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

[JustAnotherNomad]

Firstly, if you live in the UAE most of the time and manage your company from the UAE, then your company would be considered a UAE company from a tax perspective because of PE laws, although it won't matter much because of UAE 0% taxes, but it's worth mentioning, see:

Yes, I am aware of that. Thus my question if one wouldn't need to register it as a branch or get some other sort of license.
For example, say you have your own mainland company as a plumber. But now you also want to do affiliate marketing.
Or you're sponsored by your spouse and now you want to start doing graphics design.
In such cases, you would need some sort of license (in the UAE, you even need a license to sell things on platforms like eBay!). If you could avoid that by simply registering a US LLC, it would be a massive loophole.
The UAE is tax free, but there are a lot of "government fees" - just a different name for taxes.

for the VAT question, No, you don't need to pay VAT on your US/UK companies or any foreign companies if you managed it from Dubai, my tax accountants confirm this, and I haven't had to register VAT for my foreign companies.

That, too, would be a massive loophole and I can't imagine that's correct. If you have a local free zone company working for a local customer, you have to pay VAT, but if you simply register your company in the US instead, you can avoid that?
I can understand if they don't enforce that for businesses that are actually managed abroad, but for locally managed companies? You even said yourself that it would be considered a PE, and PE's would usually fall under local VAT regulations, in other countries at least.

HOWEVER, if you have a UAE company but you don't deal with emirates nor any GCC individuals/business, your vat would be 0%, and you can file for VAT registration exemption based on the fact that your UAE company don't deal within the UAE nor within any of the GCC member states. You just need an accountant to file for the "exemption" status for your company.

That's good to know, thanks.

 

[JustAnotherNomad]

The issue with the likes of Mr. Henderson and other non-lawyers whose very business is to sell these dreams (and not care about the consequences) is that while some of these structures may at first appear solid, they nearly unequivocally break apart in most real-world scenarios.

I hate that guy and I also agree that not having tax residency anywhere is a bad idea. However, I have spoken to a top tier US tax lawyer (hourly rates of $800 or more if I recall correctly) who told me that he has HNWI clients who successfully use such a "trifecta" setup to not pay tax.
Then again, they were probably Americans, so they would have US tax residency by citizenship. But also, Andre Henderson only sells his services to US citizens, so maybe that's why.

1. In such a scenario, unless perfectly executed, one's home country will often still subject the person to their tax residency;

No, not really. That completely depends on your home country. For example, the UK has very clear rules for when you're no longer considered tax resident.

2. More importantly to most people, the majority of countries on Planet Earth have both PE legislation in place, as well as legislation to tax the proceeds of any work performed from within that country.

That's the bigger issue. But you wouldn't be able to avoid the PE issue by having tax residency elsewhere. And regarding "work performed from within that country", many countries probably wouldn't consider it local income if there is no PE. And many countries wouldn't necessarily claim there's a PE if you only work from home for your foreign company and there are no local customers, meetings etc.

But I still agree that it's just an unnecessary risk because there are a lot of if's. It's better to have a proper tax residency, so things become very clear.

 

[Marzio]

a "trifecta" setup

Which is?

 

[JustAnotherNomad]

Which is?

Having 3 homes and spending so little time in each of them that none of the countries considers you tax resident.

 

[Marzio]

I hate that guy

Have you ever heard the phrase "perception is projection" by Carl Jung? Basically you can perceive some "negative" aspects of mr. Henderson because those aspects are under developed parts of you but since it would be painful for your subconscious to aknowledge that, you project those aspects on other people (so you can safely blame those idiots, right?). So after all there's a little mr. Henderson in you

 

[backpacker]

To me it looks like this program is really for perpetual travellers. Or imagine someone taking three years off to go travelling around Africa and Asia spending a month or two in various places.

Even for somebody who fancy the idea of perpetual travel, Georgia with its HNWI program is not ideal. Look into the details: You still need a residence permit which means -under the new rules- significant investment in a rather shaky country. Since you invest you have to file a return. You will have to have a certain minimum income which you generate in Georgia.
Taxes aside, this is far to complicated for a perpetual traveller or a person who wants to make a long-term voyage.

Moreover, this program is about to be phased out and the tax advantages of GE will also be put in-line with Northen EU standards. As already mentioned, I give it one to two more years and Georgia is -taxwise- quite similar to Estonia (that's the country they admire). Until then the perpetual traveler can not do much perpetual traveling ....

More serious: The Philippines, if the person is >50 years of age. The Tax Reform for Acceleration and Inclusion (TRAIN) is pretty clear cut, thoughtful and preserves the status of non-citizens and OFW's for tax-free foreign sourced income. Add to it the SRRV and you can come/go/stay as often as you want. No questions asked. Tax-ID is a straight forward process as is a Driver's License.
So, if somebody really wants to be a perpetual traveler with some sort of legitimate residency then the Philippines is a much better option.

