Long-term strategy for digital nomad

[JustAnotherNomad]

I'm an EU citizen and digital nomad. I'm looking for a setup that will work in the long run, meaning also when I no longer travel.
For this reason, I'm not interested in classical offshore setups. I don't sell ebooks online, I deal with corporate clients that are very sensitive to this kind of stuff.
I also want to have the option to one day move back to a high-tax country.

I need to be able to invest my money in a tax-efficient way, for instance in the stock market or real estate. I also want to be able to sell my company without paying tons of taxes - so maybe a holding company would make sense?
Ideally I would incorporate my business in a reputable jurisdiction with territorial taxation or something like that, where it's possible to get a corporate tax residency certificate. So that even if I should get married and settle down in a high-tax country one day, I could just pay myself a low salary from that company and pay taxes on that. And until that day, I could claim tax residency in Panama or some such country and live off dividends.

I'm also open for registering a foundation for asset protection if it makes sense.
A US company might be nice as I've heard US customers prefer that, it would be easier to find investors (should I want to build someting bigger), and there are great credit cards in the US. But at the moment, I don't have any US clients, so it's not a priority. I have read it's possible to have a US LLC as a "disregarded entity", which would use transparent taxation as long as there is no "dependent agent" in the US. But I'm not so sure if that would be a good long-term solution, as again, who knows, maybe I'll want to have employees in the US one day.

Any suggestions?

 

[Tax Cow]

Seems like you're not decided on your goal. Pick just one, and get it done. Then move on to the next thing you want to do.

A long-term "ideal" plan does not exist in this space because nothing is fixed. Structuring opportunities, residencies, citizenships, and even jurisdictions as a whole constantly lose and gain value. In just two years, we're looking at a radically different landscape.

 

[fshore]

I'm an EU citizen and digital nomad. I'm looking for a setup that will work in the long run, meaning also when I no longer travel.
For this reason, I'm not interested in classical offshore setups. I don't sell ebooks online, I deal with corporate clients that are very sensitive to this kind of stuff.
I also want to have the option to one day move back to a high-tax country.

I need to be able to invest my money in a tax-efficient way, for instance in the stock market or real estate. I also want to be able to sell my company without paying tons of taxes - so maybe a holding company would make sense?
Ideally I would incorporate my business in a reputable jurisdiction with territorial taxation or something like that, where it's possible to get a corporate tax residency certificate. So that even if I should get married and settle down in a high-tax country one day, I could just pay myself a low salary from that company and pay taxes on that. And until that day, I could claim tax residency in Panama or some such country and live off dividends.

I'm also open for registering a foundation for asset protection if it makes sense.
A US company might be nice as I've heard US customers prefer that, it would be easier to find investors (should I want to build someting bigger), and there are great credit cards in the US. But at the moment, I don't have any US clients, so it's not a priority. I have read it's possible to have a US LLC as a "disregarded entity", which would use transparent taxation as long as there is no "dependent agent" in the US. But I'm not so sure if that would be a good long-term solution, as again, who knows, maybe I'll want to have employees in the US one day.

Any suggestions?

You seem to not realize that the options available will depend on your tax residency. You can't continue running a foreign company when you become tax resident in most countries (well you can but with no tax benefits).
You won't pay taxes on capital gains if you sell your company if you are not tax resident anywhere, but you will at your resident countries rate if you are resident.

 

[JustAnotherNomad]

Of course you can run a foreign company when you become tax resident in a high-tax country. You just need economic substance for the company etc.
And I am sure that there are ways to get a corporate tax residency certificate in countries with a beneficial tax code without paying hundreds of thousands of dollars.

Also of course I won’t pay tax when I sell my company if it’s not owned by me, but by a holding company, trust or whatever.

I am aware that these things change, but I want to at least go into this with a plan. What good is it if I choose a solution now that works while I travel, but that has tons of downsides a few years down the road?

