I'm self-employed in the UK currently in the 40% income tax bracket. What would you do?

[prcsc]

I have actually already sent them a message, I'll post their answer here when they get back to me.

Thanks for both comments blackeyes - very interesting.
Indeed the guy in the video seems to know how to structure it in a certain way achieve exemption. Please do let me know what you find!

 

[jackfrost]

You guess correctly. NHR is one of the strictest schemes out there and almost exclusively works just with REAL passive income and there are several provisions against any of the usual non substance foreign corp, fake invoices etc pp.

"Portuguese sourced income" is pretty much anything where you are physically present in Portugal and are a tax resident! It does not matter where your client is, if you do remote computer work etc pp.

If you work as self employed under NHR you WILL be taxed in PT and probably WAY higher total than in the UK. Taxes in Portugal are no joke, insane high end percentages (if you are below that none of the schemes here are really for you anyways as the overhead costs are much higher than people think and needs to be taken into account), horrendous social security etc pp. You get past 45% very quickly.

Under NHR there are several ways to cut that down through various schemes and incentives in 1st 2nd year, if you are below 200k or so, things like that but you in general even the best possible solution for an NHR that makes a bit of money in PT is around 25-35% or so total. NHR does not save you from social security etc pp. You will likely end up not being self employed but going the corporate route. Also keep in mind that e.g. the 20% flat tax for NHRs in specific professions (pretty much all IT, upper management etc) does not include social security which is outside of NHR agreement.....

If you are not NHR in Portugal.. you are F*****.

Also keep in mind the short timeframe that NHR is available for you. Unless you have purely passive income you might want to save that gem for later. With passive income Portugal becomes one of the best places in the EU to settle down at least for the NHR timeframes.

 

[prcsc]

Also keep in mind the short timeframe that NHR is available for you. Unless you have purely passive income you might want to save that gem for later. With passive income Portugal becomes one of the best places in the EU to settle down at least for the NHR timeframes.

Thanks for you input jackfrost.

Indeed the PT taxes are huge at the higher end.
I'm curious on your opinion on this setup:

- Form a UK LLP with two members: a UK resident nominee director, and myself.
- Relocate myself to Ireland/Portugal and request non-dom status there.
- The UK LLP will not pay corporate tax, instead both members will be subject to UK income tax, which means:
· The UK resident nominee director will have to pay a small amount of income tax for its small salary.
· I will not have to pay any income tax in neither the UK (because I'm not resident there) nor Ireland/Portugal (because of my non-dom status).
- Tax bill reduced from about 40% to about 0%!

Wouldn't the LLP income be tax exempt in PT?

 

[jackfrost]

No first of all, all this is plain tax fraud and nominee directors is not something you want to do with a legit business etc to create fake substance in another country. Nominees might be fine (in my opinion) if you want to just stay of the records for other reasons but to create fake substance with a legit business in one of the developed EU countries to evade taxes is a very dangerous fools game. With the recent UBO registers etc this is not going to fly anyways anymore most of the time.

Also there are strict rules to when dividends from another countries company are tax free in PT like how much percentage you can hold, how much influence you can have on daily decisions, can you make autonomic decisions, how much compensation are you getting etc. It is not just substance but you kind of need to have no say in the company and just receive dividends because you happen to hold a few shares in it. Magic word again is -passive- income as in the income is created without your doing.

If you want to stay legit there aren't many possibilities in the EU that you can sleep safe at night with. Unless you are a multi national corp, have 7+ digit income i only really know of Malta and Cyprus. Do not confuse NHR, UK, Ireland etc with those two countries. The reason they work is they have entirely different local tax systems which make this work legally and fully open. In Malta that would be the full imputation system along with foreign income and important tax credit system and in Cyprus the low corporate tax rate and free dividends no matter where they come from and where you are.