 

[JustAnotherNomad]

Have you ever heard the phrase "perception is projection" by Carl Jung? Basically you can perceive some "negative" aspects of mr. Henderson because those aspects are under developed parts of you but since it would be painful for your subconscious to aknowledge that, you project those aspects on other people (so you can safely blame those idiots, right?). So after all there's a little mr. Henderson in you

Haha, I was actually a big fan of Jung in my teenage years. But enough off-topic talk.

 

[orangekangaroo]

Even for somebody who fancy the idea of perpetual travel, Georgia with its HNWI program is not ideal. Look into the details: You still need a residence permit which means -under the new rules- significant investment in a rather shaky country. Since you invest you have to file a return. You will have to have a certain minimum income which you generate in Georgia.
Taxes aside, this is far to complicated for a perpetual traveller or a person who wants to make a long-term voyage.

Moreover, this program is about to be phased out and the tax advantages of GE will also be put in-line with Northen EU standards. As already mentioned, I give it one to two more years and Georgia is -taxwise- quite similar to Estonia (that's the country they admire). Until then the perpetual traveler can not do much perpetual traveling ....

More serious: The Philippines, if the person is >50 years of age. The Tax Reform for Acceleration and Inclusion (TRAIN) is pretty clear cut, thoughtful and preserves the status of non-citizens and OFW's for tax-free foreign sourced income. Add to it the SRRV and you can come/go/stay as often as you want. No questions asked. Tax-ID is a straight forward process as is a Driver's License.
So, if somebody really wants to be a perpetual traveler with some sort of legitimate residency then the Philippines is a much better option.

I will look into the Philippines option.

 

[backpacker]

I will look into the Philippines option.

Good idea. Do not get turned off by phrases like "duly accomplished", "apostilled", "double checked" and "NBI certificate" (NBI=National Bureau of Investigation). It is routine wording in the Philippines and the guys at PRA (Philippine Retirement Authority) know how to guide you comfortably through the process. If you are >50years and do have a US/CA/AU/EU/EEA-passport the time from your first application till receiving your SRRV will take a mere month. If certain documents are missing they give you a grace period of 6 months to complete your documents. Do take note that this is the Philippines; e-mail correspondence is not their thing. You best apply in person at the PRA office in Makati (no need for an agent!).

 

[stevy777]

Good idea. Do not get turned off by phrases like "duly accomplished", "apostilled", "double checked" and "NBI certificate" (NBI=National Bureau of Investigation). It is routine wording in the Philippines and the guys at PRA (Philippine Retirement Authority) know how to guide you comfortably through the process. If you are >50years and do have a US/CA/AU/EU/EEA-passport the time from your first application till receiving your SRRV will take a mere month. If certain documents are missing they give you a grace period of 6 months to complete your documents. Do take note that this is the Philippines; e-mail correspondence is not their thing. You best apply in person at the PRA office in Makati (no need for an agent!).

I also really agree about applying in person at Makati office .. i was going through the process but had to leave country suddenly before completing. They are really helpful and it's something easier to do by yourself rather than hiring someone

 

[MiddleEuroAsia]

Yes, I am aware of that. Thus my question if one wouldn't need to register it as a branch or get some other sort of license.
For example, say you have your own mainland company as a plumber. But now you also want to do affiliate marketing.
Or you're sponsored by your spouse and now you want to start doing graphics design.
In such cases, you would need some sort of license (in the UAE, you even need a license to sell things on platforms like eBay!). If you could avoid that by simply registering a US LLC, it would be a massive loophole.
The UAE is tax free, but there are a lot of "government fees" - just a different name for taxes.

you really can't combine all of these situations in a one thing, since the laws for every situation you mentioned is pretty different than the other.

you own a mainland company as a plumber? great. Now you want to open an affiliate marketing business? do you want to register as a freelancer then? no? then do you want to open a mainland company? no? so you want to open an offshore company? no? or do you want to open a FZ? if so, which FZ? is it in a designated zone or not? who is your main clientele? is it only within the FZ? or do you do business in the mainland? do you offer your services for GCC residents? or do you mainly serve foreign clients?.

See, it can get real complicated real quick. Each situation is different and I can't just make blank statements for situations like that, you really need to talk to a tax accountant that understand your situation and can help you with what you need.

The UAE is tax free, but there are a lot of "government fees" - just a different name for taxes.

I "somewhat" agree, yeah if you are an SME, then these government fees can feel like taxes, but once you grow big enough, these fees would be peanuts for you, you really can't compare that to any form of taxes, specially progressive taxes.

