How Much Would American Warriors Like to Avoid Taxes?

27 replies
I'm asking the question because when reading someone's response to the Amazon Nexus debacle, I had a whole bunch of red flags go off in my head about what they were doing because it didn't appear to have been done with enough forethought to avoid the significant international tax implications and potentially severe IRS penalties that could be imposed for doing what they were doing wrong.

I started to research the issue more closely and in doing my research, I've noticed a few ways to potentially avoid the problems of "foreign controlled corporations" for "U.S. Persons," in the event they are ready, willing and able to partner with a "non-U.S. Person" in their future online ventures, or use a potentially unique idea of mine to create a "non-U.S. Person" out of thin air who the IRS might not like, but would likely respect, and given the tax treatment of corporate income in certain favorable jurisdictions, and the treatment of "international communications" income i.e. membership website income for example, or e-books sold through a website, or potentially even affiliate marketing income earned through an overseas business advertising someone else's products on a website, it occurred to me, A) there might be some value in the information I've been learning, and the strategies I've been devising for people who are building successful Internet businesses who wouldn't mind taking a salary and leaving a portion or the lion's share of their profits untaxed in a bank account overseas, and B) people without credentials like a New York law license seem to be charging a lot of money to help people do these things the wrong way from places in Caribbean that certainly look appealing to a guy who has dealt with Upstate New York winters for most of his life.

I guess what I'm asking is, A) is anyone out there making enough money online today that they wouldn't mind paying themselves the first $50K they make in a salary and paying taxes on that, while keeping the rest of the money untaxed in an offshore tax haven while they build up a nest egg, and B) if there are people in that category, or people who are building a business that they believe will put them in that category who are willing to shell out some money for an education about how to structure their operations to legally reduce their tax burden?

Keep in mind the initial research is focused on U.S. persons, but I have started a cursory search of issues regarding the U.K. as well. I will say that the U.K. rules at first glance appear more concerned with British companies using offshore subsidiaries, and less concerned with British subjects owning foreign companies, but my U.K. research is just starting, and my U.S. research is pretty far along, but still somewhat in it's infancy in terms of creating an outline for a book or anything like that.

Anyone interested in this kind of reading material?

Also any potential non-U.S. partners for this kind of venture out there?

A U.K. trained Barrister or Solicitor and a New York lawyer working together in an International Financial Services company operating somewhere in the Caribbean while paying the lion's share of their earnings to their affiliate marketing company from another jurisdiction that also promotes e-books on tax avoidance and asset protection strategies as we spend most of our days lounging by the beach with a cold drink in our hands sounds appealing to me.
#american #avoid #taxes #warriors
  • Profile picture of the author kindsvater
    I'm always interested, having looked at this a few times.

    The issue of the non-US person with sufficient ownership and control, or maybe it is best to say, the US person with a sufficient lack of ownership and control to avoid US taxing issues - creates a question of trust.

    Basically, are you willing to entrust your earnings to someone else?

    Maybe a couple years ago I started a thread asking Warriors to identify what country they were from.

    Most thought it was a fun social thread. It was a very long thread.

    There was an ulterior purpose - and that was to identify Warriors in certain countries for potential partnerships with this type of tax issue in mind.

    .
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    • Profile picture of the author OrangeBull
      Kindsvater,

      In looking at the tax code here in the U.S. the key question doesn't appear to be actual "control" so much as voting rights and "more than 50 percent of the total combined voting power of all classes of stock of such corporation entitled to vote, or the total value of the stock of such corporation," is owned by a U.S. Person, which we both know is broadly defined.

      This is what makes the Foreign based LLC like the Nevis LLC such an interesting proposition.

      It appears to me that 50 percent is not more than 50 percent wouldn't you agree?

      So what if the operating agreement of the LLC said that the LLC would be managed by the managers of the LLC appointed in the operating agreement until such time as more than 50 percent of the owners were in agreement that their be new managers appointed, i.e. in other words you had appointed yourself as manager for life.

