Hi, I'm Manu, an accountant turned digital nomad and offshore tax expert. AMA!

Wonder how to do your taxes as a nomad? Ask your question now!

About Manu:
Today I’m here to clear any misunderstandings about international taxation for digital nomads. There is too much wrong, outdated and irrelevant information out there.

I will answer any general questions, relevant to the community as a whole. You are welcome to give your own situation as an example. If you are looking for personalized and actionable recommendations or referrals, please contact me or someone else you trust in this matter privately.

About myself: I learned accounting for 5 years in high school, but became more interested in international management and programming at university. I worked as a director and purchasing manager for a 100m+ private trust in Europe and Greater China. In 2013, I resigned from this position to have a better work-life balance and travel more. Since then I have spent most of my time in Asia doing consulting through various companies.

My latest project is a crowdfunding accelerator that will take place in Shenzhen, China later this year.

ASK AWAY!

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Manu,

If I have earnings made from US companies and spend a minority of my time there time (but not enough to be a resident for tax purposes), do I still need a US-based accountant?

Manu,

My home country (Lebanon) does not actually charge me taxes, unless if I’m working on Lebanese soil for a lebanese country.
How should I explain that to my US or EU clients? And how can I make them confident enough to pay me directly to my bank account without passing by an intermediary like elance?

Thx :smile:

If you run a serious business, you should register it somewhere. Either as sole trader or a corporation. This will give your clients the confidence to do business with you. It shows that you offer your services in a professional way and that your are registered and regulated somewhere. Keeping your personal and business finances separate, limiting liability if something goes wrong and the possibility to formally cooperate with other people are additional reasons for doing that.

This links directly to the previous question: You have decided to incorporate/register your business somewhere. Great. Next step is to pick a jurisdiction under which you want to do business. The most important aspects are local regulations, tax rates, capital requirements and auditing requirements.

If you have chosen the US as jurisdiction, you need to play by their rules, even if you’re not a resident. This means following US auditing, reporting and taxation requirements. A US-based accountant can definitely help with that.

In case you’re not happy with this situation and don’t live in the US, you are always free to place your business somewhere else, even if your clients are located in the US.

An exception to this are artists or consultants, who physically go to a place to performa a service. They will be taxed a part of their earnings, because the income is sourced in country X. For digital nomads this will rarely apply. Our products (like websites or SaaS services) can be compared to producing something in country X and exporting it to Y.

Hi Manu

What’s your preferred EU country to set up a company as a non-citizen. Obviously places like Ireland and Luxembourg come to mind, but there’s also a number of interesting alternatives in Eastern Europe.

Of course corporate income tax rates are important but it’s equally important to have a decent judicial system, easy access to open bank accounts, english language government service, …

As an aside, if you’d have to choose (personal) residency in an EU country, which country would be your favorite and would you actually move there or just register for (personal income) tax purposes.

Thanks

tom

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Malta is a viable option, if you insist to stay in Europe. You can get corporate tax down to 5% by using a “dividend feeder” model. There is also the option to be a non-domiciled resident, who only taxes income remitted to Malta. Similar to the UK model, but cheaper.

No matter where you go, you will need to demonstrate some kind of “substance” for your business. Else your clients may have invoices refused during tax audits. A mailing address won’t be enough. Renting a small office and having a part-time staff there is the saver option.

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Hi, A few years ago, I registered my own company in HK through which I do my website business. No employees. Turnover is small by anyone’s standards. None of the business is in HK (no HK clients etc) and indeed I spend no time there. This means I can claim Offshore Profits and avoid corporate tax.

I’m an EU citizen spending the whole year in various countries in southeast Asia (no country more than a couple of months). I have no ties (no apartment etc) in my EU country, though do have bank accounts there. Currently, I have no income (I live off savings) - I just leave the profits in the company account, but at some point I want to make this sustainable :slight_smile: What is the best way to take an income from my company? Where would I pay income tax? Do I need to? What happens if I don’t? Especially in consideration of if I ever go back to the EU and live there normally (not for several years ahead, but possible). There seems to be more and more people asking, “Where are you tax resident?” and I’ve no idea what to put.

Thanks for any help!

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Here an anonymous question from a friend of a friend or so. :wink: Country redacted.

A friend asked about 2 similar company opening scenarios, they are not about a digital nomad but a person who has residence somewhere:

  1. If a person lives in XXX, working as a freelancer for a company outside the EU, opens a company bank account in Hong Hong. Then pays 0 income corporate tax for the company in Hong Kong, and then takes the money that is earned and pays tax on dividends in XXX.
    Can the government of XXX claim that this person also has to pay tax on the profit of the company in that country in the EU, because that person is domiciled in that country (where and how it is regulated, CFC)? Would it be a problem from the XXX government point of view not working and not having a company in XXX but still gaining money each month?

This is a classic fallacy. When a company is run from XXX, it doesn’t matter where it’s incorporated. You could run a UK Ltd. from Germany and it will be treated like any other German company.

It may work for some time, but could cost you, once discovered. It just needs an unhappy client or employee to point authorities in the right direction. The information exchange on bank accounts also keeps improving each year. The new OECD treaty (aka FATCA for the rest of us) coming into effect next year may close the last loopholes.

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Hey Manu,

Thanks very much for taking the time to answer questions. I have a couple.

I’m from the US. I’m an independent contractor (1099) and I moved abroad before April 15th of this year. As an independent contractor and self employed person, I have to pay taxes quarterly. If I just don’t pay my quarterly tax obligations, wait until April 15th to file my taxes next year.

