EU living in Georgia - Not elegible for 1% scheme - where to incorporate?

[Brace]

Hello everyone! I have been reading and studying the forum quite extensively for some time and today I got the courage to ask for some wise advice from you!

I am a EU citizen from Portugal with tax residency in Portugal.

I am now near the border of Georgia preparing to enter in a few days to live there mostly because of the low cost of living but with the tax residency in mind.

I will start a consulting services business (not IT) which is not elegible for the 1% Georgia scheme. I need to understand where should I incorporate/reside?

My original ideia was a US LLC + Georgia or Paraguay Tax resident + EMI account but I now understand that due to permanent establishment rules it would be taxed by Georgia if I operate it from its territory. Not sure yet about PE in Paraguay?

For now Georgia satisfy my 1st need: low cost of living and working.
2nd I just need a very cheap place to incorporate until my business takes off and I have proof of concept and positive cashflow. In georgia I can incorporate for 30USD in Wyoming 100USD.

Even if i pay 30-40% tax for now its fine. But i think is not wise to pay several thousands just now to move and incorporate in expensive places without proof of concept.

If at some point the business grows and becomes very sucessfull and has a lot of revenue then I will incorporate again with a better and more expensive setup for long term for example hong kong or UAE or whatever satisfies the future needs.
At some point after positive cashflow I would like also to possibly move permanently to South america, hence the paraguay residency. I also have the possibility of Brasil residency and passport.

I will not need a payment processor, but plan on using WISE for receiving payments from several coutries around the globe and paying my freelancers/contractors around the globe.

But I am open to live anywhere and incorporate anywhere, and of course plan to cancel my tax residency in portugal as soon as I have a new tax residency, but I can leave my personal bank account open there as a non resident.
I have no property or assets or anything there. I dont need privacy it´s all "legit". I dont do any trading of investments for now. And I dont need more bank accounts I think WISE will be enough.

some ideas:

-I could incorporate in Georgia and not touch the profits until successful and then transfer them to another setup later.
- I could incorporate in the US and operate in Georgia but leave in the end of June 2022 to avoid becoming a tax resident and get my tax residency in Paraguay if no PE problem there and the business has taken off in these 8 months from now until then.

I dont want to go directly and live and incorporate in expensive places that will shorten my runway, but i can wait some time and refrain from taking money out of the business for myself.

What are your ideas/suggestions?
Thank you!

 

[mad1max]

You think you can register a business in Georgia and not pay them taxes?
If you just need to write Invoices you could use something like Xolo Go and pay a 5% fee + VAT.
UK Ltd/LPP might work too. Turkey is also very cheap and close by.

 

[startfleetio]

It is good you did a lot of research, but you will need to be aware of the place of effective management rule in most of the countries, it has nothing to do with your personal 183 day tax residency. You might want to check if Georgia has that. Granted, how it is enforced is also another thing to ponder.

 

[Brace]

@mad1max If you keep the money in the georgia company without taking it out no tax will be paid, its like Latvia. That gives you time until the business takes off and you find somewhere else to incorporate and transfer that money to the new setup.


Yes @startfleetio that is my big question, if it wasnt for the Permanent establishment or substance over form rules any territorial tax country together with a US LLC would be a no brainer. If they really do enforce it, all these territorial countries are useless for someone who manages a business onsite and its better go with a low tax country like Romania micro, or cyprus and call it a day?

The problem with the 183 day tax residency is that I need to live for 183 to maintain it and need to operate the business from there, so by operating onsite, technically, it is not possible to be a tax resident without triggering permanent establishment...

It has proven to be very hard to find information about "permanent establishment" or "substance over form" and its enforcement, but I believe in the case of paraguay it seems its not enforced. I think you are exempt from filling if your personal income is less that 36 minimum salaries round 9.5k USD and that could avoid trigering the enforcement of PE probably.

I think I might try the US LLC and see how far can i go without trigering PE taxation in georgia or paraguay.

 

[startfleetio]

Well, normally it is hard to enforce. You'd have to be registered as a personal tax resident in that country, and both countries would need to be in the CRS, and that country (your company jurisdiction) would need to know you are now a Georgian tax resident, and thus reporting the bank account of your company to Georgia.

