Question Low tax setup for self-pub Amazon royalties? EU citizen options?

[alexx999]

Hello,
I am Self-Publishing Non-Fiction Books on Amazon, I am making 5000$/month but my income is doubling almost every month and I am scaling very fast, I think I will reach 10k in the next 2 months and 20k by the end of the year since I found a scalable brand.
I am an Italian resident, and my taxes right now would be 40% of my Income + I am paying 22% VAT on the Advertising, I am willing to move, what are my options for Low Taxes? Possibly Low-cost setup and headache?

I have done my research and I would be taxable where my residency is. Therefore I need to change residency, my long-term goal is to travel and move around with tourist visas in the Caribbean or South East Asia, spending only a few months per year in Europe between Spain and Italy. I own a house split at 50% with my mother.

I have a contact in Portugal where i can have the personal address for the NHR easily, but, the problem with Portugal is that, i'd still need to pay 23% VAT on ADS ( I am projecting to spend tens of thousands of $$ on ads in the US market in the next few months/year, so the optimal setup would allow me to avoid VAT, BUT I am still willing to pay for it if the overall taxation is favorable).

Is there a VAT Refund for Maltese LLC?

Opening a US LLC would allow me to avoid paying VAT, but then i still would pay taxes in Italy right now, so i was looking for the LLC + NHR option, and that would be optimal BUT, it is a grey area since there are no strict government rules for determining if a LLC is a transparent entity or a Opaque entity, someone says that in Portugal they are NOT going after Expats in Portugal, especially i think for people like me that would 100% remain at 100k-200k$ per year MAXIMUM.
Other Options I am aware of:

Malta LLC with a director + NHR in Portugal = Total Tax Rate of 5%

Cyprus + NHR = 12,5%

UK + NHR = 19%

UAE i think it is too expensive for my business right now, not only setting the company but the headache to move there once every 6 months, it is not appealing to me....

What other options do I have? Of course since my business will likely remain small, i prefer low cost set-up, but i am willing to embrace difficulties and learn about all the alternatives to optimize my taxes!
thanks

 

[Marzio]

Malta LLC with a director + NHR in Portugal = Total Tax Rate of 5%

+ 10% WHT on US royalties

If you decide to move to Portugal be aware that you'll pay 10% WHT on US royalties.

In UK corporation tax main rate for non-ring fence profits increased to 25% for profits above £250,000.

Companies with profits of £50,000 or less pay 19%.

Companies with profits between £50,000 and £250,000 will pay tax at the main rate, reduced by a marginal relief. This provides a gradual increase in the effective Corporation Tax rate.

UK + NHR = 19%

Corporation Tax rates and allowances

www.gov.uk

I own a house split at 50% with my mother.

This could be enough for the Italian revenue agency to claim you are tax resident in Italy so you need to find a country with a DTT with Italy.

Portugal is the right choice from that point of view.

LLC + NHR in your case would be a good option since you are receiving royalties from Amazon.

Royalties are passive income so it doesn't matter if LLC is seen as opaque or transparent.

Also, with LLC you'll avoid paying VAT.

It would be even better if you would run ads while travelling outside Portugal to avoid any possible claim from Portugal revenue agency that you are working from Portugal.

Or even better, delegate the ads.

I would go with LLC + NHR, you'll pay 10% total tax.

 

[alexx999]

+ 10% WHT on US royalties

If you decide to move to Portugal be aware that you'll pay 10% WHT on US royalties.

In UK corporation tax main rate for non-ring fence profits increased to 25% for profits above £250,000.

Companies with profits of £50,000 or less pay 19%.

Companies with profits between £50,000 and £250,000 will pay tax at the main rate, reduced by a marginal relief. This provides a gradual increase in the effective Corporation Tax rate.

Corporation Tax rates and allowances

www.gov.uk

This could be enough for the Italian revenue agency to claim you are tax resident in Italy so you need to find a country with a DTT with Italy.

Portugal is the right choice from that point of view.

LLC + NHR in your case would be a good option since you are receiving royalties from Amazon.

Royalties are passive income so it doesn't matter if LLC is seen as opaque or transparent.

Also, with LLC you'll avoid paying VAT.

It would be even better if you would run ads while travelling outside Portugal to avoid any possible claim from Portugal revenue agency that you are working from Portugal.

Or even better, delegate the ads.

I would go with LLC + NHR, you'll pay 10% total tax.

Thanks for your reply the 10% tax withholding would be calculated on the gross income, therefore let's say it's 10k$ every 100k$ of gross income....

