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Best countries to reduce taxes for traders as only source of income

Almouk

New member
I am a citizen from an EU country. I want to trade under my name, being trading my only source of income. No other Jobs involved. No intrested at first in set up a company or other structures. Np problema at all for stay over 183 days in an EU country. I have the purpose of trade cryptocurrencies as well apart of other finantial assets (futures, Forex, indexes, usually trough cfds).

Once you realize in the most of EU countries, you will be considered as profesional trader and taxed your tradin income as Personal Income Tax, what usually is a higher rate than Capital Gain Tax and the territorial tax system countries are useless for traders, because if you are actively trading from one of this countries even foreign income sourced is tax free, if you are actively trading from there, this in come is usually -if not always- locally source incomed. It's important to understand that the trading income is always a locally sourced income except if there's an exemption granted by the authorities.

After some researching, it seems these countries must be the more interesting in order to lower your taxes, because of the low flat tax rate of Personal Income Tax, the cost of living and easy way for obtaining the residence permit coming from an EU country.

PIT (Personal Income Tax)

- Bulgary: 10% flat rate
- Romania: 10% flat rate
- Hungary: 15% flat rate
- Georgia: 20% flat rate

But now what I am concerning about these countries are other taxes if you become tax resident there. It seems in many EU countries social security contributions, health insurance, social tax or other taxes must apply, what it makes the overall taxation much higher. My purpose is to know exactly before moving to one or another country all the taxes involved apart of PIT Tax regarding to this activity as unique source of income.

About social security contributions and other taxes that may apply:


-Bulgary: The employee part of the Bulgarian mandatory social security amounts to 13.78 percent, while the employer portion varies between approximately 18.92 percent and 19.62 percent (depending on the industry in which the employer is involved as the employment accident fund varies accordingly between 0.4 and 1.1 percent) . The maximum insurable income for year 2019 is capped at 3,000 BGN per month. The rates as well as the maximum insurable income may vary slightly from year to year.

Here at least, is capped at certain level.

Just a calculation:

3000 lv = 1534€

1534 * 13,78% = 211€ montly at most, no matter what you win over 3000 lv

How this apply exactly? In a monthly basis or yearly basis?

Assume you have some negative monthly returns about trading as your only sourced income -and you will have for sure-. What happens then? Do you not pay anything as well in these months? In case of have top ay, which would be the amount?

Asking for clarify how this really apply, because I don’t know, even the calculation may be wrong.


-Romania: As of 1 January 2018, the social security contributions due by the employees are pension contribution (25%) and health contribution (10%).

I thought here this amount was capped, but maybe has been changed. It seems less interesting than Bulgary.


-Georgia: Non an european country, but it has an acceptable flat rate of 20%. No social security contributions here. No CFC rules there if you set up a company.

You can stay there 365 days even without a visa for most of countries but residence permit here is not easy to get if you don’t make an investment but if you stay there over 183 days, I guess you become tax resident and they should provide with a tax certificate for to be able to send it to your country of origin and to be discharged fiscally. Could a problem arise with this if you have not created a company or have a regular job? This is a doubt that I have.

Another one is, once these 365 days pass, if you don’t have the residence permit, you need to abandon the country. If you cross the border and re-enter to the country again, can they deny you another stance for 365 days?

Hope someone can give reliable information about these two doubts pointed previously.

-Hungary: Employee social security contribution rate is 18.5 percent. It consists of health insurance (7 percent uncapped), pension (10 percent uncapped) and unemployment insurance (1.5 percent uncapped).

At first glance is les interesting than other the options but I have read this and maybe some of you know something about this info.

If you trade on your own name then you pay the 15% personal income tax if your broker is located in the EU (or in one of the very few countries prescribed by the law, i.e. the US) and you have to pay by May in the following year. no social security, no additional levies, charges or taxes, nothing, assuming that you're a Hungarian tax resident only.

I don’t know if this information is something to rely on ori s wrong. If is like that, clearly would be my first option because the overall taxation taking in account all taxes, is 15% flat rate.

I have found this additional information:

If you trade with a controlled capital market participant, it is enough to pay the 15% personal income tax. If the brokerage firm does not belong to this category, then a 27% health contribution is payable on income.

Controlled capital market participant : Companies with the permission of the Magyar Nemzeti Bank, with the permission of the competent body in the EU Member State, or operating in a country with which Hungary has a double taxation convention, and the relevant institution in that state supervises the investment service provider or exchange information with State and the MNB.

On this website you can check which provider has MNB license:


Intézménykereső »

Can anyone that has been actively trading from there confirm this point?

On internet you find plenty of information about this topic that you can’t rely on.
Maybe I am wrong and these social security contributions and other taxes are not mandatory or avoidable in certain way. As I said above, my first intention is trading under my name, but if some 100% legal setup that don’t imply any risk and is affordable about costs can consider it as well and all the info is welcome.

Sorry for the long message. Hope someone can give some clarifications or confirmations about my doubts pointed above. All suggestions and information is appreciated. Feel free to correct what you consider wrong.

Thanks in advance.
 

KJK

Entrepreneur
I'd avoid Hungary if I were you.