That, too, would be a massive loophole and I can't imagine that's correct. If you have a local free zone company working for a local customer, you have to pay VAT, but if you simply register your company in the US instead, you can avoid that?
I can understand if they don't enforce that for businesses that are actually managed abroad, but for locally managed companies? You even said yourself that it would be considered a PE, and PE's would usually fall under local VAT regulations, in other countries at least.

No, I think you misunderstood me, if you have any company whether mainland, FZ, foreign and it serves UAE persons or any GCC persons, then you have to register and pay for VAT.

But for me, I have foreign companies (in HK and other jurisdictions) and I don't deal within the UAE nor any of the GCC member states and I don't have any "branch" that serves them, So, I didn't have to register for VAT.

So, I'm pretty sure that as long as you don't need do business within the UAE nor any of the GCC states, it doesn't matter if your company is FZ or foreign, If it's a FZ then your services are treated as "export" services so your VAT is 0% and you have to register for VAT but you can file for VAT registration exemption via your agent. and if it's a foreign company that only deal with foreign clients then you don't need to register for VAT.

But ask a local tax accountant just to make sure that you're on the safe side.

 

[backpacker]

i was going through the process but had to leave country suddenly before completing.

The application fee is quite a chunk of money just to forgo it.

It is possible to put an application on hold for up to three years if the application fee has already been paid. Or did you abandon the entire process?

 

[JustAnotherNomad]

So, I'm pretty sure that as long as you don't need do business within the UAE nor any of the GCC states, it doesn't matter if your company is FZ or foreign, If it's a FZ then your services are treated as "export" services so your VAT is 0% and you have to register for VAT but you can file for VAT registration exemption via your agent. and if it's a foreign company that only deal with foreign clients then you don't need to register for VAT.

I've heard that view before, but I've also heard the opposite: That any activity exercised within the UAE, even if only for foreign clients, requires a license...

 

[rowena]

@rowena Do you know how the UAE would treat this? I mean if you actually live there.
Both if you're using a transparent entity like a US LLC or UK LLP, or if you're using some low-tax entity like an Isle of Man company?
I guess if you have local UAE clients, you'd definitely need a license and register for VAT.
But what if you only have clients outside the UAE, but you work for your "offshore" company from the UAE? Would you need a license? Register for VAT (even if the VAT would be 0%)?
That's one of the things I find a bit challenging about the UAE, it's not easy to get a proper answer to such questions.

I believe UK LTD(or any company type) and LLP are different for foreign tax perspectives. LLP is a partnership, not a company and you have tax obligations at the personal level. That's why UK LLP + UAE residency works well. I only have a client in the USA and I didn't register for VAT in UAE and UK. Even I'm 100% sure that I don't need to pay any VAT to UAE since my business is considered as export in both UAE and UK.

I've heard that view before, but I've also heard the opposite: That any activity exercised within the UAE, even if only for foreign clients, requires a license...

I don't think you need a license/branch in UAE for your UK LLP. Who told this?

 

[daxbr]

Even for somebody who fancy the idea of perpetual travel, Georgia with its HNWI program is not ideal. Look into the details: You still need a residence permit which means -under the new rules- significant investment in a rather shaky country. Since you invest you have to file a return. You will have to have a certain minimum income which you generate in Georgia.
Taxes aside, this is far to complicated for a perpetual traveller or a person who wants to make a long-term voyage.

Moreover, this program is about to be phased out and the tax advantages of GE will also be put in-line with Northen EU standards. As already mentioned, I give it one to two more years and Georgia is -taxwise- quite similar to Estonia (that's the country they admire). Until then the perpetual traveler can not do much perpetual traveling ....

More serious: The Philippines, if the person is >50 years of age. The Tax Reform for Acceleration and Inclusion (TRAIN) is pretty clear cut, thoughtful and preserves the status of non-citizens and OFW's for tax-free foreign sourced income. Add to it the SRRV and you can come/go/stay as often as you want. No questions asked. Tax-ID is a straight forward process as is a Driver's License.
So, if somebody really wants to be a perpetual traveler with some sort of legitimate residency then the Philippines is a much better option.

One has to recognize the strengths and weaknesses of each country. In this case we are talking about a very large place with a very large population that mostly does nothing and therefore is not a target and is left alone.

Once you sign up for such a program, you immediately become a target for the government and some other entrepreneurial individuals connected with the government as a source of wealth and that is not good.

 

[JustAnotherNomad]

I believe UK LTD(or any company type) and LLP are different for foreign tax perspectives. LLP is a partnership, not a company and you have tax obligations at the personal level. That's why UK LLP + UAE residency works well.

