Company in Bulgaria for software devs

[alister]

Hello forum

I am a UK citizen, but left the UK many years ago and am no longer tax resident. I managed to get a 'long term residence' card in Bulgaria before Brexit.

I write software. I work with two other guys, who have their own companies in their home countries. I move around a lot and don't spend more than a few months in any one country. I expect to do the same for the next few years at least. I need to set up a company for the money to move from the payment processor to my personal account and the bank accounts of the guys I work with. About 200,000 EUR/year that must be split between us. I've been using my personal UK bank account for this purpose till now (it was much smaller amounts), but I'm concerned the bank will call me soon now the amounts are getting substantial.. because the account shouldn't be used for serious business use, or money laundering or ?.

I thought to make a company in Bulgaria, as I have the residence card there, and the taxes are low (10% company tax + 5% dividend tax). I could also be a tax resident if I declare that my 'center of interests' is in Bulgaria, but I think I don't have to do that. Not sure if it's better to do it.

So I was wondering if this is a good plan. I'm not against paying some tax and would like to not have too much uncertaincy. This tax stuff is really hard when you are moving around a lot.

Thank for kind advices!

 

[NicolasMaduro]

"Move between countries and don't stay anywhere for more than 3 months, and then you are not a tax resident anywhere".

Trust me this don't work, I understand some forum members are of other believes. When the UK authorities or Bulgaria authorities starts asking where you have been paying taxes, then they won't agree that you are tax resident nowhere.

If you are moving 200.000 EUR trough your personal UK account as a Non-Resident then its a matter of time before your account is closed. Your bank will at the very least want your new Tax ID from your new tax residency.

If you already have a Bulgarian ID, then its obviously a great place to start. Incorporate an EOOD. Use TransferWise for your Bulgarian company. And pay your taxes in Bulgaria, because you have to pay them somewhere.

 

[Sols]

Incorporating in Bulgaria sounds like a very sensible solution in this case. Opening a local bank account in BGN and EUR should be quite easy, but it doesn't hurt to have something like Wise (TransferWise) as well.

 

[alister]

"Move between countries and don't stay anywhere for more than 3 months, and then you are not a tax resident anywhere".

Trust me this don't work, I understand some forum members are of other believes. When the UK authorities or Bulgaria authorities starts asking where you have been paying taxes, then they won't agree that you are tax resident nowhere.

If you are moving 200.000 EUR trough your personal UK account as a Non-Resident then its a matter of time before your account is closed. Your bank will at the very least want your new Tax ID from your new tax residency.

If you already have a Bulgarian ID, then its obviously a great place to start. Incorporate an EOOD. Use TransferWise for your Bulgarian company. And pay your taxes in Bulgaria, because you have to pay them somewhere.

Thanks for the reply. The 'moving every three months' part is not a clever plan to avoid paying tax.. it is rather a description of how I have been living my life for the last years.

I called the HRMC (UK tax office) a few years ago and told them I was no longer living in the UK and wouldn't be sending any more tax documents. They said 'ok, no problem, have a great life.' (really, pretty much that, lol. It's not required to provide evidence that you are tax resident elsewhere).

Yes, I am quite nervous about my UK account now. I have never earned more than about 20,000 EUR/year and now hit the 'big time' (was a lot of hard work).

I could become tax resident in Bulgaria, although, I understand it would be on a voluntary basis, as I wouldn't spend more than a couple of months/year there. It might mean I would pay an extra 5% tax? But, then it might help one day to get permanent residence. I am a bit afraid of additional paperwork mostly.

 

[Waldo Roni]

Trust me this don't work, I understand some forum members are of other believes. When the UK authorities or Bulgaria authorities starts asking where you have been paying taxes, then they won't agree that you are tax resident nowhere.

Trust me - they won't, because there's no reason. He doesn't live anymore in the UK, and not in Bulgaria long enough. Why would they and in what circumstances?

