Digital Nomad / Perpetual Traveller - 0% tax with US LLC

[nardulfo]

Hello, next year I'm planning to become a digital nomad for 2 years to make some bank and then settle in a country and buy some property.

I'm a single guy currently living in Spain in which the law for being a tax resident and being subject to income tax is the following:
- 183 days in the country
- Spouse or children living in Spain
- That the main nucleus or the base of its activities or economic interests resides in Spain, directly or indirectly.

My current setup/plan for 2021:
- Open several bank & EMI accounts in different countries (USA, Switzerland) while I still have all documents required by banks before leaving ES.
- single-member non-resident US LLC (Florida)
- Live in multiple EU countries for a maximum of 90 days, I'll probably visit South America too.
- Don't deposit a single € into my Spanish bank while I'm abroad and don't use any money from it.

I'll use the US LLC to invoice my clients which are other businesses from around the world (ES, US, UK, NZ...), I'm a software developer.

I've spoken to multiple tax consultants, accountants, lawyers and the plan looked good to them, since Spain won't have a claim against me given that I'll be out of the country way over 183 days and won't be enough time in any other country to consider me a tax resident there. Do you guys see any flaws or have any suggestions?

I have some doubts regarding banks, whether they'll ask me for tax returns or not. All my income is legit, it will be coming directly from my US LLC which will be paid for software services. Anyone with experience being a digital nomad paying 0% tax?

 

[Utah]

This type of setup for digital nomads comes up quite regularly but it doesn't work.

The reason it doesn't work is that you're still taxed at the places where you do the work. So let's say you go to Portugal for 30 days and work while you're there. Portugal will have the right to tax you over the income that you generated while you were there. So, indeed, Spain does not have a legal basis to tax you (as long as you stay outside Spain or only visit Spain for vacation), but the countries where you go to will.

Of course, that's legally speaking. In practice, a lot of digital nomads simply break the rules and don't pay taxes where they actually do the work.

There are other problems with this setup:

1) The country that you're leaving will want to know where you move your tax residence to. If you say you're just going to travel, they might still claim that you owe taxes in Spain because you have some ties there (bank account, health insurance, real estate, children, citizenship, etc.), even if you're not in Spain for a day.

Even if you can establish that you shouldn't be taxed in Spain, the tax authorities may still forward the information about where you've been to those respective tax authorities (e.g. they may notify the Portuguese tax authorities in the previous example).

2) The country that you register your company in may also claim that you (and your company) owe taxes there, because you have business / financial ties there (registration of your company, bank account, accountant/bookkeeper, etc.).

3) It's quite fragile overall, let's say your bank sees that you're logging in from foreign IPs, they may want you to update your residence data. Or you want to open a brokerage account to start investing, they want to know your residence.

Overall, it's a fragile setup and you never really know whether the tax authorities will accept it, so you will live with years of fear of back taxes + penalties. It's better to pick a country that has a nice tax / quality of life balance as your home base and just accept you're going to pay some tax.

 

[Utah]

By the way, if you're in software you may be able to structure your business in such a way that you can take advantage of the Intellectual Property schemes that many countries have. Usually this means a significantly reduced tax rate.

 

[daxbr]

There is a reason Florida is called sunshine state. All corporate info is public information and conveniently accesible online. I am sure your government takes full advantage of it already.

 

[nomad999]

If you're not a tax resident somewhere, your are likely going to be taxed by your country of citizenship or where you grow up or citizenship of your parent. UK have different rules but i believe they are the exception, perhaps with Netherland also not sure ...

The only way to be completely out of spain tax hell is to get a certificate of residency in an other country I believe, and get rid of any financial tie (no bank account), that mean getting a work permit and likely pay some taxes there for them to issue you the certificate.

the whole thing about digital nomad not paying tax is a total joke in most cases and most people doing this are simply tax evader. If you make just enough to live let's say, below 50k just for living expenses, no one will care. but if you make significant amount that you invest and grow to a good 6 or 7 digits, then you could be in trouble later on if you come back to spend that money in your country of origin and they ask for proof of funds and such.

be careful about tax accountants, they will tell you whatever and if you get in trouble later on they will just be "oups sorry" and there is nothing you can do. the only thing that will protect you long term is that certificate of residency or some tax return documents that will prove your tax residency and then trigger the double tax agreement between that country and spain. whatever country you choose you need to find and read that document carefully.

I could be wrong but so far that's what I have gathered looking into this and seems much more plausible in regard to tax hell EU countries.

 

[hernanday]

Hello, next year I'm planning to become a digital nomad for 2 years to make some bank and then settle in a country and buy some property.

I'm a single guy currently living in Spain in which the law for being a tax resident and being subject to income tax is the following:
- 183 days in the country
- Spouse or children living in Spain
- That the main nucleus or the base of its activities or economic interests resides in Spain, directly or indirectly.

My current setup/plan for 2021:
- Open several bank & EMI accounts in different countries (USA, Switzerland) while I still have all documents required by banks before leaving ES.
- single-member non-resident US LLC (Florida)
- Live in multiple EU countries for a maximum of 90 days, I'll probably visit South America too.
- Don't deposit a single € into my Spanish bank while I'm abroad and don't use any money from it.

