Structuring for < $100,000

[salmuellajackson]

Hey guys,

I'm an EU citizen (denmark), and naturally, I'm looking for a low-tax setup.

I will soon be employed as a contractor for a company, doing engineering work. For this purpose, I'm looking for 1) a place to incorporate and 2) a place to call home for tax purposes. They do not need to be the same places.
For now I expect to earn less than $100,000/year, but I expect to handle something in the $150,000 region within a couple of years. So far, I think that a Romanian microbusiness seems like the best deal I have encountered, given my low income and high margins, as well as the fact that they now allow service-based businesses. Secondly, I'm looking for a place to become tax resident. Here I would value low requirements for time needed in the country, such as Cyprus' 60 day rule, although it's not a requirement. As far as I understand, I wouldn't be eligible for that residency with a Romanian company, since one requirement is that you need to "have other defined Cyprus ties", which from my interpretation means either being employed by or owning a Cyprus-based company.

Portugal's NHR seems like an easy choice, given their non-taxing of foreign sourced income. However, if I'm to work from there, I suppose CFC rules could come into play.
Georgia could seem like a good place to pay my taxes too, however I'm not sure if I would qualify for any of the good schemes with foreign company. Georgian microbusiness scheme requires that you do not do "consulting" of any kind, which I _believe_ would include this sort of engineering contract work that I would be doing (right?).
Malta also seems interesting, although I'm having a hard time understanding if it would make sense given my low income.

So, TL;DR: Looking for ideas on 1) where to incorporate a company whose revenue will be generated directly from my services offered to other companies, and where income will be <$100,000/year, and 2) where to become tax resident.

Any ideas, recommendations, or feedback from personal experience with any of the mentioned jurisdictions, would be greatly appreciated!

Last edited: Mar 4, 2022

 

[Martin Everson]

Ok. Where to incorporate is secondary issue. First issue is where to live as this will most likely be the place of operation and control of the company in all reality. Hence this is where tax will likely be owed regardless of where company is incorporated due to potential CFC rules.

I would firstly shortlist several countries you would 100% feel comfortable living in. I've lived in Georgia it is nice place but can you make head or tail of their language? Would you feel comfortable with the cultural differences and can you travel in and out easily to your home country etc?

You may want to look at a Digital Nomad visa and any favorable tax incentives they may offer also.

https://nomadgirl.co/countries-with-digital-nomad-visas/

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[CyprusLawyer101]

salmuellajackson said:
Hey guys,

I'm an EU citizen (denmark), and naturally, I'm looking for a low-tax setup.

I will soon be employed as a contractor for a company, doing engineering work. For this purpose, I'm looking for 1) a place to incorporate and 2) a place to call home for tax purposes. They do not need to be the same places.
For now I expect to earn less than $100,000/year, but I expect to handle something in the $150,000 region within a couple of years. So far, I think that a Romanian microbusiness seems like the best deal I have encountered, given my low income and high margins, as well as the fact that they now allow service-based businesses. Secondly, I'm looking for a place to become tax resident. Here I would value low requirements for time needed in the country, such as Cyprus' 60 day rule, although it's not a requirement. As far as I understand, I wouldn't be eligible for that residency with a Romanian company, since one requirement is that you need to "have other defined Cyprus ties", which from my interpretation means either being employed by or owning a Cyprus-based company.

Portugal's NHR seems like an easy choice, given their non-taxing of foreign sourced income. However, if I'm to work from there, I suppose CFC rules could come into play.
Georgia could seem like a good place to pay my taxes too, however I'm not sure if I would qualify for any of the good schemes with foreign company. Georgian microbusiness scheme requires that you do not do "consulting" of any kind, which I _believe_ would include this sort of engineering contract work that I would be doing (right?).
Malta also seems interesting, although I'm having a hard time understanding if it would make sense given my low income.

So, TL;DR: Looking for ideas on 1) where to incorporate a company whose revenue will be generated directly from my services offered to other companies, and where income will be <$100,000/year, and 2) where to become tax resident.

Any ideas, recommendations, or feedback from personal experience with any of the mentioned jurisdictions, would be greatly appreciated!
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Hello !
Cyprus would be a good option for you and atructuring peoperly can result to 0% taxes almost. Also dont forget you are an EU citizen and moving to Cyprus should be amooth and without hardles.
If you are interest to discuss, let me know and I would be happy to PM you.

 

[Sols]

While you are right that place of incorporation and place of tax residence don't have to be the same, you'll save yourself a lot of headache if they are. At 100-150,000 USD/year revenue, you're making good money but you're not rich. Don't setup structures that cost more than your tax burden would be if you stay in Denmark.

Romania looks great on paper but not so great in reality. Sure, it offers low tax and low cost. But administration is a pain with much only available in Romanian. The current law has existed for years, yet it hasn't achieved anywhere near the popularity of Malta or Cyprus, among other EU peers.

The easiest option within EU is probably Cyprus. In short, you'd set up a local company, pay 12.50% corporate income tax, 2.65% for social contributions (max 4,800 EUR/year), and keep the rest as dividends. There is a little more nuance to it to be discussed with a lawyer/service provider.

