Structuring for < $100,000

[JimBeam]

As Cyprus was mentioned in here, I would like to run down some numbers for‌ you (all from my personal experience).

Let's say you make 100k/year of taxable income (after‍ all expenses), you then need to pay 12.5% CIT tax (12.5k). BUT you need to⁠ calculate and pre-pay that in advance for the current year otherwise you'll pay additional 1%⁤ on 12.5% so that will cost you 13.75% (13.75k/year), social contributions 2.65% (2.65k), accounting (3.5k⁣ could be a bit less or a bit more), company renewal (let's say about 1k/year),⁢ banking costs (optimistically 1k/year). You might also need to rent an office as well.

The total is about 22k/year (or about 22%) + the initial setup in the first year.︀

IMO running a Cyprus company is quite expensive: accounting is expensive, banking fees are quite︁ expensive.
Don't know much about living expenses... Don't know how familiar you are with living︂ conditions there and you might go there for a vacation go get the know place︃ better.

On the other hand having a company in Dubai would cost you about 5k/year,︄ no tax for you or the company, no accounting (in some free-zones but even if︅ you have to do it it will be about two times cheaper than in Cyprus)︆ and a much cheaper banking (compared to Band of Cyprus).

Living expenses would be higher︇ in Dubai but IMO you actually get something for that money while in Cyprus you︈ just pay their lazy asses LOL

Also, worth mentioning is if your clients are paying︉ you in Euros - you need to be careful in Dubai as exchange rates for︊ EUR could be quite crappy (you can easily lose 3-5% exchanging EUR for AED or︋ vice versa). USD is much better in general in UAE as the rate is fixed︌ and you'll lose 0.5% making an exchange USD for AED or vice versa.

 

[RealDude]

In one year, Dubai will implement a CIT of 9%. From then on, the calculation‌ looks different, doesn't it?

Then expenses also play a bigger role in Dubai to squeeze‍ profits.

 

[KDX]

That CIT is for mainland companies. It doesn't apply⁠ for the freezone

 

[RealDude]

That makes sense 😉

 

[name]

Why? Is there something specific about this country?
If you‌ no longer live there, what can they do?
They'll look up all the records for‍ all the residents of the last 10 years above a certain globally defined net worth⁠ (I suppose all governments will know net worth of all individuals in CRS countries by⁤ then) and if someone didn't declare their income properly, they'll contact the other country and⁣ have them go to jail, unless he pays the penalty which they calculated with 10%⁢ yr interest? 😀
Would they cancel your citizenship if you don't tell them you earned $200K︀ over a few years? I'm just trying to form some understanding of how this works︁

 

[Sols]

I'm not sure how your questions relate to the context of my post, which was︁ tax evasion while resident in Portugal. Portugal's current system is aimed primarily at passive income.︂ Anyone moving there and conducting an active business without due declarations and tax filings (and︃ tax payments) is engaged in tax evasion. It's no secret that Portugal currently isn't doing︄ much if anything about people like that but relying on non-compliance is not a sound,︅ future-proof structure.

The jump from there to revoking citizenship is one you made all by︆ yourself.

 

[name]

Sorry if I sounded aggressive. I was just giving︀ examples and asking if those things could happen so I can develop a little more︁ solid idea

How does one would know it's not a secret?
What could happen if you rely︄ on non-compliance? You might say it depends, so let me give an example. Say do︅ consulting with offshore business making 100k/yr. You keep the money offshore and you keep a︆ low profile. After several years, you become a non tax resident and citizen. After that,︇ would you be able to sleep well at night? What could happen?

 

[Sols]

By knowing people who live in Portugal doing this or something similar to it, without being‌ caught or bothered.

The repercussions for tax crimes range from a slap on the wrist to fines⁠ and back taxes, all the way to money laundering.

To begin︀ with, I doubt the validity of the premise. Your premise is that you get away︁ with it. So in that case, you get away with it.

In reality, I would︂ argue that you cannot learn from history when it comes to tax evasion and fighting︃ financial crimes. History is often a great teacher, but not when it comes to this.︄ Every new AML directive and tax enforcement initiative take us farther away from what was︅ before, into a world of increasing sharing of data and erosion of privacy. This combined︆ with increasingly sophisticated tools to simplify catching tax dodgers creates a future in "several years"︇ that might look very different than today. So the premise of getting away with it︈ is shaky at best.

So if you do get caught, you're first of all facing︉ fines and back taxes for not having paid tax.

But it can , and often︊ does , go further and you end up with charges for tax evasion and money︋ laundering. It's a crime a to use illicit funds and untaxed funds very easily become︌ illicit funds. I doubt you'd lose your citizenship over that (maybe a very aggressive and︍ creative prosecutor could argue that case) but you could end up unable to find peace︎ anywhere in the EU if an international arrest warrant is issued for you.

However, if️ you do get away with it, you face another potential problem: explaining your source of‌ wealth to other countries and new banks. Where did you get 500,000 EUR from? You‍ worked while living in Portugal? OK, show us your tax returns proving you've declared the⁠ funds.

I guess I just don't see the point in tax evasion when there are⁤ so many perfectly fine ways to live tax free or nearly tax free.

