Best country for a freelancer / digital nomad post-covid

[ilpablo]

I had similar situation ( freelancer, moving out of Finland ) and after going through all available options I chose Romania. 6-8% tax is great for freelancer. You also get nice weather, great internet, cheap prices, in Europe (flights), EU VAT etc. No 6 months requirement to be a tax resident. Definitely recommend.
Take your time picking a lawyer though. My LLC creation was around 2k, but you can make it for 500eur with proper research.

Hi to be honest the 6 months is required, although i spoke with some lawyers and they all say that this rule is not enforced.

May I ask you who was your source for this information? How long have you been in Romania? So you don't live there actually?

 

[Jock]

THE PHILIPPINES & the "residency" issue of foreign corporations & "permanent establishment".

• In the Corporation Code of the Philippines (PH) there is no concept of residence for tax purposes. Instead the PH applies the incorporation test.
• The PH does not have a CMAC test or CFC laws.
• A foreign corporation is considered resident only if it has been licensed to transact business within the PH.

Your company would therefore be a non-resident foreign corp which would not be subject to income tax as long as you do not have any income derived from sources within the PH. Even if you did, its not your liability to pay it, but your customers (withholding tax). No reporting requirements.

Territorial taxation for foreign corps and resident aliens (you).

The PH has not signed up to the OECD so - and I am guessing here - the info from your offshore (non PH) bank would not be passed to the PH government. Please correct me if wrong.

If you register your company in a country that does not have a tax treaty with the PH then the issue of creating a Permanent Establishment (PE) in the PH does not arise as a PE is only a bilateral tax treaty concept. The Laws of the PH therefore take precedence over any international conventions.

Even if you register your company in a country that does have a tax treaty with the PH, in the PH PEs are not allowed to register only for taxation purposes. There is no prescribed procedure for it. The PH Tax court has made rulings that PEs are treated as non-resident foreign corps for income tax purposes.

So even if your foreign corp has a PE in the PH it is still treated as a non-resident foreign corp (no tax, see above).

I am not a lawyer. Best plan is to lie as low as possible. The PH is a clusterfuck.

 

[uplana]

@Jock sorry to get off topic. Did you had a company in the Philippines before, I'm asking since it sounds like you have some sort of experience?

Or did you simply just worked with someone in the Philippines?

 

[Jock]

I have a PH company and an offshore company. I am PH resident.

 

[Mercury]

THE PHILIPPINES & the "residency" issue of foreign corporations & "permanent establishment".

• In the Corporation Code of the Philippines (PH) there is no concept of residence for tax purposes. Instead the PH applies the incorporation test.
• The PH does not have a CMAC test or CFC laws.
• A foreign corporation is considered resident only if it has been licensed to transact business within the PH.

Your company would therefore be a non-resident foreign corp which would not be subject to income tax as long as you do not have any income derived from sources within the PH. Even if you did, its not your liability to pay it, but your customers (withholding tax). No reporting requirements.

Territorial taxation for foreign corps and resident aliens (you).

The PH has not signed up to the OECD so - and I am guessing here - the info from your offshore (non PH) bank would not be passed to the PH government. Please correct me if wrong.

If you register your company in a country that does not have a tax treaty with the PH then the issue of creating a Permanent Establishment (PE) in the PH does not arise as a PE is only a bilateral tax treaty concept. The Laws of the PH therefore take precedence over any international conventions.

Even if you register your company in a country that does have a tax treaty with the PH, in the PH PEs are not allowed to register only for taxation purposes. There is no prescribed procedure for it. The PH Tax court has made rulings that PEs are treated as non-resident foreign corps for income tax purposes.

So even if your foreign corp has a PE in the PH it is still treated as a non-resident foreign corp (no tax, see above).

I am not a lawyer. Best plan is to lie as low as possible. The PH is a clusterfuck.

I have a PH company and an offshore company. I am PH resident.

@Bagpacker FYI

 

[backpacker]

@Mercury
I appreciate that you remember some of my words.
Read How Permanent Establishments Should Pay their Taxes? . Understand the difference of the above compared to the matter we have discussed earlier in another thread.

