Is this 0% Tax with UK LLP IT Freelancer setup possible?

[Bl4ckJackk]

Firstly, I would like to thank anyone reading this and willing to elucidate the matter for me.

I am an IT freelancer in Czechia. I probably don’t have to tell you that while the taxes here are decent, the freelance rates are atrocious, and even if I look for remote opportunities in richer countries, they expect to pay me a much lower rate because of my location and since such positions are open to all of EU, it attracts a lot more applicants who also work for cheaper.

So I was thinking about focusing on positions that are fully remote but generally specify something like “must be *** based” from the candidate. The UK for instance offers some nice remote opportunities, but even if you are a contractor, they usually specify you must be within the UK.

I have found out that most of the time this is just because of some legal reason, like them having a hard time suing you for potential damages if you are not from UK and so forth. They should not care if you know the language well and can do the work.

Then I thought I could just create an offshore company in the UK, namely LLP and invoice through that. I could then pose as someone living in the UK and doing all business via my LLP with UK address and bank account.

Since LLP is a pass-through entity, I would avoid the ridiculously high taxes in the UK (no UK-sourced income) and only pay taxes in Czechia. I do not yet know how this will be taxed here and am awaiting a response from my accountant, but it would make sense to me if this was considered the same as my freelance income for tax purposes so a total tax of about 23%.

To take this further, I would like to sever ties with Czechia in the near future and move to a territorial taxation country. Specifically, I am looking at Paraguay, as getting a tax residence there is easy and you don’t have to live there. I would just continue contracting through the LLP as normal, but now I would pay no taxes.

So that is basically my situation, now to the specific questions that I have:

• Does anyone have experience with invoicing clients in UK/US/other like this and hiding your true location to get to the better contracts? I am really wondering if it would be enough for a typical client, and am I correct that they would have no way to see that the LLP is owned by someone not residing in the UK?
• To not be tax liable in the UK, the LLP cannot have any “UK-sourced income”. I have not managed to find a complete definition of a UK-sourced income, but if it is similar to the US, then UK-sourced income would be any activity that is physically caried out by the worker in the UK. So, for me as a programmer, since I live and “work” in Czechia, this should not be considered as UK-sourced. Am I correct about this?
• I did think that Paraguay would consider me programming on their land as a locally sourced income, and tax it anyway, but funnily enough it seems like they do not really care, or at the very least it is a big grey area. I have heard from many sources that this is a common practice for programmers. For instance, apparently many programmers from Brazil move to Uruguay (which also has territorial taxation) and work remotely to Brazil with no tax. And even if I had to pay taxes, it would only be 10% corporate + 5% dividends. Paraguay does not even require you to disclose any of your income if you think you owe no tax. Also, since you do not have to really live in Paraguay to retain their residency, couldn’t you then just live and work from somewhere else (not for more than 183 days), and it would then 100% be considered foreign sourced income in Paraguay?
• What about VAT for the LLP as a non-dom, could that be an issue?

I think I have found an ideal setup that would allow me to earn quite a lot without paying taxes, but I would definitely like to hear your opinions on this before I move on it, and thanks in advance for any info.

 

[Sols]

I am an IT freelancer in Czechia. I probably don’t have to tell you that while the taxes here are decent, the freelance rates are atrocious, and even if I look for remote opportunities in richer countries, they expect to pay me a much lower rate because of my location and since such positions are open to all of EU, it attracts a lot more applicants who also work for cheaper.

As you say, you already live in a nicely taxed jurisdiction. Just don't accept work from companies that are looking to pay the least amount possible. Even if you find a way to get those companies to pay you more, they are going to be terrible clients to work for. If they are penny-pinching and lowballing CZ developers, you can be sure the same mentality will continue after you're hired.

So I was thinking about focusing on positions that are fully remote but generally specify something like “must be *** based” from the candidate. The UK for instance offers some nice remote opportunities, but even if you are a contractor, they usually specify you must be within the UK.