      Now let's assume that before you set up your company, you set up a foreign foundation/trust which had as its beneficiaries a foreign charity, and let's assume that the sole corpus of the foundation/trust is a 50 percent stake in the LLC and let's assume that the "Protectors" of the Foundation, whose by-laws can't be amended ensure that it will benefit a non-U.S. based charity.

      The way I'm reading the law, this Foundation could potentially be considered as having the same exemption from taxation as a U.S. based 501(c)(3) and if it does, then it would be treated for income tax purposes as having no "deemed" American owner even though you as a U.S. citizen created this foreign charity trust. As a foreign trust with no U.S. beneficiaries, this 50% owner would have a 50 percent vote and a 50% stake in the company.

      Of course, the managers would under the terms of the LLC operating agreement have every right to distribute income as they see fit, but the LLC could also potentially have wholly owned subsidiary IBC's that the U.S. shareholder could work for in a foreign jurisdiction, enjoying the somewhere in the neighborhood of $90K per year exclusion from U.S. taxation for foreign earned income, and if that person was living in a tax haven jurisdiction, would likely not be paying any taxes.

      Will some of the money need to go up to the Foundation to pay for protectors fees and licensing fees in the country like Panama, or Nevis, or Belize or Leichtenstein where the Foundation is set up? Yeah!

      Are these fees likely to be more than the taxes that have been avoided? No!

      Also if the LLC does make a distribution, 50 percent of it will go to a good cause like cancer research. That's what the beneficiary of my charity foundation would be.

      I had the same concerns you had about control issues, but 50 percent is not more than 50 percent so I guess I could live with half of the distributions going to charity.
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  • Profile picture of the author OrangeBull
    So a lot of people have viewed this Thread, but not a lot are commenting on it. Maybe the question is too convoluted, so here goes again:

    If someone could teach you a strategy to reduce your tax burden as an Internet Marketer to potentially $0.00, would that be something you're interested in?

    Now assume that it is complicated, is your tax burden high enough that it would be worth a couple of thousand dollars in fees and educational expenses to ensure compliance with U.S. tax laws?
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    • Profile picture of the author tecHead
      Originally Posted by OrangeBull View Post

      ...

      If someone could teach you a strategy to reduce your tax burden as an Internet Marketer to potentially $0.00, would that be something you're interested in?

      ...
      Now, why on earth would I wanna do that and raise every flag on the terrain when its smarter to just lessen and pay the minimum?
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      • Profile picture of the author OrangeBull
        Originally Posted by tecHead View Post

        Now, why on earth would I wanna do that and raise every flag on the terrain when its smarter to just lessen and pay the minimum?
        Every red flag on earth can be raised if the proper plan is put in place and what you are doing is legal. If you remain resident in the United States it is unlikely you can reduce the tax burden to zero, but if you want to leave the U.S. and think living on a tropical island in the Caribbean might be fun, you might just be able to reduce your income tax burden to nothing.

        Giant corporations are using offshore strategies regularly to avoid taxes.

        Why should Haliburton or Google or fill in the blank meganormous corporation benefit, when the small business person isn't?

        The most complicated rules appear to be the "controlled foreign corporation" rules which can be avoided with proper planning and the "passive foreign investment company" which with proper planning can likely be avoided as well.

        The plans may involve foreign partners. They may also involve foreign partners who exist solely on paper, yet which are legal entities that if properly implemented will likely recieve no negative scrutiny from the IRS and which if done the way I think they need to be done would in fact already be approved by the IRS before the company does any business.
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        • Profile picture of the author tecHead
          Originally Posted by OrangeBull View Post

          Every red flag on earth can be raised if the proper plan is put in place and what you are doing is legal. If you remain resident in the United States it is unlikely you can reduce the tax burden to zero, but if you want to leave the U.S. and think living on a tropical island in the Caribbean might be fun, you might just be able to reduce your income tax burden to nothing....
          ok... you didn't qualify your first reference with living off-shore, as well. I just want to make sure; (as any responsible senior Warrior should); that no one is leading any of my fellow Warriors astray with promises of grandeur thinking we're just too ignant to know the difference between **** and shine-ola.