 

[capitanokirk]

@Jock sorry to get off topic. Did you had a company in the Philippines before, I'm asking since it sounds like you have some sort of experience?

Or did you simply just worked with someone in the Philippines?

Hello UPLANA
I am interested in a company as described in your signature. contact me thanks

 

[uplana]

Hello UPLANA
I am interested in a company as described in your signature. contact me thanks

cool, go to mentor group gold and you can have it for free

 

[JustAnotherNomad]

If you register your company in a country that does not have a tax treaty with the PH then the issue of creating a Permanent Establishment (PE) in the PH does not arise as a PE is only a bilateral tax treaty concept. The Laws of the PH therefore take precedence over any international conventions.

That's not true. The purpose of tax treaties is to avoid double taxation. They don't create new tax liabilities, they only limit the application existing domestic laws of both countries.
If you look at tax treaties signed by the UAE, you will see that they may state that a person or business should be taxed in the UAE instead of the other country. That doesn't mean that the UAE charges any tax, it only means that the other country isn't allowed to apply its tax laws and that only UAE tax laws apply.
In the absence of a tax treaty, it's both countries' laws that apply, which may lead to double taxation. So the question is not if there is a tax treaty, but if the Philippines has a PE concept in its domestic law and how it is enforced in practice.

 

[Jock]

JustAnotherNomad - thanks for your correction. I was pushing the envelope of my case there.

Nevertheless, it seems that a foreign corp that has a PE in the PH is still not a resident foreign corp. It is still treated as a non-resident foreign corp if it is not registered (branch) with the SEC and the BIR (tax authority). Court of Tax Appeal Case 6388.

If your company is not so registered, then there is no prescribed procedure for the registration of the PE for tax purposes.
This is the basis of the article that Bagpacker linked. This absence of procedures is the crux of the matter.

 

[backpacker]

Tax Appeal Case 6388

@Jock
Indeed, there is a lack of procedure. It is well known and the problem is with Bureau of Internal Revenue (BIR). Nevertheless, "Absence of Procedures" does not mean that a foreign corporation in the Philippines is not a resident foreign corporation. In fact, every foreign corporation in the Philippines is a resident foreign corporation!
The tax appeal case (it dates back to the year 2007) does not help much and is rarely cited today. If you study it carefully you will notice that it is not a free pass.
What do I want to say with this: "Absence of Procedures" does not protect you from of "Existence of Procedures". It only needs a stroke of a pen to get all started because by law a foreign corporation is already considered to be doing business in the Philippines, thus being resident and fully liable to local taxation.
Statute of limitation in the above case is three years, meaning that BIR has three years to conduct an assessment from the last day prescribed by law for the filing of the return (nevermind "Absence of Procedures"!). Due to the nature of how statute of limitation is calculated BIR has more than four years. That is a long time in a rather shaky jurisdiction.

Quintessence: A resident alien who needs to own a foreign corporation for real business purposes has no choice and should pray to God that BIR does not get its act together.
All other resident aliens would be foolish to incorporate an "offshore" company. The latter case would even be "Super-Mega" foolish when such a foreign corporation is only incorporated for managing ones own private assets.

 

[JustAnotherNomad]

Nevertheless, it seems that a foreign corp that has a PE in the PH is still not a resident foreign corp. It is still treated as a non-resident foreign corp if it is not registered (branch) with the SEC and the BIR (tax authority). Court of Tax Appeal Case 6388.

I know nothing about the Philippines. However, in Western countries only foreign companies have a PE. So there can either be a resident company or a non-resident company with a PE. So this is just normal.

 

[freegeek]

Too boring and small to spend more than 3 days

Also Spain checks people going to Gibraltar and andorra throughly

Go first from Spain to France and enter Andorra from the French side. Spain would never know that you are in Andorra and there are no border controls between Spain and France because Schengen

 

[freegeek]

I I am exactly in your same situation and I have been researching on this a lot, you can look at my previous posts.

There is no perfect solution and really depends on you and what you value.