Flights to those countries to most major airports in the EU are like 50-250 roundtrip btw and usually 2-4h. That should be peanuts when considering any of those schemes anyways. Always remember most of those schemes will cost you min. 5-8k more likely 8-10k a year (you will make errors, you will be ripped off here and there, need legal advice, laws change, translations, double company, minimum expat taxes etc) + the higher living costs, flights, contracts etc pp. Calculate that into your profits + the effective tax rate of those countries to see if any of that really makes sense.

Other possibilities might be low flat tax countries in the eastern EU. If you want to live there 183+ days is something you need to know

 

[Tax Cow]

Many useful replies here. I'm sure there are plenty of solopreneurs who will find this thread useful.

If you have a family and have settled down, it's best to just pick a country with low flat PIT. Most of the expat regimes are temporary, meaning the benefits can be reaped only for a number of years.

I do not like those expat regimes as they constitute nothing but a tax trap - get in and pay little to none, and after a few years of grace period, you will be treated as a milking cow to be milked for maximum gains. Even Malta has dropped in value as they just recently pulled off a tax trap by imposing 5K minimum tax on their now sizeable register of 'digital nomads' who make more than 35K a year, even if they keep their profits outside the country.

If you DO NOT have a family and are a young person who likes to travel, then I recommend you become a gypsy - do not fulfill residency requirements in any country. Use your UK documents and address to open a bank account, and then tell UK you have left the country for good by registering as non-resident.

 

[totlori9]

Even Malta has dropped in value as they just recently pulled off a tax trap by imposing 5K minimum tax on their now sizeable register of 'digital nomads' who make more than 35K a year, even if they keep their profits outside the country.

Note that the 5K minimum tax is not applied on income that counts as capital gains. That stays tax free.

 

[totlori9]

Jackfrost I mostly agree with your post, but slightly disagree in one question.

The part I disagree with is:

No first of all, all this is plain tax fraud and nominee directors is not something you want to do with a legit business etc to create fake substance in another country. Nominees might be fine (in my opinion) if you want to just stay of the records for other reasons but to create fake substance with a legit business in one of the developed EU countries to evade taxes is a very dangerous fools game. With the recent UBO registers etc this is not going to fly anyways anymore most of the time.

prcsc says he would like to set an llp up, no problem there. UK LLPs need at least two members, no fraud there. The LLP needs a managing member (not a director). So in order for him as a foreign investor/enterpreneur to form a UK LLP and keep it operating he needs and looks for a UK resident partner. The UK resident partner will be the managing member of their LLP who will get his salary as the manager of the LLP based on the LLPs memorandum as a fixed amount of the revenue of the LLP. This is not just perfectly legal, but widely done, and is nowhere near tax fraud. The term that I believe to have confused you is he called this real managing member a nominee director. But it is in fact a real managing member whose job is to serve the administrative functions of a manager in a real LLP and is getting paid as - as its name suggests - a member not an employee.

 

[Martin Everson]

I hope nobody got scammed by totlori9 as he seemed to be banned now .

 

[Jav]

SO why hi is banned than

 

[Jav]

To contribute I will again promote BG as a better and cheaper option than Malta and Cyprus. It works for me at least.

 

[Martin Everson]

SO why hi is banned than

No idea, but must be for a good reason.

 

[jackfrost]

I still dont see this fly when being resident + tax resident in Portugal. 2019 might make this even more of the typical scenario where only accountants and lawyers are the winners - not just from setup + upkeep but charging handsomely once the deep tax audit results fly in as either huge back payments + interest and/or fraud charges.

 

[jackfrost]

To contribute I will again promote BG as a better and cheaper option than Malta and Cyprus. It works for me at least.

Yes that is what i was referring to with eastern EU. It is not cheaper at all though if you have the profits that you should have when think about any of this. Matter of fact it is a lot more expensive and leaves you with only corporate money that is for the moment being held hostage.

If you don't have those profits it is highly questionable moving from a developed western European country where you are probably not paying a lot more than an effective 30-35% on your small self employed profit to Bulgaria (which has nice places but is still at the a** of the world) and still paying 10% corp tax + higher on actually paying that out to you as your personal income.