Try to pick places where you could have digital nomad visas, for example, digital nomad visa from Malta doesn't seem to bother if you are actively managing the company in Malta.

 

[Brace]

Yes and the probability is even less when you use an EMI account only, I have been using WISE personal account from US to Portugal for years without any problems at all. has it been reporting? will it report once i use a business acount? I dont know... but so far so good

Since Georgia is not CRS yet, and paraguay is not at all, it will give me some time.

But later, in march/april 2023 when i am a tax resident of georgia or paraguay I will have to file personal income tax of all my withdraws/dividends so that´s when PE could be triggered

Malta does not seem to resolve my problems because if I live there more than 183 days I become a tax resident there I face 15% corporate tax on draws/dividends and upt to 35% personal income tax. If I live less than 183 its fine but I still need to be a tax resident from some country and be there 183+ days and operate from there and will triger the PE.

 

[startfleetio]

Yes and the probability is even less when you use an EMI account only, I have been using WISE personal account from US to Portugal for years without any problems at all. has it been reporting? will it report once i use a business acount? I dont know... but so far so good

Since Georgia is not CRS yet, and paraguay is not at all, it will give me some time.

But later, in march/april 2023 when i am a tax resident of georgia or paraguay I will have to file personal income tax of all my withdraws/dividends so that´s when PE could be triggered

Malta does not seem to resolve my problems because if I live there more than 183 days I become a tax resident there I face 15% corporate tax on draws/dividends and upt to 35% personal income tax. If I live less than 183 its fine but I still need to be a tax resident from some country and be there 183+ days and operate from there and will triger the PE.

US is also not in the CRS.

Malta digital nomad visa purportedly will cancel out that 183 tax residency rule. That is what I have been reading online, I suggest you do some research on that.

 

[Brace]

I did not know that the US is not on CRS interesting!
WISE is in the UK and uses a NYC bank for USD and Belgium bank for EUR

I plan to use an US LLC and incoice EU clients in EUR and get paid to that WISE belgium account and worldwide clients who need to be invoiced in USD pay me to that WISE NYC account.

Do you think this will work?
Then I am not sure if its WISE as an UK company who reports, or the NYC or Belgium banks?


But it seems the Malta scheme if for non EU people, Im an EU citizen, anyway I will look thank you!

 

[startfleetio]

I did not know that the US is not on CRS interesting!
WISE is in the UK and uses a NYC bank for USD and Belgium bank for EUR

I plan to use an US LLC and incoice EU clients in EUR and get paid to that WISE belgium account and worldwide clients who need to be invoiced in USD pay me to that WISE NYC account.

Do you think this will work?
Then I am not sure if its WISE as an UK company who reports, or the NYC or Belgium banks?


But it seems the Malta scheme if for non EU people, Im an EU citizen, anyway I will look thank you!

Yes it will work. You can open wise for your US LLC. there are a lot of other options too.

Wise will need to know where's your tax residency, they have been collecting this info.

 

[uplana]

I did not know that the US is not on CRS interesting!

it may be the case but are you sure it isn't reported to your home country if you start doing business with the US LLC ?

 

[Brace]

I Dont know... I am not sure Who and Why and How someone will report my profits in the US LLC I think in Wyoming and/or Delaware I dont even have to disclose or make annual reports of my profits. (not very sure about that)

 

[orangekangaroo]

@Brace I was in the same boat and first tried Georgia individual entrepreneur with UK LLP and that construction does not work for 1%., and this would be with me living there 183+ days.

I have looked at many other places:

* Mauritius - 183 day tax residency rule for the first year after that 270 days over a 3 year period will work. Taxation on a remittance basis. However, travel to and from with covid regs is hard at the moment.
* Panama - looked good, hard to bank plus the price for friendly nations visa gone through the roof. No need for 183 to establish tax residency.
* Dubai - expensive to live, company setup, hot place to live
* Cyprus - ok solution, only need to live 60 days for tax residency EU Citizens. 12.5% corp tax plus some 2.65% tax on divi. Expensive to setup and run. I would say Cyprus can work if you earn 150K plus.

