0% tax for digital nomad achievable?

[Don]

Sols said:
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.
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This is generally correct, however, exception can be applied in cases of representatives, which act only on behalf of one of the parties (payer or the payee), in case there is no need for license in certain jurisdictions.
This is because although payment services are regulated by Payment Services Directive, the EU states have interpreted and transposed it slightly differently in their legislation.

 

[jafo]

Sols said:
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.
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This is great info! I was unaware of this. Is there an official EU gov. link so I can read this?

 

[Don]

jafo said:
This is great info! I was unaware of this. Is there an official EU gov. link so I can read this?
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https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:32015L2366

 

[Mike Forman]

Does anyone have an actual working set up using a registered corporation as "payment agent" and have this validated by local tax authorities?

This all sounds nice in paper and as long no authorities start looking into it, but it would be doubtful any of those structures hold when there is an investigation, especially if the companies are related and the "payment agent" has in fact only one customer which is yourself.

Authorities see through this nowadays, and questions will be asked such as : you received income but this is not declared as income by the payment agent.

If a business is small enough and you are not on any radar you can get away with that. When they start investigating you I don't see any of this upholding especially if you are the ubo of both corporations and your payment agent customer is only your own related company.

 

[Don]

Mike Forman said:
Does anyone have an actual working set up using a registered corporation as "payment agent" and have this validated by local tax authorities?

This all sounds nice in paper and as long no authorities start looking into it, but it would be doubtful any of those structures hold when there is an investigation, especially if the companies are related and the "payment agent" has in fact only one customer which is yourself.

Authorities see through this nowadays, and questions will be asked such as : you received income but this is not declared as income by the payment agent.

If a business is small enough and you are not on any radar you can get away with that. When they start investigating you I don't see any of this upholding especially if you are the ubo of both corporations and your payment agent customer is only your own related company.
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Yes, its quite common and validated concept.
Kindly note that it works the opposite way - payment agent provides service to another company for payment processing.
Payment agent receives money on behalf of the other company and its not declared as income.

I believe even this forum runs this way (please correct me if Im wrong)

 

[Sols]

Mike Forman said:
Does anyone have an actual working set up using a registered corporation as "payment agent" and have this validated by local tax authorities?
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Yes.

Mike Forman said:
This all sounds nice in paper and as long no authorities start looking into it, but it would be doubtful any of those structures hold when there is an investigation, especially if the companies are related and the "payment agent" has in fact only one customer which is yourself.
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That's the whole point of a payment agent. They only serve a single customer: its parent (and other group entities). That's what exempts it from being a financial service provider requiring a license.

Mike Forman said:
If a business is small enough and you are not on any radar you can get away with that. When they start investigating you I don't see any of this upholding especially if you are the ubo of both corporations and your payment agent customer is only your own related company.
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While volume alone isn't an indicator of being on someone's radar, there are payment agents in UK, Cyprus, and Malta processing tens of millions EUR/GBP a month. No one bothers them.

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This is the probably the answer to your question.

 

[baio12]

Don said:
This is generally correct, however, exception can be applied in cases of representatives, which act only on behalf of one of the parties (payer or the payee), in case there is no need for license in certain jurisdictions.
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Payment agent for this case would be on behalf of seller only is it right? Thus no need for license?

Don said:
Payment agent receives money on behalf of the other company and its not declared as income.
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Billing company declare it as their own income but payment agent will not?

Sols said:
That's the whole point of a payment agent. They only serve a single customer: its parent (and other group entities). That's what exempts it from being a financial service provider requiring a license.
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Can there be payment agent that has single customer but is not its parent or group entity? Example is unrelated company they made deal with? I seen threads in this forum with people asking if someone want to be their payment agent.

 

[Sols]

baio12 said:
Can there be payment agent that has single customer but is not its parent or group entity? Example is unrelated company they made deal with? I seen threads in this forum with people asking if someone want to be their payment agent.
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No, there is a very important distinction between your own money and someone else's money. If you're receiving, processing, or remitting your own money, it falls out of regulatory scope in some jurisdiction. But if it's someone else's money, it's a regulated financial service which in EU/EEA/UK requires some form of license. Things can be looser in other parts of the world.

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This is the probably the answer to your question.

 

[baio12]

Don said:
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.
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What is negative side to billing company? It act as shield to main business and you can partner with other company to do it or use your own subsidiary. There is no requirement for license too. Seems like only positive sides.

 

[Don]

baio12 said:
What is negative side to billing company? It act as shield to main business and you can partner with other company to do it or use your own subsidiary. There is no requirement for license too. Seems like only positive sides.
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I must correct my above statement, as these are slightly different concepts:

• A billing company handles the invoicing and debt collection processes for other businesses, managing the creation, sending, and follow-up of invoices to ensure payment is made.
• A payment agent acts as an intermediary to handle transactions between two parties, typically processing payments from the customer to the business. They accept funds and then relay these funds to the seller or service provider.
• Franchise is a business model where the franchisor grants the franchisee the right to use its trademark, brand, and operating methods. The franchisee pays fees for these rights and operates their business unit independently but according to the franchisor's stipulations.

I've seen different types of agreements. Sometimes, companies are willfully not compliant and disregard the compliance obligations.
For example, a franchise agreement with a capped fee of 4k per year managing payments for a few million.
In practice, those arrangements seem to work out quite similarly, but in reality, compliance obligations are different, depending on who holds the risks, etc., and there might be a need to consider transfer pricing.