 

[NicolasMaduro]

Trust me - they won't, because there's no reason. He doesn't live anymore in the UK, and not in Bulgaria long enough. Why would they and in what circumstances?

Nope. Its consensus that your home country will claim that you are just on a "round trip". Thats how governments in Europe handle it.

 

[Waldo Roni]

Nope. Its consensus that your home country will claim that you are just on a "round trip". Thats how governments in Europe handle it.

Nope. Re-read what I wrote.

You say "your home country", meaning "any country on Earth" and then you say "governments in Europe".

 

[Sols]

It's also not just about satisfying one or more tax authorities in different countries (although that is a major concern). It's about planning long-term and being prepared for increased transparency.

If you spend the next couple of year not having tax residence anywhere and not filing/paying tax anywhere, and then one day you find yourself with a decent sum of money and a desire to settle down somewhere. What are you going to tell the compliance officer at your new bank when they ask for source of funds or source of wealth? What do you do when they ask to see tax returns? Have fun pulling out hotel reservations, flight tickets, entry stamps, visas, and so on going back years to prove you never lived anywhere.

Having filed and paid taxes, even in a tax haven or low-tax country, will save you on future headaches.

 

[Waldo Roni]

It's also not just about satisfying one or more tax authorities in different countries (although that is a major concern). It's about planning long-term and being prepared for increased transparency.

If you spend the next couple of year not having tax residence anywhere and not filing/paying tax anywhere, and then one day you find yourself with a decent sum of money and a desire to settle down somewhere. What are you going to tell the compliance officer at your new bank when they ask for source of funds or source of wealth? What do you do when they ask to see tax returns? Have fun pulling out hotel reservations, flight tickets, entry stamps, visas, and so on going back years to prove you never lived anywhere.

Having filed and paid taxes, even in a tax haven or low-tax country, will save you on future headaches.

If and only if:

* one has already earned a substansial amount of money. Otherwise it'll become: "oh my God, what'll tell a bank about the source of my ... how much ... $3k-5k or even $10k?"

* one intends to open an account in a single country, only, and deposit all the money, a substantial amount, and at once, in a single bank in said country. Instead of opening multiple accounts in different countries and spreading money among them. Perphas not even the whole amount at once, but over the years. No?

 

[Sols]

* one has already earned a substansial amount of money. Otherwise it'll become: "oh my God, what'll tell a bank about the source of my ... how much ... $3k-5k or even $10k?"

That's why I wrote:

If you spend the next couple of year not having tax residence anywhere and not filing/paying tax anywhere, and then one day you find yourself with a decent sum of money and a desire to settle down somewhere.

Maybe I should have been more specific about what a "decent sum of money is," although the question may arise for absolutely any amount but under 10,000 USD/EUR would rarely do so.

* one intends to open an account in a single country, only, and deposit all the money, a substantial amount, and at once, in a single bank in said country. Instead of opening multiple accounts in different countries and spreading money among them. Perphas not even the whole amount at once, but over the years. No?

The question can come up at any point for any reason with any bank. Amount is only one of many risk factors that determine whether a bank performs enhanced due diligence on a customer or transaction.

If you're diving one million into 10 bank accounts of 100,000 each, you might end up getting asked the same questions 10 times. If you trip something up unintentionally or simply by happenstance a grumpy compliance officer come across your account, you can get the question even for a paltry sum of money.

 

[Waldo Roni]

For a partly amount of money, one may say: monther, friend or whoever else has sent them the money. For what? As a gift or money that was owed.

For a substantial amount of money: well, don't put it in a bank at once, do it gradually, over the years, unregularly, different amounts every time.

 

[NicolasMaduro]

If and only if:

* one has already earned a substansial amount of money. Otherwise it'll become: "oh my God, what'll tell a bank about the source of my ... how much ... $3k-5k or even $10k?"

