It's legal as long as you report any income you make from it personally. There's nothing stopping you from incorporating in the Seychelles, and getting a bank account in Latvia, Belize, or Panama/St Vincent.
Just so long as you report foreign income paid out to yourself. The foreign corporation doesn't have to report anything (this might have changed, i'm not a lawyer). That's why you see all those shady collector coin ads on latenight TV and they are always based out of Liberia.
just to elaborate here: the OP will likely need to file subpart F income for his UK-based controlled foreign corporation (CFC). this means that any income he generates from the UK entity passes through to his US taxes.
additionally, he will need to file a TD 90-22.1 with the department of treasury by june 30th of the year after the account has more than USD 50K in it.
tax avoidance is a complex beast and simply incorporating a business in another jurisdiction does not in any way exempt you from US tax liability.
> additionally, he will need to file a TD 90-22.1 with the department of treasury by june 30th of the year after the account has more than USD 50K in it.
Nitpick, but the TD 90-22.1 threshold ("FBAR") is $10,000. As an expat with a foreign bank account, I only really know about it because TurboTax flagged it, which was pretty fortunate.
But what if you end up "working" for your company? Let's assume that you are in the US and might have to put in hours to hack together a product or a service. And none of your "employees" are in Latvia or Belize. Is it still legal?
It's legal, but you increase the odds that the IRS might pay extra attention and consider whether the company is de-facto US. I don't know US regulations in that respect, but many countries give tax authorities wide latitude in determining that an entity is due tax in their country even if it's not incorporated there.
Note, though that theres still nothing illegal with it (unless you try to explicitly hide what you're doing) - it may "just" impact your tax bill.
If the company hosts it's service in Europe, sells to European customers and otherwise does not have much of a footprint in the US, chances are good they'd accept that the company is foreign.
Of course any income he takes out - whether salary or dividends - will still be taxable in the US (subject to any tax treaties if he were to do the work in the EU too).
I'd imagine that strictly speaking one would have to register the foreign company with the secretary of state as a branch or foreign company, if certain conditions were met.
Sure. Incorporation and where you do business are two completely different things. It's all legal as long as you comply with regulations of all involved countries.
Just so long as you report foreign income paid out to yourself. The foreign corporation doesn't have to report anything (this might have changed, i'm not a lawyer). That's why you see all those shady collector coin ads on latenight TV and they are always based out of Liberia.