Digital nomad - what does it takes!

[yoo]

I'm having an online business with clients all over the world and doing consultancy services remotely mostly for clients in my home country. I'm an EU residence and I'm traveling full time.
Want to lower the taxes, I have no problem with becoming a residence in another country if it's better, but don't want to sign up for a minimum of certain months in any country. I understood that Estonia or Cyprus might be the best choices for me tax-wise. According to an accountant I talked to in Estonia I most likely will not benefit from the 0 % corporate tax unless I can prove I'm a tax residence in a country that is not my home country.

What setup is recommended? Do I need to become a residence in another country to not be taxed in my home country? Cheaper to set up the better

Estonia or Cyprus?

 

[nomadical]

My business sounds similar to yours - I moved to Cyprus. I can share what I know here, but I have less knowledge on Estonia.

Currently paying 12.5% Cyprus corporation tax + 2.7% dividend tax on the first 180k EUR / year
and paying myself a salary of around 1k EUR / month

60 days a year minimum required for tax residency in Cyprus with the above setup.

"Do I need to become a residence in another country to not be taxed in my home country?" Yes, I believe so

"Cheaper to set up the better" - above cost around 2k EUR to set up (from memory), and around 5-8k EUR / year for accounting + audit. I think cheaper is possible.

 

[tacokai]

nomadical said:
60 days a year minimum required for tax residency in Cyprus with the above setup.
Click to expand...

how do they check it, or don't they ask you for proof?

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[nomadical]

tacokai said:
how do they check it, or don't they ask you for proof?
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I think where it matters is: if your previous 'tax resident' country asks questions, then you might want a tax residency certificate in Cyprus to show them... you may need the 60 days to allow you to obtain this

Not sure how likely above scenario is. I've never been asked for proof.

 

[khinkali]

yoo said:
Do I need to become a residence in another country to not be taxed in my home country?
Click to expand...

This depends on which home country. USA citizens can be taxed wherever they live. UK has a statutory residence test which is mostly about not being in the UK, but being resident in another country for N days can help in marginal cases. Some countries can continue to tax you for a while after leaving. Some can tax you (or just make things difficult) unless you're tax resident somewhere else.

You said EU, so it really depends on which of the 27 you're trying to escape.

 

[Konstanz]

khinkali said:
This depends on which home country. USA citizens can be taxed wherever they live. UK has a statutory residence test which is mostly about not being in the UK, but being resident in another country for N days can help in marginal cases. Some countries can continue to tax you for a while after leaving. Some can tax you (or just make things difficult) unless you're tax resident somewhere else.

You said EU, so it really depends on which of the 27 you're trying to escape.
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Some countries can tax you based on personal and economic ties. If you still have family at your home country or have lots of economic interest..

 

[JustAnotherNomad]

yoo said:
I'm an EU residence and I'm traveling full time.
Click to expand...

What does this mean? So you still have an apartment in your home country...?

yoo said:
I understood that Estonia or Cyprus might be the best choices for me tax-wise.
Click to expand...

Why?

yoo said:
According to an accountant I talked to in Estonia I most likely will not benefit from the 0 % corporate tax unless I can prove I'm a tax residence in a country that is not my home country.
Click to expand...

The Estonian corporate tax rate is 20%. I'm not sure what the accountant told you either. Maybe if you explain what your situation is a bit better, we can help you.
You can also use the search function, there have been similar threads before.

 

[yoo]

JustAnotherNomad said:
What does this mean? So you still have an apartment in your home country...?



Why?



The Estonian corporate tax rate is 20%. I'm not sure what the accountant told you either. Maybe if you explain what your situation is a bit better, we can help you.
You can also use the search function, there have been similar threads before.
Click to expand...

What does this mean? So you still have an apartment in your home country...?
- No I don't have an apartment in my home country.

Why?
- Since I'm gonna bill for consultancy also, I'm afraid that the clients will refuse to pay to a company in Bahamas etc. It needs to be in a reputable country in the EU. Estonia seems cheap to start and easy. Cyprus seems more common in this forum? Malta seems like it needs a more advanced setup with Cyprus holding etc.

The Estonian corporate tax rate is 20%. I'm not sure what the accountant told you either. Maybe if you explain what your situation is a bit better, we can help you.
You can also use the search function, there have been similar threads before.
- I mean for undisrupted profits. I have been traveling in Southeast Asia for the last years, I'm basically never in my home country and I just want to optimize my taxes. Since I'm just traveling around, I don't have a residence or tax certificate from any other country than my home country. And because around 50% of my income comes from remote consultancy for clients in my home country the accountant said that it's likely that the company will be taxed in my home country, unless I can prove residence in another country, which I can't right now.

 

[JustAnotherNomad]

yoo said:
- No I don't have an apartment in my home country.
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Then why are you still resident there? Or even tax resident?

yoo said:
Since I'm gonna bill for consultancy also, I'm afraid that the clients will refuse to pay to a company in Bahamas etc. It needs to be in a reputable country in the EU. Estonia seems cheap to start and easy.
Click to expand...