* one intends to open an account in a single country, only, and deposit all the money, a substantial amount, and at once, in a single bank in said country. Instead of opening multiple accounts in different countries and spreading money among them. Perphas not even the whole amount at once, but over the years. No?

What I mean is that I know that's how European governments do it, meaning there is a big possibility other non-shithole countries also do it that way.

 

[NicolasMaduro]

If and only if:

* one has already earned a substansial amount of money. Otherwise it'll become: "oh my God, what'll tell a bank about the source of my ... how much ... $3k-5k or even $10k?"

* one intends to open an account in a single country, only, and deposit all the money, a substantial amount, and at once, in a single bank in said country. Instead of opening multiple accounts in different countries and spreading money among them. Perphas not even the whole amount at once, but over the years. No?

OBVIOUSLY no one is gonna care that you got 1000 USD untaxed, or even 10.000 USD untaxed if you spread it out over many years.

 

[alister]

I'm also in Hungary often. They have a 9-10%(?) corporate tax. Then.. there is maybe some extra dividend tax before I can put it in my pocket? Can't figure it out. The attitude in Hungary is perhaps more torwards "that's unfortunatly not possible" vs. "any whim of your money" (любой каприз ваших денег).

From what @Sols wrote above, it seems better if I file personal taxes somewhere, so that there is a better record about where my money came from. It's not sufficient that I say that I am the owner of a company and the money is from a dividend?

Just for completeness of the discussion, the other option is making an 'offshore' company in a zero/low tax jurisdiction? Like Hong Kong, or.. Georgia? I understand this is potentially problematic as it's hard to open a bank account, administrative costs are higher, and you should expect more scrutiny. Georgia is still quite easy for me to visit (cheap Wizz-air flights from Budapest). I probably wouldn't be able to be tax resident, like in Bulgaria.

 

[Sols]

From what @Sols wrote above, it seems better if I file personal taxes somewhere, so that there is a better record about where my money came from. It's not sufficient that I say that I am the owner of a company and the money is from a dividend?

It won't be enough if they keep asking for evidence that the company has filed for and paid all of its taxes, and that you have done the same for yourself.

Just for completeness of the discussion, the other option is making an 'offshore' company in a zero/low tax jurisdiction? Like Hong Kong, or.. Georgia? I understand this is potentially problematic as it's hard to open a bank account, administrative costs are higher, and you should expect more scrutiny. Georgia is still quite easy for me to visit (cheap Wizz-air flights from Budapest). I probably wouldn't be able to be tax resident, like in Bulgaria.

Those days are gone. You can't really just incorporate offshore and pay zero tax anymore. It might work for a year or two, but with increased exchange of information and sophistication, it's a ticking time bomb. This type of structure requires actually having people present in the jurisdiction so that the company has economic substance there. If we were talking 10—100x the 200,000 EUR/year figure, it would maybe be worth it.

But for someone in your range, you're better of sticking with Bulgaria or maybe exploring Cyprus or Malta for even lower tax and easy to relocate to for EU citizens. Keep it simple, focus on growing your business, and sleep well at night knowing your affairs are in order for today and for the future.

 

[CyprusLaw]

Hello forum

I am a UK citizen, but left the UK many years ago and am no longer tax resident. I managed to get a 'long term residence' card in Bulgaria before Brexit.

I write software. I work with two other guys, who have their own companies in their home countries. I move around a lot and don't spend more than a few months in any one country. I expect to do the same for the next few years at least. I need to set up a company for the money to move from the payment processor to my personal account and the bank accounts of the guys I work with. About 200,000 EUR/year that must be split between us. I've been using my personal UK bank account for this purpose till now (it was much smaller amounts), but I'm concerned the bank will call me soon now the amounts are getting substantial.. because the account shouldn't be used for serious business use, or money laundering or ?.

I thought to make a company in Bulgaria, as I have the residence card there, and the taxes are low (10% company tax + 5% dividend tax). I could also be a tax resident if I declare that my 'center of interests' is in Bulgaria, but I think I don't have to do that. Not sure if it's better to do it.

