0% tax for digital nomad achievable?

[JackAlabama]

It is theoretical or just simply not true. Otherwise it would be easy to⁤ find related material online and folks getting ducked left and right.

For example you underline⁣ your argument with the case of:
"Petitioners carried out a scheme to smuggle large quantities⁢ of liquor into Canada from the United States to evade Canada’s heavy alcohol import taxes.︀ They were convicted of violating the federal wire fraud statute, 18 U. S. C. §1343,︁ for doing so."

But just reading it for 10 secs gives a complete different assessment︂ than what you stated.

So, running an alcohol smuggling venture might lead to troubles.

 

[Deepbarrels]

how could this be done in Costa⁤ Rica / Panama? Does the US LLC always have to be involved in this planning?⁣

Would you mind explaining those solutions?

 

[Don]

Moving assets to the US by electronic wire to avoid the CRS,︁ especially for the purpose of confidentiality is almost always linked to tax evasion. Therefore, a︂ wire to the US violates the US domestic law which is the mail fraud statute.︃
The US Supreme court affirms where a non-resident alien using any form of communication with︄ the USA such as international transfers, internet or telephone with the USA to avoid tax︅ back home is a serious violation of the Federal Wire Fraud Statute, subject to a︆ fine up to $1 million and 20 - 30 years prison.
Think you're safe from︇ anyone finding out the account in the US is undeclared? Wait until John Doe Summons︈ or FATCA reciprocal reporting.

1) non-crs jurisdictions, disputed/unrecognised territories
2) structures where you are not reported as a beneficiary︊ (but are indirectly still in control)
3) exemptions, e.g. structuring your assets under a financial︋ institution, public company, or retirement fund, etc. This area includes completely legit solutions, which are︌ somewhat complex and only available/feasible for those with serious money.

 

[JackAlabama]

Do you have any sources for what you state are your opinions?
a good︅ starting point would be articles of basically whole of Latam getting busted left and right︆ since they all keep their money in US? 😉
Or the different treatment of crs/non-crs which︇ as you imply are treated differently.

 

[Don]

Back in the day, every⁠ other businessman had an IBC or company in a tropical island like Seychelles with zero⁤ substance and just funnelled profits there.
Cyprus banks would open accounts over a phone call⁣ and the next day you could funnel millions through without any issues.

At one point,⁢ regulations changed, and most people stopped using such solutions. Some people got caught. I expect︀ it will be a similar case with using US LLCs as offshore companies.
The moral︁ of the story is that it's better to learn to stop at the right moment.︂

Today, arguably, the US is the biggest offshore jurisdiction (https://otonomos.medium.com/delaware-deep-dive-the-worlds-biggest-offshore-jurisdiction-ca261f8748d)
It is obviously︃ not in the US interest to do it, but at some point, the US might︄ have to start reciprocating information exchange under FATCA, which will be a game changer.
At this point, it might be more beneficial for the US to start enforcing wire fraud︅ in cases where they expect a positive ROI.

In fact, reciprocal reporting is being planned︆ and expected to come into force soon.

The Reciprocal FATCA Proposal is detailed in the︇ General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals highlighted as follows:

• require certain︈ financial institutions to report the account balance (including, in the case of a cash value︉ insurance contract or annuity contract, the cash value or surrender value) for all financial accounts︊ held by foreign persons maintained at a U.S. office.
  
• expand the current reporting required with︋ respect to U.S. source income paid to accounts held by foreign persons to include similar︌ non-U.S. source payments.
  
• require financial institutions to report the gross proceeds from the sale or︍ redemption of property held in, or with respect to, a financial account held by a︎ foreign person.
  
• require financial institutions to report information regarding certain passive entities and their substantial️ foreign owners. For example, a financial institution maintaining an account for a passive entity that‌ is a trust would be required to obtain and report to the IRS information on‍ the owner(s) of the trust.
  

https://www.jdsupra.com/legalnews/reciprocal-fatca-bill-will-be-a-game-3866958/
Now, FATCA is a bit different animal compared to⁠ CRS.
To learn more about the non-CRS solutions, simply open up the CRS handbook. As⁤ my friend, who is a CRS expert, said - even a monkey can avoid CRS.⁣

 

[Sols]

I have seen 3% and lower.⁣

It's best to do a transfer pricing analysis. Usually costs a few thousand.

You can only do it for the parent︂ company and other directly related group entities.

If you process for unrelated companies, you need︃ a financial services license of some sort.

In the text you quoted, I meant that you can set︆ up a company in Panama or Costa Rica and run your ecommerce business directly through︇ it. However, because banking and payment processing options are quite lackluster, it's quite challenging.

 

[saintjohnny]

As I see it... folks who are not evading︁ tax back home shouldn't worry about being burned by the US DOJ on wire fraud︂ charges. It's like worrying about being convicted for Animal Cruelty and Torture for killing a︃ fly in your home.

If your business is smuggling alcohol, or you're using the US︄ to blatantly evade tax (i.e. tell a non resident company to wire to your US︅ account), yeah, definitely worry about this possibility.