I'll use the US LLC to invoice my clients which are other businesses from around the world (ES, US, UK, NZ...), I'm a software developer.

I've spoken to multiple tax consultants, accountants, lawyers and the plan looked good to them, since Spain won't have a claim against me given that I'll be out of the country way over 183 days and won't be enough time in any other country to consider me a tax resident there. Do you guys see any flaws or have any suggestions?

I have some doubts regarding banks, whether they'll ask me for tax returns or not. All my income is legit, it will be coming directly from my US LLC which will be paid for software services. Anyone with experience being a digital nomad paying 0% tax?

We get this comment alot, I'll just move countries every 90 days and be a resident of nowhere and pay tax nowhere and bill all my business to my business in a tax free place.

Sorry, that doesn't work, gov'ts in all first world countries closed that loophole about 10-20 years ago.

While officially the rule is 183 days in the year in the country, unofficially, the tax revenuers in your organization, will see it as, ok, if you are not a resident of Spain, WHERE are you a resident of? If the answer to that question is not another country that can be named, you will be a "Deemed" resident. Because when you get into trouble, or problems, where are you going to go? If you get arrested staying in Poland for 60 days, what embassy are you calling?

If you get hospitalized with no insurance in south america, where are you going to try to send the bill to?

Spain is not stupid, they know in all those cases, you will be asking for Spanish gov't help.

 

[troubled soul]

In my view for Digital Nomad Dubai,UAE is the best option.


gofreelance.ae or remote working Visa in Dubai

 

[nardulfo]

3) It's quite fragile overall, let's say your bank sees that you're logging in from foreign IPs, they may want you to update your residence data. Or you want to open a brokerage account to start investing, they want to know your residence.

I'll only invest in crypto. Regarding banks, I can say that I'm travelling which is true or I can provide new residence data such as utility bills. All my money is from legit sources which I can prove without any issues I don't see why the bank would ask again what country I'm a tax residence of (All my bank accounts are already opened).

The only way to be completely out of spain tax hell is to get a certificate of residency in an other country I believe, and get rid of any financial tie (no bank account), that mean getting a work permit and likely pay some taxes there for them to issue you the certificate.

According to Spain tax Agency, and a supreme court ruling 183 days rule is the only thing that matters (aside spouse and children which I don't have).
Hacienda IRPF Rule (Spanish tax agency)
Supreme Court ruling (Spanish)

While officially the rule is 183 days in the year in the country, unofficially, the tax revenuers in your organization, will see it as, ok, if you are not a resident of Spain, WHERE are you a resident of? If the answer to that question is not another country that can be named, you will be a "Deemed" resident. Because when you get into trouble, or problems, where are you going to go? If you get arrested staying in Poland for 60 days, what embassy are you calling?

There's no law stating that I have to be a resident in another country to not be considered a tax resident in Spain, so what are the legal grounds to do so?
If I get arrested which I won't because I won't do anything illegal in any country I'll call a lawyer I won't call any embassy I don't trust corrupt governments.

If you get hospitalized with no insurance in south america, where are you going to try to send the bill to?

I have international health insurance, and also Argentina citizenship and there's public healthcare there (I'll use international health insurance though)

Thanks for all the comments, what's the best EU country to live with a US LLC and have a reduced tax bill (5-10%)?

 

[Dasboot]

If its for a couple of years ONLY it could be easier to dodge most bullets, especially if you set up an entity & deregister that when you're done...

You could possibly also pay yourself with dividends only, in some countries like Thailand that is tax exempt (here it has to be kept outside of the country until the next year to be tax free)

 

[karishi]

Like suggested above, the best choice for you would be Dubai: you can get a freelance visa which gives you the right to get a residency visa. At that point you would have to move to Dubai and tell Spain that you are leaving the country, which might ring a lot of bells in the spanish tax authority, depending on your current employment situation: if you are currently making 20k a year, probably nobody will care, if you are making 100 a year, the spanish state will keep you under scrutiny to make sure that your move out of spain is real, so you would really need to rent a place in Dubai. The best thing would be to spend in Dubai most time than you do in spain, have nothing in spain and be able to somehow demonstrate that you have moved out. In Dubai you just need to enter the country every six months to be considered a resident, but that doesn't make you automatically tax resident there, if you spend 183 days in the country you do get a tax certificate and nobody will ever be able to tell you anything, otherwise tax authorities might have something to say. If you live the digital nomad life you should not have too many issues, what you must really consider is that at some point you will probably want to settle down somewhere, unless you are like me and hate kids, so a lot will depend on where you will want to settle down, because in most countries, if you buy a house, the tax authority will want to understand where your money comes from, so you must be able to have a believable story on how dubai was your principal place of interest while you were earning that money. So forget about going back to spain unless you have a tax certificate from Dubai, with other countries it will depend. As long as you spend more days in Dubai than in any other place you should not have too much to worry about.
So in my view you really need to think out well in advance what are your plans, as long as you keep your money in the UAE, do not buy properties anywhere and live around in a non flashy way you shouldn't have too many issues, but if you do want to settle down at a certain point, be prepared from some scrutiny or just live in Dubai.
Of course this setup does cost some money, especially at the beginning, like most things in life you have to try it out and see if it works for you.