 

[fshore]

Of course you can run a foreign company when you become tax resident in a high-tax country. You just need economic substance for the company etc.
And I am sure that there are ways to get a corporate tax residency certificate in countries with a beneficial tax code without paying hundreds of thousands of dollars.

It doesn't matter if you get a tax resident certificate if the company is also resident in your home country. Then you can have two tax certificates, great!

 

[JustAnotherNomad]

Good point, that’s what DTA’s are for though, right? I’d want to make sure that the local tax office will accept that the company should only be taxed where it’s registered. I imagine that my chances of that happening will be higher if the company has existed for many years in the foreign jurisdiction (say, Singapore).
But maybe there is a better setup? I’m open for all ideas. Would also pay for good advice.
It doesn’t necessarily has to be the same structure forever, but something like “As long as you’re traveling, use X and Y. Then once you settle down, get rid of X, but keep Y to do Z, assuming that Z still works at that point.”

 

[fshore]

Good point, that’s what DTA’s are for though, right? I’d want to make sure that the local tax office will accept that the company should only be taxed where it’s registered. I imagine that my chances of that happening will be higher if the company has existed for many years in the foreign jurisdiction (say, Singapore).
But maybe there is a better setup? I’m open for all ideas. Would also pay for good advice.
It doesn’t necessarily has to be the same structure forever, but something like “As long as you’re traveling, use X and Y. Then once you settle down, get rid of X, but keep Y to do Z, assuming that Z still works at that point.”

If you look at the tax treaties you'll see that most says that companies should be resident only where they are managed from.

 

[JustAnotherNomad]

Of course. But with a local director and office, board meetings held there and so on, it should be possible to convince the tax office that management is in fact in the foreign country.
But hey, I am no expert. I didn’t come here to tell you this, I was hoping for some advice.

 

[fshore]

Of course. But with a local director and office, board meetings held there and so on, it should be possible to convince the tax office that management is in fact in the foreign country.
But hey, I am no expert. I didn’t come here to tell you this, I was hoping for some advice.

Do you mean nominee director or an actual director? That will make the difference.

Of course you can run a foreign company when you become tax resident in a high-tax country. You just need economic substance for the company etc.
And I am sure that there are ways to get a corporate tax residency certificate in countries with a beneficial tax code without paying hundreds of thousands of dollars.

You sound like an expert.

 

[JustAnotherNomad]

So maybe I am full of s**t. What setups would you recommend then?

 

[lavel]

If you look at the tax treaties you'll see that most says that companies should be resident only where they are managed from.

And that's possible if you setup a real office with staff and supply of electricity, water etc. and appoint a board. It's costly but possible that way.

 

[JustAnotherNomad]

That was also what I have heard. And I’m thinking long term. Then it might make sense.

 

[fshore]

Yes that's possible, but very costly. Great for you if the tax saving (of 10-15% probably, depending on your country) is more than what you'll pay your hired directors and office etc.

I think it's not so important to set everything up now, while you are a digital nomad without a tax residency. You should arrange this when you are going to settle somewhere, as you'd know what country and can study those laws in details, and also maybe some laws have changed then anyway.
Your client will probably be OK with you changing the company you invoice from later, for the same work done.
If a US llc works for you now then start with that. Or check if you could invoice as a sole proprietor.

 

[John Andrews]

@JustAnotherNomad since you are in EU, I would recommend Croatia, you can set up a sole proprietorship there and pay like 8% tax, it's called pausalni obrt: Administrative aspects of freelancing from Croatia

 

[JustAnotherNomad]

I’m not necessarily in the EU myself, but my customers are at the moment. But why Croatia? I see several disadvantages with that:
- Reputation isn’t great
- 8% is a lot more than 0%
- Accounting requirements, and probably everything would need to be translated (cost&time)
- Should I settle down one day, there would be the same issues re. economic substance as with more tax-efficient setups

 

[JustAnotherNomad]

I think it's not so important to set everything up now, while you are a digital nomad without a tax residency. You should arrange this when you are going to settle somewhere, as you'd know what country and can study those laws in details, and also maybe some laws have changed then anyway.
Your client will probably be OK with you changing the company you invoice from later, for the same work done.
If a US llc works for you now then start with that. Or check if you could invoice as a sole proprietor.