But do you really think people who are︆ compliant with their local tax laws really need to worry about such serious accusations?

And... is it really illegal to file 5472 and put your legal country of residence –︇ which could be a territorial tax country where you have your house, family, etc., while︈ traveling the world? I seriously doubt so.

 

[Don]

No

The point‍ is not everyone is compliant, according to the EU authorities who only speak truth:
"European Parliament describes UK and US as global hubs for money laundering and tax evasion"
https://www.brusselstimes.com/19035...bal-hubs-for-money-laundering-and-tax-evasion

 

[baio12]

If payment agent charges‌ you 3% and the payment processor charges the agent 3%, payment agent would have 0‍ profit. But if transfer pricing analysis recommends payment agent to take 30% profit margin, that⁠ is still only 3.9% the payment agent needs to charge you to get 30% profit⁤ margin. That is how it works?

Payment agent's revenue is the total amount they pass⁣ to you, or just their fee? If it's just their fee, then 3.9% example would⁢ work and give them 30% profit margin. But if their revenue is taken to be︀ the whole amount they pass to you, then the fee would give them less than︁ 1% profit margin which won't work. But in both cases they collect and keep same︂ total amount of money as profit.

Is there a standard for what countries take to︃ be a payment agent's revenue or it can depend?

You hire a︅ firm in that country and they ask you lots of questions then send you a︆ report saying the specific prices per every product they think you should charge? Or is︇ it just the profit margin they think company should have?

 

[Sols]

You can make the margin apply to the processing cost (30% turns 3% payment fee︃ into 3.9%) or it can be a margin on the overall volume (0.50% of 300,000︄ USD becomes 1,500 USD/year).

Not to my︆ knowledge. Most companies just pick something and are almost never questioned about it. The more︇ responsible ones have a transfer pricing analysis performed.

They look at the︋ whole setup, to figure out what a reasonable margin should be. They compare your business︌ to others, so that your margin is in line with business norms.

 

[baio12]

Is payment agent company⁤ the same as third party billing company? I haven't seen "payment agent" mentioned on PSP⁣ webpages but see many of them banning "third party billing" companies.
Do you know︂ what more countries require financial license for payment agent structure or where I can find︃ it?
First 2 would be complicated︅ to start instead of payment agent I think but can you elaborate what is commercial︆ agent or voucher arrangement?

 

[Don]

Multi purpose voucher arrangement basically means you collect money ahead and when⁢ clients get the service/product (redeem the voucher) you pay VAT.

Commercial agent (payment agent) has︀ the contractual right to negotiate the sale or purchase of goods or services or to︁ enter into contracts for the sale or purchase of goods or services on behalf of︂ the payer or the payee.

In the EU those e-commerce platforms, which intermediate payments between︃ both the buyer and the seller should operate under a payment institution license.
The majority︄ of marketplace type services act as representatives of one of the parties, e.g. Bolt and︅ Wolt act as the representative of the service provider. As such they do not need︆ a license to intermediate payments.

EU jurisdictions have implemented the directives differently in their legislation.︇ From what I've seen many big companies and even EMI-s use such structures in jurisdictions︈ like Cyprus, Malta, Estonia, because of less bureaucracy, and better laws.

 

[Sols]

All billing companies are payment agents but not all payment⁠ agents are billing companies.

 

[baio12]

Does payment agent collect and submit VAT or is it the company providing the main⁤ service?
What's difference between them? What are some example of type⁢ of company that is a payment agent but not a billing company?

 

[Sols]

Main difference is‍ with whom the customer contracts. With a billing company, the customer enters into an agreement⁠ with the billing company. With a payment agent, the customer enters into an agreement with⁤ the principal. The payment agent is usually mentioned in the agreement but there's no formal⁣ relationship between the customer and the agent.

 

[baio12]

In what cases should you use one vs other?

 

[Don]

A billing company is like a franchise and can act as a shield to the main‌ business.
In the case of an agency, the economic risk rests in principle with the‍ principal. In the case of franchising, the economic risk lies in principle with the franchisee.⁠
The franchisee acts in his own name and at his own risk, whereas the commercial⁤ agent acts in the name of the principal and, in principle, also at the risk⁣ of the principal.

 

[baio12]

On PSP conditions many of them don't allow‍ third party billing companies to sign up. Are there countries or companies where it's easier⁠ to set it up?

 

[baio12]

Payment agent that work with unrelated companies will need license⁠ but billing company that work with unrelated companies is allowed to do without license?

 

[Sols]

If we're talking about EU/EEA, any person (legal entity or natural person) who holds, transmits, or‍ processes money on behalf of an unrelated person is offering a financial service and needs⁠ a license. Of course, there are payment agents and billing companies that violate this rule⁤ and face no repercussions.

In some cases, billing companies are subsidiaries (or agents) of financial⁣ institutions and are set up to keep the activities at slight distance from the financial⁢ institution itself. Quite common in adult entertainment.