 

[GiGoGo]

Thanks for all the comments, what's the best EU country to live with a US LLC and have a reduced tax bill (5-10%)?

Ireland or Cyprus non-dom regimes

 

[Max2020]

You are so right

 

[Osleak]

I'll only invest in crypto. Regarding banks, I can say that I'm travelling which is true or I can provide new residence data such as utility bills. All my money is from legit sources which I can prove without any issues I don't see why the bank would ask again what country I'm a tax residence of (All my bank accounts are already opened).


According to Spain tax Agency, and a supreme court ruling 183 days rule is the only thing that matters (aside spouse and children which I don't have).
Hacienda IRPF Rule (Spanish tax agency)
Supreme Court ruling (Spanish)


There's no law stating that I have to be a resident in another country to not be considered a tax resident in Spain, so what are the legal grounds to do so?
If I get arrested which I won't because I won't do anything illegal in any country I'll call a lawyer I won't call any embassy I don't trust corrupt governments.


I have international health insurance, and also Argentina citizenship and there's public healthcare there (I'll use international health insurance though)

Thanks for all the comments, what's the best EU country to live with a US LLC and have a reduced tax bill (5-10%)?

Malta aswell the CFC rule is very “easy” and the tax authority don’t take care of the business and company you have abroad, i think 30% of residents there have offshore company

 

[orangekangaroo]

Cyprus has a good setup for guys like you. You only need 60 days to become tax resident. This is to keep Spain or any other country of your back as long as you do not spend 183 days there. It will cost a bit to setup though. Cyprus company to get yourself employed in Cyprus. Another offshore company to turn your Florida LLC income into dividends. Dividends are slightly taxed in Cyprus at 2.65%.

As your Cyprus company will pay you a minimum wage 10K, you will pay social security contributions of about 2500. You will also need a permanent address.

Benefits are you are getting basic healthcare, your international healthcare insurance costs drop considerably.
The EMIs will eventually start questioning your source of funds and where you pay tax. They will want to see a tax certificate.

As for the countries you travel to, just stay in AirBnBs and be the tourist.

 

[Fulton Abraham Sanchez]

If your income comes from US sources and your LLC is one member you pay taxes for the income earned from US sources regardless where you are staying. If your LLC is two member any income received is taxable.

 

[orangekangaroo]

If your income comes from US sources and your LLC is one member you pay taxes for the income earned from US sources regardless where you are staying. If your LLC is two member any income received is taxable.

Thanks for that info, how about UK LLP or Canada LLP?

 

[orangekangaroo]

I see another potential issue of turning LLP / LLC income into dividend. The two-member issue in the US is one. Another is the economic substance rule now popping up all over the offshore jurisdictions.

If you are in IT may be a solution with a Georgia Virtual IT zone and Cyprus is a good one.

 

[rowena]

If your income comes from US sources and your LLC is one member you pay taxes for the income earned from US sources regardless where you are staying. If your LLC is two member any income received is taxable.

No. As long as you do not perform any work while physically in the US your income will not be USA sourced even you sell products to USA entities. Check 863:

Tax Cuts and Jobs Act: A comparison for large businesses and international taxpayers | Internal Revenue Service

The Tax Cuts and Jobs Act ("TCJA") made significant changes that affect international and domestic businesses, such as deductions, depreciation, expensing, tax credits and other tax items. This side-by-side comparison can help taxpayers understand the changes and plan accordingly.

www.irs.gov

 

[orangekangaroo]

No. As long as you do not perform any work while physically in the US your income will not be USA sourced even you sell products to USA entities. Check 863:

Tax Cuts and Jobs Act: A comparison for large businesses and international taxpayers | Internal Revenue Service

The Tax Cuts and Jobs Act ("TCJA") made significant changes that affect international and domestic businesses, such as deductions, depreciation, expensing, tax credits and other tax items. This side-by-side comparison can help taxpayers understand the changes and plan accordingly.

www.irs.gov

I have read the content and I do not see how that applies. In Cyprus you want offshore income to turn into dividend so you can have the 2.65% rate. A US LLC as tax transparent structure pays income. The problem when you put an offshore construction in the middle then 2 problems arise:
1 . You just lose disregarded entity status for the LLC, so US source income will be taxable then.
2. The offshore structure taking in income and paying out Dividend will not meet the economic substance requirements.

This is from what I pick up on this forum and some outside sources. Can anyone shed a light on this?

 

[rowena]

@orangekangaroo
I didn't write it for specifically Cyprus residents. This kind of setup works well if you're a resident of a tax-free country. For example, US LLC or UK LLP + UAE Resident owner = tax free setup but you need have no business activity in the US or UK(you can sell to US or UK).