 

[VanderbiltyMoney]

Don said:
I must correct my above statement, as these are slightly different concepts:

• A billing company handles the invoicing and debt collection processes for other businesses, managing the creation, sending, and follow-up of invoices to ensure payment is made.
• A payment agent acts as an intermediary to handle transactions between two parties, typically processing payments from the customer to the business. They accept funds and then relay these funds to the seller or service provider.
• Franchise is a business model where the franchisor grants the franchisee the right to use its trademark, brand, and operating methods. The franchisee pays fees for these rights and operates their business unit independently but according to the franchisor's stipulations.

I've seen different types of agreements. Sometimes, companies are willfully not compliant and disregard the compliance obligations.
For example, a franchise agreement with a capped fee of 4k per year managing payments for a few million.
In practice, those arrangements seem to work out quite similarly, but in reality, compliance obligations are different, depending on who holds the risks, etc., and there might be a need to consider transfer pricing.
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Thank you for the concise summary, definitely helps clarify!

 

[baio12]

Don said:

• A billing company handles the invoicing and debt collection processes for other businesses, managing the creation, sending, and follow-up of invoices to ensure payment is made.
• A payment agent acts as an intermediary to handle transactions between two parties, typically processing payments from the customer to the business. They accept funds and then relay these funds to the seller or service provider.

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Payment agent requires license to work with unrelated company. Does billing company require license for it too?

Does customer or main company pay billing company? What is their revenue coming from?

 

[mud]

Gibraltar company as a non-resident that owns a Wyoming LLC.

Stopping paying yourself a salary so no income tax in many countries. (Just be careful of establishing a personal tax residency in CFC countries that extend rules to individuals)

 

[JohnLocke]

mud said:
Gibraltar company as a non-resident that owns a Wyoming LLC.

Stopping paying yourself a salary so no income tax in many countries. (Just be careful of establishing a personal tax residency in CFC countries that extend rules to individuals)
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If you do that how will you explain where the money comes form, as a loan that needs to be paid back ?

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[Mike Forman]

Sols said:
Yes.


That's the whole point of a payment agent. They only serve a single customer: its parent (and other group entities). That's what exempts it from being a financial service provider requiring a license.


While volume alone isn't an indicator of being on someone's radar, there are payment agents in UK, Cyprus, and Malta processing tens of millions EUR/GBP a month. No one bothers them.
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A payment agent is definitely a legit structure if it acts really as an non-related payment agent.

If the payment agent is related and has the same UBO, tax authorities will quickly suspect that related companies are being used to artificially reduce tax liabilities.

Volume doesn't mean you are on the radar, there is a multitude of factors. Having a related company in a jurisdiction as Malta or Cyprus is already one of them.

We have experience with this and it's enough for EU tax authorities to see there is a related company in a low tax jurisdiction to start a full blown investigation with raids, even the UBO does not live in the EU. All the other tax authorities in Malta etc are contacted and you shall provide all tax, bill, PL, bank transfer information of the past 7 years.

It might work and be useful in some setups, but it also draws a lot of unnecessary attention. Malta company record is public and our businesses got into offshore leaks. Which all drew authorities their attention.

I would personally not suggest anyone to create and especially do business with a related company in a low tax jurisdiction if you operate from an aggressive tax EU country or make sure you have setup the structure well with a tax lawyer.

 

[mud]

JohnLocke said:
If you do that how will you explain where the money comes form, as a loan that needs to be paid back ?
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Yep. That's one way.

• 'Living off my savings' is another.
• 'Return of Capital' is another, especially if you've done a revaluation of the business.
• Paying yourself a hefty Dividend when personally tax resident in a non-dividend taxing country
• Paying yourself under the tax thresholds is another
• Geting the company to pay your travel expenses is another

The point is that you don't need to always pay yourself a salary from your company in order to live comfortably.

 

[MichelRippon989]

Digital nomads who establish tax residency in Monaco are not required to pay personal income tax on their worldwide earnings.

 

[baio12]

Mike Forman said:
A payment agent is definitely a legit structure if it acts really as an non-related payment agent.

If the payment agent is related and has the same UBO, tax authorities will quickly suspect that related companies are being used to artificially reduce tax liabilities.

Volume doesn't mean you are on the radar, there is a multitude of factors. Having a related company in a jurisdiction as Malta or Cyprus is already one of them.

We have experience with this and it's enough for EU tax authorities to see there is a related company in a low tax jurisdiction to start a full blown investigation with raids, even the UBO does not live in the EU. All the other tax authorities in Malta etc are contacted and you shall provide all tax, bill, PL, bank transfer information of the past 7 years.

It might work and be useful in some setups, but it also draws a lot of unnecessary attention. Malta company record is public and our businesses got into offshore leaks. Which all drew authorities their attention.

I would personally not suggest anyone to create and especially do business with a related company in a low tax jurisdiction if you operate from an aggressive tax EU country or make sure you have setup the structure well with a tax lawyer.
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What you can suggest as better options instead?

 

[JohnLocke]

MichelRippon989 said:
Digital nomads who establish tax residency in Monaco are not required to pay personal income tax on their worldwide earnings.
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It sounds, as usual, like a really good and simple solution. The question now is just how much money do you need to become a digital nomad in Monaco? Are the rules the same as if you need a residence permit there or just to live in Monaco? - I don't know - but if so, then I think it's not just that easy.

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[MichelRippon989]

JohnLocke said:
It sounds, as usual, like a really good and simple solution. The question now is just how much money do you need to become a digital nomad in Monaco? Are the rules the same as if you need a residence permit there or just to live in Monaco? - I don't know - but if so, then I think it's not just that easy.
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Monaco digital normad visa cost €2000. You do not need to be present in Monaco. But if you want to open a Monaco bank account, you need to visit Monaco.