If you're interested in Cyprus but want to be with fellow Danes, there's a Danish enclave Hügge coworking space

Second after that I'd say is Malta. You can achieve a lower corporate tax burden but it requires a bit more administration to set up. The costs for setting up and managing all that could quickly eat up a significant portion of your income.

Portugal really only works if you have passive income. It's not hard to use nominees to make it look as if your income is passive but it wouldn't hold up to scrutiny if it's questioned. Even if no one is checking at the moment, it's not wise for the future.

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This is the probably the answer to your question.

 

[salmuellajackson]

Thanks for the replies guys! This is all a bit new to me, despite quite a bit of research
@Martin Everson The next few couple of years, I expect to be in no one particular place for very significant amounts of time, which is why I find Cyprus' requirements quite attractive. I am willing of course to stay those standard 183 days in a country with lenient tax schemes though, to be fully compliant with any rules.
As far as Georgia and living somewhere with cultural differences goes -- I don't see that as a large obstacle, so long as the paperwork and administrative tasks are OK for English speakers, which I have heard is the case in Georgia. That's really the main thing, that it's easy to do all the administrative stuff like filing taxes, setting up a bank account, getting a residency, and so on. Considering this, do you have any recommendations for a template structure?

@CyprusLawyer101 Cyprus can result in 0% taxes almost? I would love to learn more, as I was under the impression that all in all taxes would be ~15% with a company in Cyrpus. I'll PM you!

@Sols Appreciate the insight. So you would consider the costs of e.g. Romania + residency somewhere else not worth the squeeze?

Ah and also, @Martin Everson , since you have experience with Georgia, are you able to tell me if I would be eligible for their microbusiness scheme given my line of work? As I mentioned I've read that a requirement is that you do not do "consulting of any kind". Would this sort of contract-based work be considered consulting under that regime?

Last edited: Mar 4, 2022

 

[Martin Everson]

salmuellajackson said:
Ah and also, @Martin Everson , since you have experience with Georgia, are you able to tell me if I would be eligible for their microbusiness scheme given my line of work? As I mentioned I've read that a requirement is that you do not do "consulting of any kind". Would this sort of contract-based work be considered consulting under that regime?
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I cannot determine that for you. You need to meet criteria first. You can speak to maybe below people.

https://expathub.ge/how-to-register-your-micro-business-in-georgia/
P.S Explore your local banking options first.

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Please note my posts should not be taken as financial or tax advice. Please seek professional advice in that respect.

 

[Silvio]

Note that if you are planning to be a contractor you don't actually need to set up a company and can just move to a territorial taxation country and get the money into your personal account. That way you don't need to open a company, file accounts etc.

 

[Sols]

salmuellajackson said:
@Sols Appreciate the insight. So you would consider the costs of e.g. Romania + residency somewhere else not worth the squeeze?
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All things considered, no. I've never seen a case where it was the best choice.

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This is the probably the answer to your question.

 

[countryfree]

You may check with the company that will pay you, if it's OK if you're outside of the EU. It may make a difference...

 

[EuroKiss]

EUSSR will soon have to shall out huge money for their new “acquisitions” Ukraine, Moldova and Georgia. I see all these internal off-shore disappear soon, and most probably Georgia will be the first one to “recalibrate” its fiscal regime.

 

[Marzio]

EuroKiss said:
Georgia will be the first one to “recalibrate” its fiscal regime.
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What specifically do you see they will need to recalibrate? Estonia has a similar regime and is doing fine.

 

[EuroKiss]

marzio said:
What specifically do you see they will need to recalibrate? Estonia has a similar regime and is doing fine.
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Regarding Estonia, E-visa is a swindle, Banking is a nightmare, and they also are receptors of eu charity. I don't know for how many years eu will accept off-shore situations inside their own borders tbh. It could be for ever or be terminated very soon. Georgia will surely be a receptor of financial assistance from Bruxelles, I don't think they will accept that in the meantime Europeans could use the country to avoid taxes.

 

[FantomOffshore]

EuroKiss said:
Regarding Estonia, E-visa is a swindle, Banking is a nightmare, and they also are receptors of eu charity. I don't know for how many years eu will accept off-shore situations inside their own borders tbh. It could be for ever or be terminated very soon. Georgia will surely be a receptor of financial assistance from Bruxelles, I don't think they will accept that in the meantime Europeans could use the country to avoid taxes.
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While this is a lucid observation, I would expect this taking a very long time to play out. Definitely not happening within the coming two years in my opinion, curious what your time-table is for this.

