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My friend approached me with a business idea of selling a service to allow US business owners to incorporate in Dubai in order to avoid taxes. She resides in Dubai and owns a business there, and she would be taking care of the paperwork.

I would be meeting with potential clients in the US and selling them the service, for which I'd get commissions. The profits would go towards supporting a charitable cause.

Is this a legitimate business idea? What potential issues should I be aware of?

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It is likely to be a tax evasion scheme. You should do that, if you decide to, very carefully. US citizens are liable for paying taxes on their world wide income, and the fact that the income is from a Dubai-registered company and not a US company is rather meaningless if they're not moving to Dubai themselves.

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I googled about this and found this article, however it only deals with Indian nationals. Any idea if something like that is possible for US citizens? – Chris Jun 1 '12 at 20:17
@Chris, but you asked about US nationals, not Indian. The Indian laws have no bearing on US nationals. In the US, you must declare all your financial interests and pay taxes on all your income, regardless of where it is or how you earned it. People who have millions and millions of dollars can afford a tax attorney to do some tax planning, but for a regular Joe, attempting such a scheme would be a financial suicide. – littleadv Jun 1 '12 at 20:20
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It MAY b legal and working for a lot of countries, but simply said - not for the US. US people have to pay taxes in the US for their worldwide income, regardless where they live.

There is also always the arms length regulation - it only works when they do not conduct the usiness IN the country of residence.

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