I can see this being attractive to some people though especially with ATAD & Co developments not stopping any time soon. Once Maltese / Cypriot tax systems are being killed off by the EU you can probably bet those low flat tax systems will go too and you still have your money tied up as corporate money.

 

[negon]

To contribute I will again promote BG as a better and cheaper option than Malta and Cyprus. It works for me at least.

Just because it works for you then it makes no sense to post here without an explanation why it should be better compared to Malta and Cyprus?

 

[gonharpia22]

prcsc says he would like to set an llp up, no problem there. UK LLPs need at least two members, no fraud there. The LLP needs a managing member (not a director). So in order for him as a foreign investor/enterpreneur to form a UK LLP and keep it operating he needs and looks for a UK resident partner. The UK resident partner will be the managing member of their LLP who will get his salary as the manager of the LLP based on the LLPs memorandum as a fixed amount of the revenue of the LLP. This is not just perfectly legal, but widely done, and is nowhere near tax fraud. The term that I believe to have confused you is he called this real managing member a nominee director. But it is in fact a real managing member whose job is to serve the administrative functions of a manager in a real LLP and is getting paid as - as its name suggests - a member not an employee.

This actually sounds like the best solution so far. I don't see any reason to further complicate things for the OP with Bulgaria, Cyprus, etc.

 

[jackfrost]

This actually sounds like the best solution so far. I don't see any reason to further complicate things for the OP with Bulgaria, Cyprus, etc.

1) totlori9?

2) How is this not going to violate PT law if he is NHR + tax resident in PT?

 

[Martin Everson]

This actually sounds like the best solution so far. I don't see any reason to further complicate things for the OP with Bulgaria, Cyprus, etc.

LLP It is no solution. HMRC will see you are creating an artificial sham construct that goes against the new Article 7(2) of ATAD. HMRC can claim at their sole discretion that you are choosing to give yourself a tax advantage with an artificial arrangement. Unfortunately the banned member (totlori9) who suggested this had probably ulterior personal reasons and admitted he has never lived in UK and I feel has never dealt with a HMRC tax investigation into an arrangement.

Good luck anyway with what the OP decides.

 

[gonharpia22]

LLP It is no solution. HMRC will see you are creating an artificial sham construct that goes against the new Article 7(2) of ATAD. HMRC can claim at their sole discretion that you are choosing to give yourself a tax advantage with an artificial arrangement. Unfortunately the banned member (totlori9) who suggested this had probably ulterior personal reasons and admitted he has never lived in UK and I feel has never dealt with a HMRC tax investigation into an arrangement.

Good luck anyway with what the OP decides.

I thought it was an Irish LLP? Which would make it not a subject of Article 7(2) of ATAD as that is UK? What is your opinion?

2) How is this not going to violate PT law if he is NHR + tax resident in PT?

Would you describe or link what law you are referring to, as I am not familiar with what 'PT law means'? Thanks!

 

[Martin Everson]

I thought it was an Irish LLP? Which would make it not a subject of Article 7(2) of ATAD as that is UK? What is your opinion?

ATAD is an EU directive and applies across the entire EU so that includes Ireland. ATAD has seemed to pass by peoples radars largely ignored . You cannot even move your business to another country from end of this year without now paying an exit tax i.e as if the business was sold on the date of moving and the profit taxed.

The Anti Tax Avoidance Directive - Taxation and Customs Union - European Commission

 

[gonharpia22]

ATAD is an EU directive and applies across the entire EU so that includes Ireland. ATAD has seemed to pass by peoples radars largely ignored . You cannot even move your business to another country from end of this year without now paying an exit tax i.e as if the business was sold on the date of moving and the profit taxed.

The Anti Tax Avoidance Directive - Taxation and Customs Union - European Commission

Thanks for that link! The exit tax you are mentioning is for companies according to your link:
'Exit taxation: to prevent companies from avoiding tax when re-locating assets.'

OP says he is self employed so he is free of this burden, isn't he ?