 

[backpacker]

EuroKiss said:
EUSSR will soon have to shall out huge money for their new “acquisitions” Ukraine, Moldova and Georgia. I see all these internal off-shore disappear soon, and most probably Georgia will be the first one to “recalibrate” its fiscal regime.
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Second that.
I mentioned it already a while ago:
CFC rules in Georgia (final part of post #46)

Interesting: Starting 2023 Georgia does not even need the plebiscite anymore. That is one of the reasons why CRS participation of GE has been moved by one year to 2024: This way they do not need to mess up anything and simply transform from territorial to worldwide taxation hand-in-hand with implementing CRS. Makes more sense and let local banks get their customer database straight.
https://www.oecd.org/tax/automatic-exchange/commitment-and-monitoring-process/AEOI-commitments.pdf

Last edited: Mar 19, 2022

 

[Marzio]

Bagpacker said:
This way they do not need to mess up anything and simply transform from territorial to worldwide taxation hand-in-hand with implementing CRS
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Why should they change from territorial taxation to worldwide taxation? They could still join CRS while maintaining territorial taxation and pleasing EU

 

[EuroKiss]

FantomOffshore said:
While this is a lucid observation, I would expect this taking a very long time to play out. Definitely not happening within the coming two years in my opinion, curious what your time-table is for this.
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Thanks for the “lucid observation”! 🙂
Tbh things are running really fast, so it's very difficult to forecast next tax moves, but with last currency/banking sanctions is pretty much evident the rest of the world has lost interest in euro as a reserve and trading currency. Besides that, deficit will increase together inflation, and eurocountries debts are already out of control. I think we will see changes in a very short timeframe.

 

[backpacker]

marzio said:
Why should they change from territorial taxation to worldwide taxation? They could still join CRS while maintaining territorial taxation and pleasing EU
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In theory they could. In practice they do not want.

The current tax system has been implemented by a president who currently serves a jail sentence. Implementation happened under the impression of the Russian-Georgian war in 2008 and a desperate attempt to attract foreigners to the country. Back then Georgia was not under the command of Bruxelles, did not care about people in Berlin and went its own ways. Today the country is fully dependent on aid from Bruxelles and therefore does what EU-bureaucrats order Georgia to do. One of these orders is to bring the countries tax system in line with EU standards.
Add to it the fact that the current administration is also not exactly a fan of territorial taxation and you know that it will be changed soon. Selling point: They tell the general population that wealthy Georgians deposit money abroad in order to (leaglly) avoid taxation in Georgia, with CRS the country is able to find that wealth, it can finally be taxed and in turn the average population will now only pay 15% income tax instead of the current 20%.
Moreover, with this ongoing there will also be a significant change in the current tax-free regime for local bank deposits (currently envisaged for 2023). Interest from these deposits are expected to be taxed at the usual 5% for current non-bank deposits (already existing CD and TD will be exempt till expired). Simple as that!

All this is nothing new and everybody with a bit of insight knows it. I mentioned it already a year ago -> CFC rules in Georgia (last part of post #61).

Last edited: Mar 20, 2022

 

[khinkali]

Bagpacker said:
Today the country is fully dependent on aid from Bruxelles and therefore does what EU-bureaucrats order Georgia to do. One of these.orders is to bring the countries tax system in line with EU standards.
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Aid from Asia is catching up with aid from EU. FDI and trade are important for the future, rather than just handouts. EU countries have territorial taxation in various forms.

I believe that transparency such as AEOI (e.g. joining CRS quite soon) and Pillar 1 (e.g. substance requirement hurriedly implemented for Georgian Virtual Zone status) are more important to EU, US, OECD than Pillar 2 (minimum tax for a small number of multinational corporations).

Anyway, territorial tax for resident natural persons doesn't shift tax from EU residents or US persons. Georgian businesses have a worldwide tax basis which prevents non-Georgian persons from benefiting from territorial tax (hence the VZ change to keep OECD happy).

 

[backpacker]

khinkali said:
EU countries have territorial taxation in various forms.
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They joined when Bruxelles was in a transitional phase from EC to EU. Back then the understanding of this organization was different and (20 years ago) many countries were able to preserve part of their systems. None of the new applicants will be able to preserve its old tax system. Just have a look at what's going on in Montenegro.

khinkali said:
Anyway, territorial tax for resident natural persons doesn't shift tax from EU residents or US persons.
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You miss the bigger picture: Bruxelles does not want tax havens in its immediate vicinity. Actually, they do not want them anywhere but can do nothing with regards to Asia or South-America.
Georgia is an easy option for every Westerner to save taxes. It does not matter that only few use this option and of these few none is really wealthy - for Bruxelles this is mostly ideological.

 

[khinkali]

There are 35+ year members of EU with aspects of territorial taxation for residents.

Bagpacker said:
You miss the bigger picture: Bruxelles does not want tax havens in its immediate vicinity.
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I'm sorry for missing the bigger picture. I am just not an "EU maximalist". I do not believe that EU's ability to export regulation is as strong as it was expecting, or that Georgia's accession is imminent, or that it is necessary to "transform from territorial to worldwide taxation hand-in-hand with implementing CRS".

That is not to say that the current tax treatment is to continue indefinitely. I think that quite a lot of Georgian locally operating business is owned by offshore entities with links to Georgian resident citizens. CRS is flawed so a global tax base for residents (or at least resident citizens) could get enough political support.