UK also works for this. Most countries actually.

yoo said:
And because around 50% of my income comes from remote consultancy for clients in my home country the accountant said that it's likely that the company will be taxed in my home country, unless I can prove residence in another country, which I can't right now.
Click to expand...

That's quite different from what you first wrote. If there is a fixed place from where you operate a company, the company usually needs to pay taxes there. If you “live” in your home country, then the tax office can simply claim that you manage the company from there (stronger ties to your home country than to Estonia), so that's where it should pay taxes. Even if you don't make any distributions. By the way, a company pays taxes on profits. If there is no profit because you pay out a high salary to yourself, then there is no company tax in 99% of the cases. But if you pay a salary, you have to pay personal income tax instead.
Long story short: Make sure you are no longer liable for tax in your home country. Unregister your residency and check the rules (ask an accountant) to make sure there's no rule like “You still have to pay us for X years.” Get tax residency somewhere else, like a 0% tax country. Then (afterwards) register a company wherever you like, but not in your home country. This stuff usually works quite well - but you MUST move around a lot. You can't keep coming back to the same high tax countries over and over for a longer period. If you spend 3 months in the same city in Spain every winter, they can tax you (fixed place of business). But of course it's not very likely they'd find out unless you buy real estate or drive around in a Ferrari.

That's the simplified version at least. Talk to an accountant to be sure.

 

[yoo]

JustAnotherNomad said:
Then why are you still resident there? Or even tax resident?



UK also works for this. Most countries actually.



That's quite different from what you first wrote. If there is a fixed place from where you operate a company, the company usually needs to pay taxes there. If you “live” in your home country, then the tax office can simply claim that you manage the company from there (stronger ties to your home country than to Estonia), so that's where it should pay taxes. Even if you don't make any distributions. By the way, a company pays taxes on profits. If there is no profit because you pay out a high salary to yourself, then there is no company tax in 99% of the cases. But if you pay a salary, you have to pay personal income tax instead.
Long story short: Make sure you are no longer liable for tax in your home country. Unregister your residency and check the rules (ask an accountant) to make sure there's no rule like “You still have to pay us for X years.” Get tax residency somewhere else, like a 0% tax country. Then (afterwards) register a company wherever you like, but not in your home country. This stuff usually works quite well - but you MUST move around a lot. You can't keep coming back to the same high tax countries over and over for a longer period. If you spend 3 months in the same city in Spain every winter, they can tax you (fixed place of business). But of course it's not very likely they'd find out unless you buy real estate or drive around in a Ferrari.

That's the simplified version at least. Talk to an accountant to be sure.
Click to expand...

Thanks for all your help!

There is not a fixed place where my company is operating. All my work is done remotely from different countries.
Where is recommended to get a tax residency?
Is it important that I get a tax residency in another country before I register the company, or I can incorporate first and get a residence a few months later?

 

[dirtyharry]

yoo said:
Is it important that I get a tax residency in another country before I register the company, or I can incorporate first and get a residence a few months later?
Click to expand...

it normally doesn't matter, you can register the company anywhere, only after you owned the company a year it will matter because then you have to pay tax.

 

[JustAnotherNomad]

yoo said:
Is it important that I get a tax residency in another country before I register the company, or I can incorporate first and get a residence a few months later?
Click to expand...

That depends on your home country. If you register the company while you're still tax resident in your home country, it can create problems down the line. Though that's not very likely if you're really gone from your home country. The important thing is that you check all obligations to your home country.

 

[complex]

JustAnotherNomad said:
The Estonian corporate tax rate is 20%. I'm not sure what the accountant told you either. Maybe if you explain what your situation is a bit better, we can help you.
You can also use the search function, there have been similar threads before.
Click to expand...

There's no corporate tax in Estonia per se. Dividend payments to shareholders are taxed at 20%. Corporate tax implies an annual obligation, which it's not. You can roll profits for decades without paying a cent.

 

[tacokai]

Would go with Cyprus over Estonia unless you have someone that can help you to tax optimize in Estonia!

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[orangekangaroo]

Check out Romania, plenty of info on this forum. 1 to 3% tax on turnover upto 1 million euro and 5% divi tax.

 

[tacokai]

Not bad at all. Could be a good alternative I will have to look into.

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[JustAnotherNomad]

complex said:
There's no corporate tax in Estonia per se.
Click to expand...

That is just plain wrong. Corporate income tax is 20%. You simply don't have to pay it until you distribute profits.

 

[complex]

JustAnotherNomad said:
That is just plain wrong. Corporate income tax is 20%. You simply don't have to pay it until you distribute profits.
Click to expand...

That's a question of terminology. Around the world typically corporate tax implies a tax on profits whether distributed or not.
The local websites call it "tax on distributed profits".

 

[JustAnotherNomad]

It's an important distinction because all kinds of tax treaties are about corporate income tax. It is NOT a withholding tax (a tax on dividends). It is corporate income tax, you simply don't have to pay it, until you distribute profits.

 

[uplana]

perhaps the discussion should be turned to the fact that we find out how to register a place to act as a digital nomad? I thought the thread has taken a turn in the direction of CRS and personal tax.

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