So I was wondering if this is a good plan. I'm not against paying some tax and would like to not have too much uncertaincy. This tax stuff is really hard when you are moving around a lot.

Thank for kind advices!

Hi Alister, having in mind that you write software it could be sensible to consider Cyprus as a jurisdiction, the corporate tax is 12.5%, but there are several other tax incentives, however, the is the IP Box regime which essentially lowers the tax rate to around 2.5% for income deriving from qualifying IP assets, such as software writing for example. In addition the costs of incorporating and running a company in Cyprus is minimal, especially compared to the benefits you have in return.

 

[alister]

Cyprus seems interesting. I'd need to spend at least 60 days per year there for residence, and rent a place year round (guess it could be a cupboard in somebody's house in a village somewhere). Wouldn't be the worst place to hang out for sure, but I guess wouldn't pay less tax overall than in Bulgaria, and there is no minimum time I need to spend in Bulgaria, just it needs to be the 'center of my interests'.

 

[CyprusLaw]

Cyprus seems interesting. I'd need to spend at least 60 days per year there for residence, and rent a place year round (guess it could be a cupboard in somebody's house in a village somewhere). Wouldn't be the worst place to hang out for sure, but I guess wouldn't pay less tax overall than in Bulgaria, and there is no minimum time I need to spend in Bulgaria, just it needs to be the 'center of my interests'.

With proper planning and structuring you could have very benefits in terms of personal and corporate tax.

 

[brescape]

Looking at your situation, you have two (and half) options
1) Pay corporate tax in Bulgaria, and consider yourself with a center of interest in one country (Bulgaria?) and pay dividend tax there (10%+5%)
2) Pay corporate tax in Bulgaria, and do not consider you tax resident anywhere (10%+0%).
2b) as 2, but then a country may consider you tax resident there, and ask for a huge tax bill, not only as individual but also as corporate under PE rule (10+??% + ????%)

Given that the difference between 1 and 2 is only 5% I would go for 1. To be noted, that even if you declare tax resident in bulgaria, and you are de facto a resident somewhere else (either by days rules, or by creating too much bonds), then you still incur the risk, although having a tax residency in a whitelisted country is a good start as defense, and if you do declare to be resident in Bulgaria, then residency in another country that has DTT with Bulgaria _also_ need to win tie breaks with your ties in Bulgaria. In other words, given you have been blessed to be able to set this up in a country with a low personal tax, it would be silly not to try to make yourself tax resident there. 5% (that is really 4.5% as it applies to 90% of your income) is nothing for this additional layer of protection.

To be noted that UK is the country that has actually clear rules in terms of residency (a number of days test, followed by possibly other questions). If it comes up as definitely not resident, you are not resident.

Other countries uses a much more subjective set of rules, that are not written anywhere, and that is where the risk is: the fact that cannot be really defended. If you are instead resident somewhere (like in Bulgaria) the rule to decide in which of the two country (x or Bulgaria) you are resident are explicitly written in the DTT.

 

[brescape]

Cyprus seems interesting. I'd need to spend at least 60 days per year there for residence, and rent a place year round (guess it could be a cupboard in somebody's house in a village somewhere). Wouldn't be the worst place to hang out for sure, but I guess wouldn't pay less tax overall than in Bulgaria, and there is no minimum time I need to spend in Bulgaria, just it needs to be the 'center of my interests'.

I would not bother.

Not only you need proper planning and structuring, that is not cheap, but you will always possibly incur the risk of being resident _also_ somewhere else, that given that the residency rules in Cyrpus are very light, may easily win a tie break. And this means also your company would move with you.

I would suggest, just incorporate and pay individual in Bulgaria (that is also the country in which you are resident right now differently than Cyprus), as long you don't really move fulltime somewhere else, it is difficult that anybody will ever be able to demonstrate you to have stronger ties there. In Cyprus that is not the case .