 

[name]

What do you think will happen‍ to them?
Do you think they're avoiding to disclose offshore activity completely?
or they're disclosing⁠ like 20% of it?

Oh I didn't realize I made that assumption.⁢ You mean you cannot become a non tax resident (or naturalize) without getting audited? I'm︀ not sure audit is the right word

Let's assume you owed them $150K but you didn't give them their cut.︂ If you get caught, you'd pay that + fines? How are the fines calculated generally?︃ Like 10% per year interest?
Can they seize your assets in other CRS countries for︄ that amount?

I know any answer is speculation but I'm just trying to have an︅ idea of how this works
Isn't this for high earners? One can be a money launderer for that amount?

1. Can banks want to see every single transaction going back to‍ the source of funds? When they ask for tax return is it only for the⁠ last year or for many years? What if you had no activity in last few⁤ years, then they want to see even before a few years ago?
2. Why would⁣ other countries demand an explanation for your source of wealth? Unless you get into their⁢ tax net.
3. Maybe you had another taxable event. You declared that one and the︀ amount is close to 500,000EUR. For example, you sold a property and paid taxes on︁ it. Can this be enough? Do they check transactions in detail?
4. Maybe you had︂ tax returns from years ago explaining your current source of wealth. Can that be enough︃ to explain the 500,000EUR?

One might be from an unstable country so she︆ might need a stable passport and she might be too poor to buy one at︇ the moment. So her option would be to live in a stable country long enough︈ to naturalize. If she knew she was gonna make 500,000EUR in several years in the︉ future, she'd probably buy a passport and live in a tax free country

I really︊ appreciate your response and explanations btw. I agree with your main point. One should ideally︋ think 10, 30 years in the future because nothing is stopping governments from doing whatever︌ they want.

 

[Sols]

Some will be caught, some will not. What mainly determines whether they get caught is⁠ how easy they become for the local tax authority to go after. But a tax⁤ authority in a country like Portugal also needs to be mindful of not scaring away⁣ other wealthy foreigners.

Tax evasion isn't a high priority in some countries because the tax⁢ evaders might be providing jobs or otherwise contributing to the local economy.

I can only︀ speak about the ones I know or know of that do this (which isn't most;︁ most of them are 100% compliant). Most of them declare some form of passive income︂ to explain and cover their daily expenses and some extra, and keep their not-so-passive income︃ abroad, sometimes in convoluted structures or in crypto. , Note that this is different from︄ living in Portugal, actively run a business as your sole income, and try to get︅ around taxation by claiming the income is passive.

Sorry if︈ I was unclear there. The way your question was worded presumed something that I think︉ is risky to presume: that you would not be caught during those years and what︊ would happen then. Your question presumed A and B to be true (A = taxes︋ evaded, B = not caught), whereas my view of the future is that B in︌ this case is increasingly unlikely.

It varies️ a lot but back taxes are usually calculated on an interest basis. Fines (if any‌ applicable) can be calculated differently.

CRS is an exchange of information system. It⁠ by itself does not have anything to do with asset seizure. Whether your assets abroad⁤ can be seized depends on where you live and what type of international agreements are⁣ in place between Portugal and your new abode.

Generally speaking and︀ going by the letter of the law, there is no minimum for money laundering. You︁ can steal 0.50 EUR and be charged with money laundering if you try use it︂ or put in a bank. It's just not worth the effort going after petty money︃ launderers.

The amounts we're discussing here would not be a high priority but it's also︄ nothing. Especially if you've taken up citizenship and/or if you're still easy to catch.

I don't know exactly how income like this should have been taxed because there are so︅ many moving pieces, but suppose it's 25% total. Income tax on 500,000 EUR over five︆ years comes to probably 125,000 EUR. It's not a huge sum but it's worth going︇ after if they think their chances of success are reasonably high.

In most cases, it's︈ easier to get a citizen extradited back home (to Portugal) than a foreigner. Would they︉ do that for 125,000 EUR? Very hard to say. Would they do it for 10x︊ and 100x that amount? Yes.

If they ask (which they don't always do), banks usually want️ to see tax returns that cover at least three years. If you show three years‌ of unemployment but still a wealth of 500,000 EUR they will want to see tax‍ returns far enough back to explain where the funds came from.

They don't want to harbor tax dodgers and money⁣ launderers. Not all countries do this. It's not very common (yet), but I have seen⁢ a few examples of it and I don't see any reason why it wouldn't become︀ more common.

There is practically nothing a bank can't ask. Maybe medical history is the only︄ limit (unless they're also making you get a life insurance policy!).

To the bank, it's︅ a matter of gathering information about yourself and your wealth so that if you are︆ arrested for being a drug-smuggling, gun-running, tax-dodging criminal master mind, they will not get hit︇ with massive fines and penalties for failing to do due diligence.

Maybe but my answer to #3︊ applies.

Yes, that's️ a perfectly valid motivation. My point is that you can do it without committing tax‌ evasion by picking another location. Totally zero tax might not be viable but paying a‍ little bit of tax and in some number of years get a better passport sounds⁠ like a better plan than to earn citizenship while resident and continuously breaking the law.⁤