Can I file for Foreign Earned Income Exclusion (FEIE) and avoid paying all taxes for the last year? Do I have to open a corporation in another country and pay myself through it to obtain this? Such as a company in Panama?

I’m pretty lost at this point. Thanks again.

Great question and a very common case. The truth is that without tax residency your HK company is not worth much. They may even refuse your offshore claim, when there is no office anywhere else.

If you’re the only shareholder, all the profits are yours. Even if you don’t pay yourself a dividend. Without residency anywhere, your citizenship will be the last tie breaker in many DTAs. You may manage to fly under the radar for years, but once you return home and e.g. buy an apartment, they will notice and try to tax you. I personally know such cases.

To bullet-proof this kind of setup, you need to take care of all 5 flags, not just the business flag. Most people are missing the residency flag, because it’s harder to solve than simply incorporating in a tax haven. See also slide 7 from this presentation I gave on flag theory for digital nomads.

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As a European, my knowledge of US tax law is not great, but I’ll try to give you some pointers. The moste relevant rules for you are:

  • US taxes are based on citizenship, rather than residence.
  • Spend more than 330 days of any rolling year abroad and you get ~100k tax exemption.

Based on that you still need to pay your taxes until the time you left. Once you stay away long enough, you get the first 100k exempt. To make it official, you should also consider incorporating/registering in another jurisdiction. Make a clear cut.

Thanks Manu, I very much appreciate your reply.

You mentioned there might be an issue when returning home regarding buying an apartment. Do you mean because a large sum of money is transferred into the country? Is that what would cause problems? Or would it be regarding the tax office asking where you have been paying income tax in recent years? I don’t see how this can all work. I’d have to show bank statements and specify “this money is company expenses. that money is 120,000HKD but within the HK threshold for tax payments”. Wouldn’t it be extremely difficult to calculate, at the very least? In such a “return home” scenario, could I retrospectively pay taxes in one of my southeast countries according to whichever makes sense (and then avoid being taxed again in my home country)?

Many thanks again!

(I hope I’m not hogging the questions here!)

Is the international community working on a solution for Digital Nomads? The numbers are only going to get bigger. I’d be more than happy to pay into a fair, transparent system (where countries I’m living in receive a fair share of the income tax) with the hope/expectation of more friendly visa regulations etc

Being more or less forced into picking a country that you spend only a little time in (if any time at all) doesn’t make sense from any perspective other than playing the system.

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They don’t need to calculate it precisely. They will just make an estimate in your disfavor. To resolve this for the future:

  • Have a residency somewhere. This includes tax residency (apply for income tax number, work visa, etc) and a permanent home. It doesn’t mean you actually need to live there. Just renting a place and spending more time than in other places will do.
  • be sure to read the relevant DTAs and follow them by the letter. They will protect you from double taxation. Only reside in a country that has a DTA in force with your passport country.

For all further details, please PM me, unless it’s relevant for the whole community.

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Thanks a lot for doing this AMA!

I think a lot of digital nomads are in a common situation: no fixed home address and making money online, either with freelance work or with online businesses.

What would you advise someone who wants to get started with this setup in order to minimize and simplify their taxes? i.e. where should the business be incorporated, how should the tax residency problem be solved, and what else should someone do if they have no set requirements and just want to have the optimal setup?

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There is no single best solution. It really depends on the combination of those:

  • your clients/nature of business
  • your preferred playgrounds/hangout places/family/children?
  • your home country/passport

To get started fast, I recommend these steps:

  1. Read the basics about flag theory (old, but useful framework, see http://bit.ly/1FqaCOf)
  2. Decide which flags are unsolved for you (for most people it will be business and residency flags)
  3. Talk to someone experienced to get all viable options for your situation. E.g. where to incorporate or reside.
  4. Find local providers to implement your strategy.
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@manu what do you suggest for a Dutch person like me?

I have Dutch residency and my business is registered in the Netherlands and I pay tax there.

I do travel a lot and could be away longer than 180 days per year from my country or the EU if necessary.

It’s been bugging me that I’m mostly not in my country but still have to pay 52% income tax. Which is a bit insane.

I’m fine with paying tax, but I’d like to create a more fair construction where I contribute less to my home country and more to the countries where I am in. As that’s what it’s supposed to be I think. What’s the legal way to do this?

I don’t like tax havens like Panama, Cayman Island etc. and I’m not some anti-tax Libertarian anarchist. And I don’t want to make myself suspect either. What do you suggest to me?

Is there much wrong with just a Dutch Ltd (B.V.) and keeping most of the $ in there and pay myself a low wage?

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It’s not really about those 180 days, when determining residency. Other issues are:

  • where is your economic life happening?
  • your social life? wife/children are where?
  • you keep your stuff somewhere and have it ready to use?

If some of that applies to you, you are likely to be considered resident even when only staying for a few months.

From what I see, this gives you 20-25% corporate tax and then 15% withholding tax, to be offset against your personal income tax. You will end up (almost) in the same place as before. There may be exemptions and ways to optimize, a local service provider can tell you.

Actually the Netherlands are a far bigger tax haven than all the places mentioned above. This comes down to how they treat foreign income from royalties, licenses, etc. Starbucks, Apple, Fiat all have billions stashed away in the Netherlands.

As you can see it always depends on the point of view. :wink:

I’m afraid currently there is no way to decide on what your taxes are spent on and where.

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