could all come and live in Poland, I only have to pay 19% tax on ad revenue. :wink: Unfortunately sales are different because I have to pay 23% VAT which with Google 30% tax takes about 40-50% of sales revenue.

It’s a joke of course. My country is not a good place to live in (in comparison with Western Europe, UK, USA, Canada and of course Scandinavia and it’s not getting better). Also I will have very low retirement pension (maybe less than $300!) and our hospitals are really bad.

Are you registered as sole trader ?

Yes. It is similar for companies though (here).

For example in Turkey, ad revenues taxes is %0.
Because the mobile ad revenues not defined in the laws/govt finance. (So mobile ad revenues is counted in “Service Export”.)

To OP, I’m in Ireland as well. Set up an LTD asap! There’s not much work involved for Irish Ltds and the tax system here is all setup to be very favourable to business and screws over the PAYE earner. You’ll be paying way more than 41% as a sole trader when you factor in PRSI and USC. A ltd pays 12.5%, that’s it. Of course, when you take the money out, you’ll have to pay normal income tax but leave it in the company as long as possible, it gives you options!

Can I ask you why you’re in Ireland? You working with some of the tech multinationals in Dublin?