          I've been doing research myself and am always looking for extra knowledge. I would want to choose my own partners, however.. and would never wanna pull off shelf... . I already have extensive ties in Asia... I'll have to explore further what you're speaking of.. sounds interesting.

          Thanks for the enlightenment
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          • Profile picture of the author kindsvater
            Living offshore AND renouncing US citizenship - that could get US taxes down to zero.

            Not sure how many people that would entice.

            .
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            • Profile picture of the author OrangeBull
              Originally Posted by kindsvater View Post

              Living offshore AND renouncing US citizenship - that could get US taxes down to zero.

              Not sure how many people that would entice.

              .
              I don't know that renouncing citizenship is necessary. I could live like a king in several jurisdictions for well under $90K a year and that is about the FEIE presently as I understand it, so if the profits stay inside the company, and if the company re-invests in active businesses, -I'm thinking resort hotels myself, and maybe shipping- I see no reason that I couldn't remain a U.S. Citizen and avoid U.S. taxes.

              Although I must admit my own plan and goals would be to remain under the $2 million asset level and $145K in income level during the period it would take me to obtain a couple of alternative citizenships, then renounce my U.S. citizenship.

              I became fairly disillussioned with the U.S. in dealing with my clients in the criminal justice system. In particular the frequent number of cases where the laws have been used to suppress protest speech, successfully.

              This isn't the country I was born in and it isn't the country I want to die in anymore. There are places with greater freedom, and that is where I want to be.
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              • Profile picture of the author Tom B
                Banned
                Originally Posted by OrangeBull View Post

                I don't know that renouncing citizenship is necessary. I could live like a king in several jurisdictions for well under $90K a year and that is about the FEIE presently as I understand it, so if the profits stay inside the company, and if the company re-invests in active businesses, -I'm thinking resort hotels myself, and maybe shipping- I see no reason that I couldn't remain a U.S. Citizen and avoid U.S. taxes.

                Although I must admit my own plan and goals would be to remain under the $2 million asset level and $145K in income level during the period it would take me to obtain a couple of alternative citizenships, then renounce my U.S. citizenship.

                I became fairly disillussioned with the U.S. in dealing with my clients in the criminal justice system. In particular the frequent number of cases where the laws have been used to suppress protest speech, successfully.

                This isn't the country I was born in and it isn't the country I want to die in anymore. There are places with greater freedom, and that is where I want to be.

                The US will still want to tax you for 10 years after you renounce citizenship. I don't know the ramifications if you tell them to "stick it" besides not letting you back in for visits.
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                • Profile picture of the author OrangeBull
                  Originally Posted by Thomas Belknap View Post

                  The US will still want to tax you for 10 years after you renounce citizenship. I don't know the ramifications if you tell them to "stick it" besides not letting you back in for visits.
                  That was the old rule. The new rule is that they treat your renunciation of citizenship just like your death, without the loopholes. You have an exit tax due on renouncing your citizenship.

                  But it is only due if in the previous 5 years you had income in excess of the limits, presently $145K. I don't! And assets over $2 million. Again I don't!

                  If you don't meet the income or asset requirements, the tax is zero.
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                  • Profile picture of the author Scott Lilly
                    Originally Posted by OrangeBull View Post

                    But it is only due if in the previous 5 years you had income in excess of the limits, presently $145K.
                    My reading of that regulation is that if your average income tax payment for the last five years is over the $145k limit. So you'd need to have an annual income of slightly over $300k.