US LLC is the same. I didn't write UK Ltd.

I only have a client in the USA and I didn't register for VAT in UAE and UK. Even I'm 100% sure that I don't need to pay any VAT to UAE since my business is considered as export in both UAE and UK.

Yes, we completely agree that no VAT has to be paid. I was only talking about formal registration requirements.

I don't think you need a license/branch in UAE for your UK LLP. Who told this?

Some guy I spoke to who has his own company here in Dubai. To be honest, I find it quite strange that you need a license to even sell things on eBay, but you can avoid any UAE company registration by simply registering your company in another country?
I'm not talking about a case where the company is clearly managed from abroad, i.e. you're just a passive investor. But when you manage everything from the UAE, you still don't need a license? I'm trying to get some reliable information from a lawyer, but it's not so easy.

 

[MiddleEuroAsia]

Some guy I spoke to who has his own company here in Dubai. To be honest, I find it quite strange that you need a license to even sell things on eBay, but you can avoid any UAE company registration by simply registering your company in another country?
I'm not talking about a case where the company is clearly managed from abroad, i.e. you're just a passive investor. But when you manage everything from the UAE, you still don't need a license? I'm trying to get some reliable information from a lawyer, but it's not so easy.

this is the first time I hear of such a thing, like If I were in the US or any other country, and I have a foreign company, I wouldn't need a license from the US to manage my foreign company, the only thing that will affect me is the PE rules, and the IRS would simply tell me that "yep, your foreign company is a US company from a tax perspective" but that won't matter in the UAE because of 0% personal income and corporate tax.

I confirmed with my tax accountants again (they are pretty damn reputable, they are the best of the best in Dubai, well maybe I'm a little biased as I've been working with them for quite some time ) and they simply told me that what are you talking about @JustAnotherNomad doesn't exist, like imagine if a serial entrepreneur from the US that reside in Dubai needs licenses from Dubai to manage his US businesses, that's pretty bizarre, they told me that if that was true, this would effectively kill the businesses in Dubai lol.

So no, there is no such a thing as needing a license from Dubai for your foreign companies unless these foreign companies serve UAE persons or any other GCC persons.

 

[derpderp]

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.

Are you saying to get a Georgian Virtual Zone LLC and have tax residency in Cyprus? So that would be around 1000usd to set up the llc, then your are tax free except the 5% on dividend income. But then you would also need to own or rent a place in Cyprus? That sounds like a decent set up. Please let me know if there is something that I am missing.

 

[orangekangaroo]

Are you saying to get a Georgian Virtual Zone LLC and have tax residency in Cyprus? So that would be around 1000usd to set up the llc, then your are tax free except the 5% on dividend income. But then you would also need to own or rent a place in Cyprus? That sounds like a decent set up. Please let me know if there is something that I am missing.

There are some ifs and buts.

• The Virtual IT zone has strict requirements to apply for, I am in SEO and that did not qualify.
• Virtual IT zone profits are 5% but there seems to be a double taxation treaty in place with Cyprus allowing you to get a refund of the 5%. If this works only on the Corporate level, link holding company or on a personal level, I don't know. So in Cyprus, there would only be the 2.65% health Tax on distributed dividends as a non-Dom.
• Cyprus for now turns a blind I where effective management takes place. This might change and you would need serious substance in Georgia.

But yes you could have a 2.65% health tax and setup cost plus the cost of renting an apartment in Cyprus. Check the double tax treaty, Check if you can apply for Virtual IT Zone and check with the Cyprus tax office if the construction flies.

 

[derpderp]

There are some ifs and buts.

• The Virtual IT zone has strict requirements to apply for, I am in SEO and that did not qualify.
• Virtual IT zone profits are 5% but there seems to be a double taxation treaty in place with Cyprus allowing you to get a refund of the 5%. If this works only on the Corporate level, link holding company or on a personal level, I don't know. So in Cyprus, there would only be the 2.65% health Tax on distributed dividends as a non-Dom.
• Cyprus for now turns a blind I where effective management takes place. This might change and you would need serious substance in Georgia.

But yes you could have a 2.65% health tax and setup cost plus the cost of renting an apartment in Cyprus. Check the double tax treaty, Check if you can apply for Virtual IT Zone and check with the Cyprus tax office if the construction flies.

Yes this seems to be the big thing. I am a blogger, now what exactly qualifies? Is the creation of a website considered "supplying software" the wording is basically "do sth to obtain software" so of course I now I wonder if I qualify. I tend to think the answer is no however lawyers here tell me yes. Then the whole thing about substance and the authorities demanding corporate tax retrospectively there are some huge red flags.

I appreciate your answer, I will let everyone know how it went