Eastern Europe or Dubai would be best by a taxation point of view but personally I would not like living 6 months there every year and I don't think its a good idea spend time in a place you hate just to save some $$ on taxes. Muslim countries and everywhere where I can be jailed for possession of weed or stupid things like that are also a hard no for me personally but you do you.

I also take off the list Panama and other banana republics for bad reputation and difficulty in banking there.

In europe the ideal country for me would be Spain but as you know is a tax hell out there. Malta also off the list as its a plain boring place.

This leaves me with three options:

- Cyprus. 60 days minimum stay yearly so not too bad. Its an island and I don't speak the language so not overly sold on it.

- Portugal. Amazing place but as you mention NHR seems to be a wild beast. From what I understand is doable with a very low taxation but this involves open an LTD in a low corporate tax country and have an office and possibly employees there.
It depends if you want to take the risk of the taxman coming after you and claiming unpaid taxes. Also tax lawyers and accountants don't seem very professional or too knowledgeable about local laws.

- Gibraltar. Very attractive since its a common law countries. From my experience anglosaxons are very straightforward in their interpretation of the rules (e.g. you know what you would pay in advance and don't risk bad surprises). Also no capital gains tax which is huge and after a few years living there you can dissolve the company and take the balance left in your company tax free.

I am very inclined towards the third option, what it worries me is that is too much of a small place even though you are like 50mins away from Marbella and other interesting options.
Also is not a cheap country (although a lot of deductions that can be used) and the initial company setup would be around £3000 or £4000 for the first year so might not be worth on your income level.


Would be nice to hear more and brainstorm together.

Andorra?

 

[Jock]

Bagpacker - I value your input but would politely disagree with what you say about the residency of a foreign corp. Under PH law a resident foreign corporation is a foreign corporation that is duly licensed by the SEC to transact business within the Philippines (through a branch office). By default, if it is not licensed by the SEC then it falls outside the legal definition and is not resident. Additionally, as mentioned, in the Corporation Code of the PH there is no concept of residence for tax purposes. The PH instead applies the incorporation test.

The foreign corp could have a PE, but, as discussed, there is no way to obtain a TIN.

My understanding is that the foreign company "should" apply to the SEC to open a branch, but under PH laws a branch must "derive income from sources within the PH". What I would like to know, is if the business was engaged in manufacture & export out of the PH, with no domestic sales whatsoever, would it be deriving income from sources within the PH? If not, then a branch may not be allowed.

Similarly, any such branch would only be taxed on income "from sources within the PH". So if such a branch could be established, would it be tax exempt?

I don`t know. Any thoughts appreciated.

 

[backpacker]

Under PH law a resident foreign corporation is a foreign corporation that is duly licensed by the SEC to transact business within the Philippines (through a branch office).

This is correct when it comes to licensing and SEC. However, here we are talking about BIR and tax code.
I want to link an older article by Attorney Dawilan Tax obligation of a permanent establishment | Fulvio D. Dawilan . Even back then the problem was obvious and his comment is quite clear.
I acknowledge that there is a lack of proper guidelines regarding the matter. However, the lack thereof does not mean a free pass.

@Jock There is a significant difference in our chain of arguments:

• You follow old rulings by the Court of Tax Appeals which date back to years 2005 and 2007 (they were both applicable on single cases at that time).
• I follow the more recent approach of BIR and the OECD guidelines. Note that today it is common understanding to apply for the general TIN which suffice to fulfill tax obligations.

My understanding is that the foreign company "should" apply to the SEC to open a branch, but under PH laws a branch must "derive income from sources within the PH".

Not only "should". It "must" apply to the SEC. We can politicize this point by looking at various news outlets like CNN or Rappler (note the differences). Once the application has been deposited it is up to the SEC to decide.

What I would like to know, is if the business was engaged in manufacture & export out of the PH, with no domestic sales whatsoever, would it be deriving income from sources within the PH?