In the end, I have chosen Romania and Micro Company scheme (1-3% tax on turnover and 5% tax on divi), they also have a great IT consultancy scheme (personal liability). Romania can make you tax resident based on centre of interest. Rental contract, business, insurance, car reg etc. This means you do not have to live 183 days per year here. There are plenty of OK places here to hang out for 3-4 months of the year. Plus if you want to grow business and recruit, there is a good educated low-cost workforce.

 

[orangekangaroo]

There is this very informative page explaining Romania tax vs Bulgaria.

https://taxes.pages.dev/example-calculations#micro-enterprise-in-romania-

 

[Marzio]

Where is that 27600 RON on which you calculated 10% health insurance coming from?

BTW amazing resource, have you compiled that using Notion?

 

[orangekangaroo]

Where is that 27600 RON on which you calculated 10% health insurance coming from?

BTW amazing resource, have you compiled that using Notion?

It is not my resource, someone in the forum linked to it before.

 

[Brace]

Thanks for the reply orangekangaroo, yes i have seen other posts of you and that made me curious about Romania.
I am at the moment in Georgia, but i have been to bucharest and lived in Constanta, it is a much better place to live, by far.
It is very important to live in a quality place with quality infrastructure and environment.
Georgia at least here in Batumi, seems a really shitty place that does not offer any value at all. It is really like being in Africa, no infrastructure at all. I think it will be very hard to survive the 183 days here, especially in Winter, and the cost of living is not that cheap, and specially the human cost and the cost of opportunity of being here alone and isolated. it is really a crappy experience.

Romania offers so much more and it seems to be where i draw the limit line, but I think the problem with Romania for me is that I am fine living there, but only from 1st April to 1st November, than it starts to rain, snow and very cold and dark. Business wise the second problem is that we depend of local accountant, and a business adress and consulting for this and that because we dont speak the language and all of that adds up to the operating costs...And you never know the rules very well on how to run your company....

And the american LLC is extremely simple and everything is in english so nothing seems to beat it... specially if your business fail, is the simplest and cheapest way to start so if the business fails you save a lot...

In terms of tax residency, thats the big challenge because it is hard to know if countries like Georgia or Paraguay or some others that offer territorial taxation will leave you alone or enforce "permanent establishment" or "substance over form" regulations once they find out you are operating your business from there.

But I guess i will wait and see and the burden is on them to find me and my business and make some kind of claim.

I think any venture has 3 domains:

1-The place you operate from:
Cost of living, acess to all the things you need as a person and as an entrepreneur.
2- The country where your company is incorporated:
Tax burden, ease of operations, rules & restrictions, liabilities
3-Your personal tax residency:
This only matters if you have sucess and high profits and has a hight cost and difficulty to get rid of your home country and make it offical in the new country. But more then the other 2 domains this one determines how much wealth you keep.


So my example is i am in Georgia working in establishing my business and it would theoretically by a very cheap place to operate from (1) and great place to have tax residency (3) but the truth is that living here is so challening and shitty that it is handicaping my productivity and my mind and soul, so nothing can flourish from such bad mental state and bad conditions...

And i am a big fan of the Paraguay residency but I am getting scared to take the leap there, because its going to be the same, a third world country with almost no infrastructure or living conditions, iliterate people, no way will i have sucess in such types of places...

I think people in the developed world have sucess because they have the human and technical and financial resources that lead to sucess.

So i think i will go offshore once and when i am sucessfull, for the time being I might have to move back to spain or portugal and pay some personal income tax there for a couple of years until the company gets some maturity. And only then go to paraguay or Dubai or something like that...

Your toughts are welcome guys, thanks!

 

[orangekangaroo]

@Brace you seem to struggle with the startup and your Georgian location of choice. Why did you choose Batumi of all places? Maybe Tbilisi which is more international and DN friendly will work better.

But yes you will need to find a place that gets you productive mentally before anything else.

 

[Brace]

My reasoning was that for the first months i needed a cheap place to live and work from. So if i can live in a very cheap place and spend half of what i would spend in a developed country I will get DOUBLE the time of runway for my business to take off, and save resources for the business instead of wasting them on high cost of living.

My original goal was to go to Paraguay and get my residency there, but as i went trough the budgeting of everything it was adding on and becoming more and more investment and risk and stuff to deal with that would delay me and distract me a lot.

