Bulgarian residency and US LLC?

[acode]

I have a friend couple that have been digital nomads in SEA for 3 years. They spent their time in different countries without properly establishing a tax residency elsewhere so they are still officially registered in their home country which is a high tax country in EU.

They offer marketing services mainly to European clients and have been operating under a foreign-owned US LLC (each of them have one). Now they are looking for a place to settle in and establish proper tax residency with the idea of eventually coming back to their home country to build a family so they are interested in having a proper tax record (their country tax authority is ferocious so they prefer to pay some tax somewhere that not paying at all).

They are not high earners (just yet) as they are going to make around $60k between both of them this year but they are planning to grow their business. So they were considering affordable places to live close to EU to be able to visit family more often. Best options in their radar with affordable living are Bulgaria and Georgia. Finally decided on Bulgaria cause Georgia political uncertainty + cost of living rising in Tbilisi. Most likely the final destination will be Bansko as they enjoy quiet places close to nature but still with some amenities, coworking spaces and other digital nomads/business owners.

So their plan is the next one and they would like to know if there is something they are not considering:

Registering one company in Bulgaria (10% corporate tax) with one of them being the owner and the other one being an employee. Both would have minimum salaries (450 EUR if I'm not mistaken) to pay as little social security as possible and the rest of the money would be taken out as dividends under 5% retention.

Now, questions:

- Is legal to pay minimum salaries regardless of your role in the company?
- Could they still operate with their US LLC and keep using their Stripe accounts to charge clients and then the bulgarian company would invoice for 100% of the revenue/profit?

Thanks for any help

 

[JohnnyDoe]

I have a friend couple that have been digital nomads in SEA for 3 years. They spent their time in different countries without properly establishing a tax residency elsewhere so they are still officially registered in their home country which is a high tax country in EU.

This is plain stupid. They are evading taxes in that high tax EU country without even being physically there

It's not a bad idea to become compliant, but if the goal is long term peace of mind, Bulgaria isn’t exactly the promised land: it’s more of a waiting room between the shithole called Georgia and the tax gulag of the EUSSR.

Paying minimum salaries while pulling the real money as dividends is technically legal, but local authorities aren’t stupid. The Bulgarian NRA knows that this trick is overused, and they can (and sometimes do) reclassify part of the dividends as undeclared salary if it looks like disguised remuneration.

As for running client payments through the US LLC and then having the Bulgarian company invoice it after the fact: don’t. That’s just retroactive profit shifting. It works until someone audits and decides those revenues never legally belonged to the Bulgarian entity. Either consolidate operations in Bulgaria (and abandon the LLC) or keep the LLC as your active company and live in Bulgaria as individuals declaring foreign income under the local flat tax system.

And no, going back home to the EUSSR later isn’t a smart move unless they are masochists and enjoy paperwork, taxes and confiscations. If they really want to settle somewhere safe and compliant they should consider a real non EU base, somewhere that doesn’t treat entrepreneurs like criminals for being successful.

 

[acode]

Thanks for your helpful answer! For them is more important right now staying close to family than avoiding as much taxes as possible. And in the future they want to raise a family in their home country regardless of the legal rip-off perpetrated by his state.

By moving to a country like Bulgaria they would already save at least 50% of what they would pay in their home country (and way more if they grow their company as they are planning).

By this "keep the LLC as your active company and live in Bulgaria as individuals declaring foreign income under the local flat tax system" you mean they wouldn't have to pay social security? That wouldn't cause any problem?

Thanks again

 

[JohnnyDoe]

Thanks for your helpful answer! For them is more important right now staying close to family than avoiding as much taxes as possible. And in the future they want to raise a family in their home country regardless of the legal rip-off perpetrated by his state.

Everyone is free to decide how ruin his own life. Sorry for their kids.

By moving to a country like Bulgaria they would already save at least 50% of what they would pay in their home country (and way more if they grow their company as they are planning).

By this "keep the LLC as your active company and live in Bulgaria as individuals declaring foreign income under the local flat tax system" you mean they wouldn't have to pay social security? That wouldn't cause any problem?

They do as self self employed individuals. Of course we pretend to ignore the matter of central place of management and control of the company, which bg will likely don't care about with these numbers.

 

[GuaraniGhost]

- Is legal to pay minimum salaries regardless of your role in the company?
- Could they still operate with their US LLC and keep using their Stripe accounts to charge clients and then the bulgarian company would invoice for 100% of the revenue/profit?

Yes, it is legal. If it will fly, tho is a matter of luck. Probably with 60k it will.
Open the Stripe account on BLG LTD. Leave out the US LLC completely.