I’m taking a bit of a break from things…back in a day or so and looking forward to catching up and sharing stores. In the meantime, a few vacation pix to ponder, labels to follow shortly.
Archives for May 2009
Ready for a bit of a break
I’ve been tackling four large writing projects this week; a manuscript, a funding proposal, and two business plans. By this morning, with most of the work done or in final draft, it was a good time to relax and take advantage of a sunny Dutch Saturday.
The central core of Maastricht fills with tourists and shoppers this time of year: the heavy coats and umbrellas have disappeared and cafe life is crowding the sidewalks. I still enjoy finding a table to watch the people passing by and to savor 
an Orval (Belgian beer), filling the afternoon with good humor and easy conversation.
The kermis (fair) continues in Vrijthof Square, and I found myself still casting thoughts toward the Speed ride: a double arm that spins vertically, flipping the passengers around at either end. Friends had been goading me all week, and we all studied the ride today and gauged whether the line was too long, the weather was too threatening, or I was too mature to challenge it. While I trust physics, I am not so sanguine about mechanical engineering when it comes to these rides. The thought of dangling face-down several hundred feet up, held in only by a purple plastic yoke, is very scary.
Nonetheless, I took the plunge.
The only truly scary bit is when the ride first hoisted me up to the top while the other car was loaded. Perched way up above the town, clutching the restraining yoke, I felt horribly vulnerable and in great danger of a long fall. But once things get going, it’s exhilarating: it goes fast enough that it’s more like a looping roller coaster.
The business plan is out for review by half a dozen people, and I’m gong to hop a flight out for a few days of R&R. Hopefully there will be some internet to send some pictures, but I hope to put work as far away as the Netherlands for a bit of a break.
The necessity of getting advice
Despite all of the good intentions of international treaties and globalization advocates, the complications associated with transnational business can still be daunting.
Take a simple example: an American entrepreneur establishes a Dutch BV to create a software product in the Netherlands for sale to US customers.
Pretty straightforward, until you start to follow the money through the business. I’m not an accountant, but here’s how the conversation went when I spoke with one:
The American ownership of a foreign entity must be reported to the US government.
The transfer of money in excess of $10,000 is a reportable flow out of the US under anti-terrorism and money laundering laws.
The creation of software in the Netherlands is a wholly Dutch corporate activity, with income after appropriate business deductions taxed at the 25% corporate tax rates.
The sale of software in the US is a foreign source income, subject to a foreign tax exclusion which varies from 0% to 100% depending on how the software is defined as a good (e.g.: service, product, license for use).
The Dutch corporation’s retained earnings are subject to a supplemental 15% US tax if they are ever transferred to the US when the owner moves home, raising the total tax hit to 40%, unless…
The full corporate income is reported to the US in parallel with the Dutch reporting, in which case it is taxed at roughly a 5% marginal rate (‘Pay me now or pay me later)
…or you could fight for a sub-part-S exclusion that forces you to distinguish personal service income from manufactured income, where “manufacturing” can mean different things in the US and Europe on almost a yearly basis….(whimper)
Yes, I’m glazing over too: a one-sentence business drags all of this behind it! Worse, up-front choices make $10,000’s of dollars of difference in taxes. The method for reporting corporate income must be decided and registered in the US within 75 days of the establishment of the Dutch company. The service / product / license choice must be made when the client contract is signed.
So, the lesson is to secure excellent tax and legal consults in both the US and Europe. They can get the best startup structure established, and create the yearly audited accounts and annual tax returns for the Netherlands and the US.
I’ve found that the services are offered as standard service packages whose costs don’t vary much from firm to firm.
Setup costs for establishing this one-line business are around $3500.
Total annual reporting and tax preparation costs are around $5000 per year.