So I decided to be a bit conservative for now and stay around Europe until i have proof of concept that my business works and makes money. Save this money to grant me the best chances of success and once successfull will go to celebrate in south america and get the tax residence there.

So for now, i went to Turkey because it´s good weather and very cheap but i got stuck in finding accomodation because of the lack of english, and all being dealt with real state agencies who charge you comissions and i did not see any future there, then i saw that Batumi has relatively good weather (compared to snowy eastern and soviet countries) and beach and loads of luxury studios that sit empty after the summer season and here i solved, for now, my accomodation problem.

My plan was, if i stay here long enough, to move to Tbilisi in April/May.

But i dont think i will remain here for that long, the cost of opportunity is very high, every week that i spend here i am missing out on so much great things in other places that i can not have here...
I am still think if i should go to south america or not.

More friends, fun, parties, belonging, better weather, i speak the languages, i can have girlfriends and great connections and integrate much more.

Here i think i am doomed, not much future! I believe this is my case but not for everyone, I think this place would be incredible for someone from a soviet background that speaks russian and comes from a similar culture, this is the best weather in all ex soviet union and huge beach, and summer is busy with nightlife etc
These guys would thrive here, and probably hate south america... hehehe

So our personal profiles matter a lot!

I think for me its a bad match bout could be a great one for a diferent profile.

For example for me asia is also a total no go...zero interest....

But I was looking into moving to Tunis, or Marrakesh or Agadir, all due to weather and low cost of living, but after my experience in turkey and here, i realized these places will not give me the good living conditions enough to be productive and focused, it´s too much hassle and logistical problems to resolve all the time and nothing never works...


how about you? whats your country? and are you operating from romania now?

 

[orangekangaroo]

My reasoning was that for the first months i needed a cheap place to live and work from. So if i can live in a very cheap place and spend half of what i would spend in a developed country I will get DOUBLE the time of runway for my business to take off, and save resources for the business instead of wasting them on high cost of living.

My original goal was to go to Paraguay and get my residency there, but as i went trough the budgeting of everything it was adding on and becoming more and more investment and risk and stuff to deal with that would delay me and distract me a lot.

So I decided to be a bit conservative for now and stay around Europe until i have proof of concept that my business works and makes money. Save this money to grant me the best chances of success and once successfull will go to celebrate in south america and get the tax residence there.

So for now, i went to Turkey because it´s good weather and very cheap but i got stuck in finding accomodation because of the lack of english, and all being dealt with real state agencies who charge you comissions and i did not see any future there, then i saw that Batumi has relatively good weather (compared to snowy eastern and soviet countries) and beach and loads of luxury studios that sit empty after the summer season and here i solved, for now, my accomodation problem.

My plan was, if i stay here long enough, to move to Tbilisi in April/May.

But i dont think i will remain here for that long, the cost of opportunity is very high, every week that i spend here i am missing out on so much great things in other places that i can not have here...
I am still think if i should go to south america or not.

More friends, fun, parties, belonging, better weather, i speak the languages, i can have girlfriends and great connections and integrate much more.

Here i think i am doomed, not much future! I believe this is my case but not for everyone, I think this place would be incredible for someone from a soviet background that speaks russian and comes from a similar culture, this is the best weather in all ex soviet union and huge beach, and summer is busy with nightlife etc
These guys would thrive here, and probably hate south america... hehehe

So our personal profiles matter a lot!

I think for me its a bad match bout could be a great one for a diferent profile.

For example for me asia is also a total no go...zero interest....

But I was looking into moving to Tunis, or Marrakesh or Agadir, all due to weather and low cost of living, but after my experience in turkey and here, i realized these places will not give me the good living conditions enough to be productive and focused, it´s too much hassle and logistical problems to resolve all the time and nothing never works...


how about you? whats your country? and are you operating from romania now?

Yes in Romania now. Eu citizen and this is my 10th country that I live in. I dont mind cold weather as long as house is well insulated or i can ski. Winter in Italy sucked as poorly insulated homes and ski high heating cost are not favourable.

 

[orangekangaroo]

As you are from Portugal and like warm weather. Why not try Cabo Verde, they have a Digital Nomad Visa.