                    Expatriation Tax
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                    • Profile picture of the author Gail_Curran
                      Taxes are a good and necessary thing in a civilized society. Why would anyone want to avoid them?
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                  • Profile picture of the author Tom B
                    Banned
                    Originally Posted by OrangeBull View Post

                    That was the old rule. The new rule is that they treat your renunciation of citizenship just like your death, without the loopholes. You have an exit tax due on renouncing your citizenship.

                    But it is only due if in the previous 5 years you had income in excess of the limits, presently $145K. I don't! And assets over $2 million. Again I don't!

                    If you don't meet the income or asset requirements, the tax is zero.

                    Cool, thanks for the updated info on it. I am always fascinated with this stuff since I have lived overseas quite a bit.

                    I just don't think I would want to give out my citizenship. We have our problems and they do seem to be getting bigger but I haven't found a better place to live.

                    Don't get me wrong, I loved living in some other places but always miss home after some time.

                    Money is only once component to a happy lifestyle.
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              • Profile picture of the author David-JP
                Its not as simple as setting up an offshore corp or partnering with someone who owns 100% of the corp. Its were the work is done. So if you are in california doing the work, and the corp is out of hong kong for example- you would still have to pay california and US fed taxes.

                The reason big corps get the tax break is because they have workers overseas doing all the work- selling etc.

                I live and work in Singapore and have my own corp here. The paperwork for the US is a pain, but if you are inclined to live overseas, or can trust someone with running your company overseas then it may be worth setting it up.

                If you want to learn the real info about setting up overseas:
                The Hard Truth About Venturing Offshore

                There's a lot of false info and scammers out there, the above link is the real deal.

                David
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                • Profile picture of the author OrangeBull
                  Originally Posted by David-JP View Post

                  Its not as simple as setting up an offshore corp or partnering with someone who owns 100% of the corp. Its were the work is done. So if you are in california doing the work, and the corp is out of hong kong for example- you would still have to pay california and US fed taxes.

                  The reason big corps get the tax break is because they have workers overseas doing all the work- selling etc.

                  David
                  Yes, there would definitely be California taxes due in that situation. However, with proper use of U.S. based entities in conjunction with foreign entities, you could still shelter a significant portion of the income overseas. I mean Microsoft does it, Google does it, why can't John Q. Smallbusinessman?

                  Your IBC could hire your U.S. based LLC as a contractor to perform website design work and to hire out the webhosting or other services needed for the IBC which would own the website and pay the LLC under the terms of their business contract. The IBC could also hire a local or two to perform work in the jurisdiction where the company is doing business.

                  Of course that vacation that you took to Grand Cayman would in fact be the IBC -short for International Business Corporation's shareholder's and board meeting too.
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                  • Profile picture of the author sherrieb
                    Could it be that while this is a very intriguing idea, it may be your back end...?

                    Originally Posted by OrangeBull View Post

                    Your IBC could hire your U.S. based LLC as a contractor to perform website design work and to hire out the webhosting or other services needed for the IBC which would own the website and pay the LLC under the terms of their business contract. The IBC could also hire a local or two to perform work in the jurisdiction where the company is doing business.
                    What I mean is, while there are sure to be many income qualified warriors, who have no issue with the costs to get started off shore and see it as a viable option, there are likely many more who don't have a large enough income yet, but might be interested in starting with a US based LLC as a first step, while they're building a business.

                    The California Amazon tax thread(s), (as well as Illinois and others) showed much interest in forming an out of state LLC. There are lots of considerations in doing this both legally and for taxes. And, it would seem to me, if there was info that clearly showed which was the best state, how to properly structure the "person", as well as other tax and legal considerations, there may be many who find that valuable.

                    A step beyond that could be to actually offer the service of setting the company up and offering yearly maintenance. (Both onshore and off) I've seen websites that offer this kind of service, but I would need to research them to know which one to use.

                    As an aside, I found one website that would form and maintain a Montana LLC to hold your RV and other vehicles. Interesting, no state tax, no smog etc. If you had the vehicles and desire/need to do that, would you have that LLC then be held by a Wyoming LLC set up to run your business through? That way you have both entities covered by the anonymity of Wyoming law?