I have a setup that works for now (Estonian company), but I don’t think it’s ideal. If I use the company for investments, I would have to pay 25% tax on dividends. As it is officially just a delayed 20% corporate income tax, there is no way to reduce that, and there might be more taxes on top, depending on where I will be tax resident then.
The same goes for selling my company, even if I’m still a nomad. I think I should be able to do better than that.

US LLCs look interesting because:
- Great reputation
- Almost no reporting requirements if the company is considered a “disregarded financial entity”
- Almost no information exchange for US business accounts
- If I could get an EIN, I might be able to get US business credit cards (great rewards)
- Very low incorporation/accounting/maintenance costs

But I’m a bit worried about accidentally triggering the “nexus” thing (by having meetings in the US etc.), and I’ve heard it might be difficult to get a bank account.

 

[jscargo]

You want EU but you want 0% tax and also plan long-term. You are completely delusional on how fast online business and tax jurisdictions change. Things change fast, and it is not even a "maybe", it is guaranteed. I am on online business for more than 10 years and I usually plan stuff for one week ahead.

Regarding the US, you can surely easy get an EIN, but getting a corporate credit card that gives miles/points without being there physically, absolutely unreal. You can get an EMI, and be glad if they don't shut you down at some point.

In the EU it is the same old story everybody already knows, Bulgaria 10%, Cyprus 10%.

In Europe, outside of the EU, there is Andorra, which is pretty excellent in my opinion. Then, Gibraltar, and even the UK (after Brexit) I consider better than Estonia.

 

[JustAnotherNomad]

By long term, I don’t necessarily mean “one solution to keep for all eternity,” but rather “a solution flexible enough to not be completely screwed when the world changes.”
For example, I would like to invest into ETFs long term. Should I do that in my own name? Probably not? Via a company? A trust? A foundation? Etc.

What does EMI stand for?

I don’t necessarily see a lot of advantages with having an EU company, except maybe smoother VAT handling. But that’s not a big deal for me as I don’t have a lot of expenses.

But regarding all those jurisdictions, there is again the substance thing...? I have to say I find it a bit confusing that you guys say, forget about offshore companies once you live in a high-tax country again, but at the same time recommend all kinds of countries. How would having a company in Andorra or Gibraltar be any different from a company in Singapore?
As long as I’m a digital nomad, my Estonia setup works fine. It’s just not ideal for investing. But I also can’t change my customer-facing business every other week. My business clients would not understand that.

 

[user9823671]

If you are living in a high tax country, with a foreign company that you run from the high tax country and have nothing to show that the company is actually run from the low tax jurisdiction where you incorporated, then the high tax country will claim the business is tax resident in their jurisdiction (how they know / whether they know - I don't know, what are the legal ramifications of relying on them not knowing - again I don't know).

As a digital nomad, as long as you are non resident in your home high tax country, then you have more options.

From what I understand, different setups may be beneficial to you for
a) being a nomad
b) returning home


but as for returning home and being 0% tax - absolutely not possible legally. You can probably reduce your tax burden, but 0% no.

 

[JustAnotherNomad]

Yes, that was my understanding as well.
Then I don’t understand the Andorra/Gibraltar/Georgia etc. recommendations. What’s the point of having a company when in practice you cannot use the advantages once you are resident in a high-tax country? And as long as I’m a nomad I can pretty much do whatever I want anyway.

I will most likely never move back to my country of citizenship (where I was born), but maybe one day I will want to settle down in some nice country. Then I don’t want taxes to dictate my choice.