This is troublesome. If they care that much, they could just look up your LLP in the Companies House and see it's owned and run by a Czech person/resident.

Then I thought I could just create an offshore company in the UK, namely LLP and invoice through that. I could then pose as someone living in the UK and doing all business via my LLP with UK address and bank account.

Be mindful of UK VAT, in case your clients are UK companies.

To take this further, I would like to sever ties with Czechia in the near future and move to a territorial taxation country. Specifically, I am looking at Paraguay, as getting a tax residence there is easy and you don’t have to live there. I would just continue contracting through the LLP as normal, but now I would pay no taxes.

OK, but where would you live? Being tax resident in Paraguay doesn't mean anything if you actually live in Germany, for example.

• Does anyone have experience with invoicing clients in UK/US/other like this and hiding your true location to get to the better contracts? I am really wondering if it would be enough for a typical client, and am I correct that they would have no way to see that the LLP is owned by someone not residing in the UK?

I have not done it but I have seen it done. Sometimes it works, sometimes the proposed company is investigated to make sure it's a bonafide company of the claimed country.

If your client is the kind of client to check, they know that UK LLPs are very often just bogus entities used for tax evasion and other dodgy schemes.

• To not be tax liable in the UK, the LLP cannot have any “UK-sourced income”. I have not managed to find a complete definition of a UK-sourced income, but if it is similar to the US, then UK-sourced income would be any activity that is physically caried out by the worker in the UK. So, for me as a programmer, since I live and “work” in Czechia, this should not be considered as UK-sourced. Am I correct about this?

Generally correct. It might get a little tricky if you have UK clients, but even that's usually not a problem.

• I did think that Paraguay would consider me programming on their land as a locally sourced income, and tax it anyway, but funnily enough it seems like they do not really care, or at the very least it is a big grey area. I have heard from many sources that this is a common practice for programmers. For instance, apparently many programmers from Brazil move to Uruguay (which also has territorial taxation) and work remotely to Brazil with no tax. And even if I had to pay taxes, it would only be 10% corporate + 5% dividends. Paraguay does not even require you to disclose any of your income if you think you owe no tax. Also, since you do not have to really live in Paraguay to retain their residency, couldn’t you then just live and work from somewhere else (not for more than 183 days), and it would then 100% be considered foreign sourced income in Paraguay?

See above. Tax residence without actual residence is pointless. It's called a paper residence (you're resident on paper only).

If you live and work in Brazil, good luck showing the Brazilian tax office your Paraguayan tax residence as some sort of proof you shouldn't pay tax in Brazil.

• What about VAT for the LLP as a non-dom, could that be an issue?

Yes.

 

[Bl4ckJackk]

Thank you very much for the reply.

This is troublesome. If they care that much, they could just look up your LLP in the Companies House and see it's owned and run by a Czech person/resident.

Still, if this would make it fine for even half of the potential clients, I think it is worth it.

Be mindful of UK VAT, in case your clients are UK companies.

I guess this could prove challenging, especially if I go for the Paraguayan residency. But since UK is not in EU anymore, perhaps it is the same as if I was a CZ resident.

OK, but where would you live? Being tax resident in Paraguay doesn't mean anything if you actually live in Germany, for example.

I was thinking either travelling a lot around the world or just choosing a country that would not care. I haven't thought about this alternative much because I planned to stay in Paraguay. But even if I have to pay tax there it is not that bad at 15%.

Generally correct. It might get a little tricky if you have UK clients, but even that's usually not a problem.

Great! This seemed like the biggest hurdle to overcome.

If you live and work in Brazil, good luck showing the Brazilian tax office your Paraguayan tax residence as some sort of proof you shouldn't pay tax in Brazil.

I understand that living in a country and expecting to not pay taxes is not possible. But I have really heard many examples of people contracting out IT work while physically in Paraguay or a similar territorial tax country and not paying any tax on that. So I don't know...