                    My point in the aside is to show there may be lots of reason to look creatively at onshore LLCs. It's also possible there may be too many rules and convolutions to do it well as an info product versus a service.

                    Just some thoughts
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                    • Profile picture of the author OrangeBull
                      Originally Posted by sherrieb View Post

                      Could it be that while this is a very intriguing idea, it may be your back end...?



                      What I mean is, while there are sure to be many income qualified warriors, who have no issue with the costs to get started off shore and see it as a viable option, there are likely many more who don't have a large enough income yet, but might be interested in starting with a US based LLC as a first step, while they're building a business.

                      The California Amazon tax thread(s), (as well as Illinois and others) showed much interest in forming an out of state LLC. There are lots of considerations in doing this both legally and for taxes. And, it would seem to me, if there was info that clearly showed which was the best state, how to properly structure the "person", as well as other tax and legal considerations, there may be many who find that valuable.

                      A step beyond that could be to actually offer the service of setting the company up and offering yearly maintenance. (Both onshore and off) I've seen websites that offer this kind of service, but I would need to research them to know which one to use.

                      As an aside, I found one website that would form and maintain a Montana LLC to hold your RV and other vehicles. Interesting, no state tax, no smog etc. If you had the vehicles and desire/need to do that, would you have that LLC then be held by a Wyoming LLC set up to run your business through? That way you have both entities covered by the anonymity of Wyoming law?

                      My point in the aside is to show there may be lots of reason to look creatively at onshore LLCs. It's also possible there may be too many rules and convolutions to do it well as an info product versus a service.

                      Just some thoughts
                      I don't know if it will be an info product, or an info product with a service, or series of services, but I do believe that an offshore financial services company that set up companies would have some value for the IM community, especially if it had a ready made foreign owned entity to partner with that could ensure the tax status avoided the controlled foreign corporation rules, and which provided a foreign corporate structure that ensured management decisions remained with the U.S. based partner, while the work was performed by the foreign partner's company.
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                  • Profile picture of the author Thomas
                    Originally Posted by OrangeBull View Post

                    ...Google does it...
                    IIRC, Google does it by licensing its search and advertising technology for all of Europe, the Middle East and Africa to a Bermuda company for a very small amount; another company (Google Ireland) is registered in Dublin and accounts for virtually all of Google's non-US sales; Google Ireland then pays a royalty to the first company that amounts to virtually all its income.

                    However, to avoid withholding tax in Ireland, that royalty is instead paid to a subsiduary of the first company in the Netherlands, because Irish tax law exempts certain royalties to companies in other EU member states. That Dutch company then remits the money to its parent in Bermuda...and only God and Sergey (maybe) know what happens to it after that.
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            • Profile picture of the author timpears
              Originally Posted by kindsvater View Post

              Living offshore AND renouncing US citizenship - that could get US taxes down to zero.

              Not sure how many people that would entice.

              .
              I am not a lawyer, but my understanding is that renouncing your citizenship for tax reasons invalidates renunciation of citizenship. They want their cut, and will not spare any effort to take it.

              I don't know of any other countries that tax their citizens for income earned over seas. I left the UK when I was a teenager and have never paid or even filed taxes in the UK. I never had a job there and all my earnings have been here in the USA. But I wouldn't be opposed to moving myself out of the country to protect my income from taxes if it was worth it. Right now it isn't, but it is only a matter of time before I hope to take up residence in The Bahamas, where they have no income tax.
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  • Profile picture of the author pcpupil
    You lost me after the statement (i started to research).
    But to answer your basic question,do i want to lessen my tax liabilities,YES.
    Burdens.YES.
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    • Profile picture of the author Scott Lilly
      As a US citizen who's living overseas full-time, this is the type of thing I'm always interested in hearing more about. However, with the amount of money I'm currently making, it doesn't make sense to do this yet.