Social and health contribution usually applies for salaried employees, I don't think it should apply for trading / capital gains income but it may be different in each country.

Also I don't understand why you don't want to set up a company - I believe with the correct setup you may be eligible not for 20 % but simply for 0 % if you trade through that company and you live in a suitable country.
 

Alex115

New member
I can't comment on Hungary, Georgia or Romania since I've never set foot there in my life, however in Bulgaria this is how it basically works:

If you decide not to set up a company and simply trade as a natural person and become a tax resident, the NRA will require you to pay for social security and government health insurance based on your chosen income which as you have properly researched is capped at 3k BGN.
The calculation is not exactly as simple as you've done it, however i'll not go into details here since it's highly specific but the most you will ever pay the NRA in Bulgaria for social security and health insurance (excluding personal income tax) will be about 800 BGN per month.
Personal income tax however is paid on (if properly tax optimized) your actual monthly income minus the above mentioned payments and your activity related expenses. If you can structure all of this properly you can pay personal income tax on a quite small percentage of your overall income.
Do keep in mind that if you're making above above 3 grand per month it can be more tax efficient to form a company.
 

Almouk

New member
Thank you very much for your answer, @Alex115.

As much as I have researched, I have only found the following information of a trader that I consider well informed as he usually has one of the big four as adviser.

Bulgaria 10% no matter what you trade.
Check also mandatory social security and health insurance contributions which may apply in some countries. In Bulgaria 12.90% on max 1329.36 euro / month income. So max is 171.49 euro / month social security.


He added even the link above with a calculator but as I am not sure of how to use properly I am doing the exact calculation like him. Only difference is that then -2015- the rate was 12.90% instead of 13.78% thay applies right now as you can see in the following table and there a slight difference in the BNG/EUR convertion rate.


Probably you are right, noy saying the contrary, although I think over 400 € monthly for these security and health insurance contributions are too high, so really curious and interested if you can explain me how you have determined you could pay up to 800 BGN monthly. You has highlighted "chosen income", I don't know exactly what do you mean with this.

Personal income tax however is paid on (if properly tax optimized) your actual monthly income minus the above mentioned payments and your activity related expenses. If you can structure all of this properly you can pay personal income tax on a quite small percentage of your overall income.
I suppose you are talking here if you set up a company.

Thanks in advance.
 

Almouk

New member
I would have a look at the uk, I have heard varying information but on the whole "spread betting" is tax free.
However it is important to point out that spread betting may only be tax free if it is not your main source of income -the thread is about trading as only source of income-. For that reason it is probably not wise when opening a spread betting account to put your job description down as 'day trader' or 'trader' as it would then be rather difficult to claim at a later date that trading was not your main income if the Inland Revenue was to query where you made your money!!!

I actually spent ruddy ages trying to establish the position of spread betting with the revenue, and in the end it was pretty clear - perhaps this will ring true with those who have investigated this with the revenue themselves? If you have a 'subsistence income' (i.e. enough to live off) from an independent source that you pay tax on, then HMRC can't tax you on your spreadbetting activities. It's only if you have no other source of income and you use it for your primary income source that the tax advantages may disappear. Spoke to the revenue office in Nottingham with a technician there, who specialize in people who make a living from gambling, so I guess he knows his stuff.

 

Alex115

New member
Thank you very much for your answer, @Alex115.

As much as I have researched, I have only found the following information of a trader that I consider well informed as he usually has one of the big four as adviser.

Bulgaria 10% no matter what you trade.
Check also mandatory social security and health insurance contributions which may apply in some countries. In Bulgaria 12.90% on max 1329.36 euro / month income. So max is 171.49 euro / month social security.


He added even the link above with a calculator but as I am not sure of how to use properly I am doing the exact calculation like him. Only difference is that then -2015- the rate was 12.90% instead of 13.78% thay applies right now as you can see in the following table and there a slight difference in the BNG/EUR convertion rate.
There are 2 main differences since 2015, the percentage rate and the minimum wage on which the minimum contribution is based.


Probably you are right, noy saying the contrary, although I think over 400 € monthly for these security and health insurance contributions are too high, so really curious and interested if you can explain me how you have determined you could pay up to 800 BGN monthly. You has highlighted "chosen income", I don't know exactly what do you mean with this.

I suppose you are talking here if you set up a company.

Thanks in advance.
As I said the Bulgarian social security system is stupidly complicated and I won't go into much detail but to put it in the simplest terms possible:

-There are multiple ways to insure yourself in Bulgaria and you can have the option to legally choose a lower income than your actual one so you pay lower contributions.
-However the way income taxes are calculated in Bulgaria (yes, for natural persons as well as legal ones) is (again, oversimplifying here) actual income minus expenses for contributions (social security incluced) multiplied by 10%, so to put it simply, the more you pay for social security, the less income taxes you end up paying.

It can get much more complicated then that but those are the basics and as I said, if you make above about 3k per month it MAY be more beneficial to set up a company.
 

micand

Offshore Consultant
Mentor Group Gold
romanian micro companies are taxed with 1% on their revenue - not profit - if it does not exceed 1 million euro and there is at least one employee.
another 5% withholding tax apply, but only when dividends are distributed to the shareholder.
 
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