Yes, it would be deriving income from sources within the PH. And it would have tax obligations in the PH. Again, Attorney Dawilan explains it quite good.
-------------------------------------------------------------------------------------------------------------------------------------------------------------
On a side-note and to illustrate that BIR is well aware about the creation of PE's (and circling in on it) is RMC No. 83-2020:
-> Inadvertent Creation of PE https://www.bir.gov.ph/images/bir_files/internal_communications_2/RMCs/2020 RMCs/RMC No. 83-2020.pdf

 

[complex]

Be aware guys: in Philippines its a badge of honor for the local to ditch and scam foreigner. There is no easy way to find out company debts and sometimes you may even lose your shares in the company if you partner with locals. If you are see-through type and can read people well - it may be ok. Plus not many people there actually have sufficient education and attitude to perform administrative duties without raking up penalties from the gov.

P.S I seen a US guy losing their entire business and properties due to asset transfer signature faked by their local attorney. Another guy who is German he had his business ran down into problems by his admins who were stealing money from his cash register and then extorting him with reputation issues.

Aside from that, law in the Philippines doesn't exist in a normal sense. There is no open source where you can check the local legislation as a book. Many things are uncertain and depends on interpretation. There are numerous contradictions within the law. Even Georgian law is a lot more precise and structured compared to Philippine law

I concur. Laws are rarely followed in the Philippines. For an everyday example - if your vehicle gets hit and the driver simply runs away, nothing will happen. Police will "lose" paperwork, courts will simply ignore all laws and dismiss your case. You have no recourse. It cannot be compared to any civilized country at all. Your only option is bribery or knowing powerful people but that's also highly risky for other reasons.

Philippines might sound good on paper but it will become hell for most people coming from lawful countries sooner or later (90% of foreigners intending to permanently stay end up moving within 7-8 years or worse, end up dead).

 

[complex]

Most western foreigners have the attitude of colonialists. If they turn out to be different they are treated different. If a German runs his Philippine business like as if it would be located in Prussia he won't have many sympathies in the Philippines.
Btw., successful businessmen in the Philippines are mostly foreigners - it all depends on the foreigners' ability to understand the cultural differences .... .

Since no foreigner can officially own more than 40% of a business in the Philippines, I don't see how that's possible. You can go through lists of successful Filipino businessmen and there are almost no foreigners present. With a foreign heritage, absolutely. I've witnessed how locals with a great understanding of the landscape are regularly cheated by employees, it's definitely not about "cultural understanding".

 

[backpacker]

if your vehicle gets hit and the driver simply runs away, nothing will happen.

True! And it does not even matter because the guy who runs away would anyway not be able to pay for the damage he has caused.
Note: A savvy foreigner never drives himself in his own vehicle in a developing country!

Your only option is bribery or knowing powerful people but that's also highly risky for other reasons.

... which is the case in most developing nations.

Philippines might sound good on paper but it will become hell for most people coming from lawful countries sooner or later (90% of foreigners intending to permanently stay end up moving within 7-8 years or worse, end up dead).

True! Their mistake: They behave like being in Europe or the US. People who love regulations should stay in over regulated (i.e. lawful) countries.

there are almost no foreigners present

Splitting hairs: There are zero foreigners present.
Reason:

no foreigner can officially own more than 40% of a business

Now you read this ...

Since no foreigner can officially own more than 40% of a business in the Philippines, I don't see how that's possible. You can go through lists of successful Filipino businessmen and there are almost no foreigners present. With a foreign heritage, absolutely. I've witnessed how locals with a great understanding of the landscape are regularly cheated by employees, it's definitely not about "cultural understanding".

... in context and you will learn that it was not about Zobel, Gokongwei , Si and the likes. It all started about a discussion regarding SIRV two months back and spreads over two threads.
-------------------------------------------------------------------
Should you have any engagement in the Philippines it might well be that you are disappointed. Many are (mostly because of their expectations being too high).
However, you will be hard pressed to find a country on the development level (and in the price category) of the Philippines with the same clear structure of law and tax code together with a preferential tax system.

 

[JohnLocke]

Personally I would look into Cyprus, Switzerland and even the UK as foreign resident, you will check with a tax advisor in the UK if the laws are still the same, the last time I checked you get 7 years tax freedom in the UK if you don't do business there but offshore.