Digital nomad living in Canada with an American LLC

[timurridjanovic]

My situation is quite complicated, so please bear with me.

I'm a dual citizen with American and Canadian citizenships. I used to live in the US and while I was there I created a company (an LLC) as I was working as a contracting software engineer.

About 2 months ago, I decided to move back to Canada, but still kept the same contract with the same client as I work from home. I knew that living in Canada and having an LLC in the US might give me a few tax headaches so I consulted with a tax professional.

Turns out that, according to him, the best thing I can do (if I want to keep my american LLC, which I do) is create a new canadian company that will own a C Corp. I will need to choose a C-Corp election for my LLC so that Canada can not tax me on the C Corp money, and then pay the canadian company a management fee, from which I will pay myself dividends in order to live in Canada.

Seems rather complicated but might be worth it to keep getting american contracts and getting paid in US dollars.

My question is related to my investments. I guess that to keep the money in the C-Corp (so that Canada can not tax me on it), I will need to get a corporate account with Vanguard, or something to that effect... I would definitely like to continue investing my money in ETFs, but I read somewhere that it's a bad idea to invest in the stock market with a C Corp, as long term capital gains are taxed more heavily. Anybody knows what I should do in this situation? I still want to be able to invest for my retirement. I plan on retiring early...

I already consulted with a tax professional, but he didn't seem to know much about the whole investment situation. I would appreciate some feedback if anybody has some knowledge about this.

[gocurrycracker]

This isn't advice...

Per your email:
You are subject to double taxation no matter what. As a Canadian resident, you are subject to Canada taxes on your worldwide income. As a US citizen, you are subject to US taxes on your worldwide income. There is no way around that, short of renouncing US citizenship.

You'll still file a tax return in the US every year, and use either the Foreign Earned Income Exclusion or the Foreign Tax Credit to minimize/reduce/eliminate US taxes.

I don't see a tax purpose in keeping the US LLC. I believe you set this up to minimize SE taxes. As a Canada resident, you'll pay into the CPP and be exempt from SE taxes via the US/Canada totalization agreement.


If you are making insane amounts of money well above and beyond the FEIE (say $300k-$500k/year) and wanted to create a US C-corp to
a) avoid paying 100% of earnings as a salary or dividends to minimize "worldwide income" subject to Canadian tax -or-
b) retain earnings for investing

Then you are moving well above and beyond DIY territory. C corps are complicated and expensive to operate, and not the best for single person consulting companies. (Maybe more nuanced than that after TCJA.) They also have limitations on how much earnings you can retain or investment income that can be earned before you are classified as a personal holding company or subject to retained earnings taxes. Both defeat the purpose of having a C-corp in the first place.


I would look for a tax lawyer who specializes in US / Canada. Dual citizens working cross border is very common. Find somebody who does this as their bread & butter, not a rando who is just speculating (That's not me: I'm just a random person on the Internet and have no special skills or knowledge.)

[timurridjanovic]

I don't want to keep the LLC for tax purposes, but I'm afraid i'll lose clients or that future clients will be harder to get if I get rid of it.
Right now I'm on the same payroll as other US contractors.. I'm not sure what their policies are in terms of doing international wire transfers, etc..

At the same time, if there is no good tax solution, I might have to do it anyway.. I kind of liked the idea of continuing to invest with all my american accounts though.. This whole thing is turning out to be really more complicated than I thought...

[gocurrycracker]

Sounds like you just need a US bank account for direct deposits.