      Before I left the US, I spoke with an attorney and an accountant who specialize in this type of thing. I decided it was better to just take advantage of my FEIE for now, and re-visit things when I reach a certain level of income.
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  • Profile picture of the author OrangeBull
    pcpupil,

    So would a video in simple conversational English explaining the pitfalls, and the loopholes be the best way to educate you about these kinds of tax planning tools?

    Or would that coupled with an ebook be helpful?

    Or would an audio file explaining the issues work for you as an educational tool as well as video?
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  • Profile picture of the author pcpupil
    A definate yes on the e-book.
    Along with a video,might be nice.
    Never an audio file.
    This is just what i like.

    I really do not fit in the 50k plus.
    But,even a small amount saved or deducted helps.
    I also have an offline biz where i take my deductions.People do not realize how much money can be deducted and what it adds up to in the end.
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  • Profile picture of the author OrangeBull
    tecHead,

    I started researching the issues for the first time several years ago when I was working on the idea for an online video startup with a partner in India, a former Yahooer in California, who held some interesting patents, and a DB guy in Texas.

    It would've been what we were calling "controlled content peer-to-peer." Unfortunately YouTube came along and took a lot of wind out of our sails. The plan was to create a network to monetize online video for independent filmmakers, and we were thinking pretty big, so the idea of setting the business up with the tax advantages that could come from having an offshore company with subsidiaries in the countries where the work was being done, i.e. all of the expenses being in taxed jurisdictions, and all of the profits being made in non-taxed jurisdictions seemed like a good idea.

    We never got the company off the ground for various reasons, but I started researching the issues again when a member of the forum mentioned what they had done with their Amazon affiliate account. It was scary how little planning had went into their idea, but I realized that there are plenty of people who could benefit from this kind of knowledge.

    I'm glad to know that at least a few people think this kind of information might be valuable.

    That also leads me to believe that a plan to move to an offshore country with a fairly liberal immigration policy and favorable offshore entity laws could lead to my own offshore legalzoom!
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  • Profile picture of the author Rich Struck
    Truly wouldn't it be easier just to find a new sponsor?
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  • Profile picture of the author sherrieb
    Didn't mean to imply there was no market, I think you're right in believing there is a market. Just pointing out what I believe may even be a larger market that could still be interested in going offshore at a later time.

    With all the related questions I've seen here just in the last couple months, people are looking for options and the response is always general, and to seek competent legal and tax advice, as it should be.

    However, knowing where to find that competent advice, which would be the next step, can be elusive for some. Attorneys and CPAs are the ones to look to for this advice. Not all attorneys and CPAs are creative or well versed outside of their own state. Not all attorneys and CPAs agree on the same strategy. How does one know who to trust for the best advice?

    I hear what you're saying about living in this country. It is not the same as it once was and appears to be getting worse instead of better. It's even kinda scary.

    If having an onshore as well as an offshore strategy option for people is not something you're interested in, whatever form your product or service would take, that's your choice and I respect you for it. I think you could do well with your offshore idea.

    But then hopefully someone else might have the desire and ability to provide an onshore option for people, because I think there is a market there too.
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  • Profile picture of the author ikontent
    OrangeBull (and others)

    I'm not American, but here's my take

    > If you're earning enough that taxes begin to bite, but not in the big leagues (aka multi million dollar) - you can save substantially by incorporating in the US itself (different states have different rules).

    > Going offshore has its own set of additional expenses that you need to be prepared for; plus, the fact that you need to trust someone overseas to set up and manage your offshore entity. It might make sense if you're earning mucho bucks. If you're in the 50K - 250K range, save yourself the hassle and incorporate in the States itself.

    That said - if you are looking overseas, here are 3 suggestions.

    Singapore : I live here - if you are looking at Singapore, contact me.

    Hong Kong : Can't help you there, but it is a good alternative.

    Dubai : Yet another can't help you there - but I remember there was a warrior here on the forum who was into Dubai incorporation services...

    Best wishes.
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