I spoke with a UK CPA today, at the moment my expenses are 50-60% of the gross income, in UK i'd be taxed relative to the net income, but, I can pay a salary to myself of up to 8400£ per year tax free, and I can deduct other expenses such as "traveling for market research", phone bills, management costs, so, in this case, I would need to pay the 19% tax on a lesser amount, let's say a hypothetical 30-35k$, it would be cheaper than the US, around 6 to 7k $ per year, and up to 85k£ I don't need to pay VAT, which would be fantastic... Also, it would be faster and easier to incorporate a UK LTD instead of a US LLC since i'd need to wait up until 90 days for my EIN.... Am i missing something? Now, the Malta 10% withholdings + the 5%, the costs and management would make the proposal less appealing tax-wise. The remaining country to evaluate is Cyprus, with its 12.5 corporate tax (is it on the gross income or the net income?), should I pay VAT? What about the general costs? Also, what do you guys think about Andorra? Which other options do I have worldwide? Thanks in advance

 

[Marzio]

I spoke with a UK CPA today, at the moment my expenses are 50-60% of the gross income, in UK i'd be taxed relative to the net income, but, I can pay a salary to myself of up to 8400£ per year tax free, and I can deduct other expenses such as "traveling for market research", phone bills, management costs, so, in this case, I would need to pay the 19% tax on a lesser amount, let's say a hypothetical 30-35k$, it would be cheaper than the US, around 6 to 7k $ per year, and up to 85k£ I don't need to pay VAT, which would be fantastic... Also, it would be faster and easier to incorporate a UK LTD instead of a US LLC since i'd need to wait up until 90 days for my EIN.... Am i missing something?

You are missing that you will be subconsciouly limiting your profits because the higher the income the higher taxes you'll pay in UK.

Is it really worth the hassle to just save 7K a year?

What if your income goes to 150K?

If UK expenses are 50% you'll be left with 75K on which you'll pay > 19%

Stay conservative and imagine it's only 1% more: 20%

You'll end up paying 15K taxes in UK which is exactly the same 10% US WHT if you used LLC + NHR

Dealing with taxes, bookkeeping, bureaucracy it's an enormous waste of time.

 

[thedirtyteller]

Hello,
I am Self-Publishing Non-Fiction Books on Amazon, I am making 5000$/month but my income is doubling almost every month and I am scaling very fast, I think I will reach 10k in the next 2 months and 20k by the end of the year since I found a scalable brand.
I am an Italian resident, and my taxes right now would be 40% of my Income + I am paying 22% VAT on the Advertising, I am willing to move, what are my options for Low Taxes? Possibly Low-cost setup and headache?

I have done my research and I would be taxable where my residency is. Therefore I need to change residency, my long-term goal is to travel and move around with tourist visas in the Caribbean or South East Asia, spending only a few months per year in Europe between Spain and Italy. I own a house split at 50% with my mother.

I have a contact in Portugal where i can have the personal address for the NHR easily, but, the problem with Portugal is that, i'd still need to pay 23% VAT on ADS ( I am projecting to spend tens of thousands of $$ on ads in the US market in the next few months/year, so the optimal setup would allow me to avoid VAT, BUT I am still willing to pay for it if the overall taxation is favorable).

Is there a VAT Refund for Maltese LLC?

Opening a US LLC would allow me to avoid paying VAT, but then i still would pay taxes in Italy right now, so i was looking for the LLC + NHR option, and that would be optimal BUT, it is a grey area since there are no strict government rules for determining if a LLC is a transparent entity or a Opaque entity, someone says that in Portugal they are NOT going after Expats in Portugal, especially i think for people like me that would 100% remain at 100k-200k$ per year MAXIMUM.
Other Options I am aware of:

Malta LLC with a director + NHR in Portugal = Total Tax Rate of 5%

Cyprus + NHR = 12,5%

UK + NHR = 19%

UAE i think it is too expensive for my business right now, not only setting the company but the headache to move there once every 6 months, it is not appealing to me....

What other options do I have? Of course since my business will likely remain small, i prefer low cost set-up, but i am willing to embrace difficulties and learn about all the alternatives to optimize my taxes!
thanks

I'm also a self-published writer and moved to Romania. If you are living solely out of royalties, you don't need a company or any other entity. You just fill in a form once a year and that's it. The US will withhold 10 percent and then you will pay a fixed pension and social contribution of 350 EUR each month, so 4200 EUR a year and that's it, no bureaucracies or dealing with accountants. Life here is cheap and relaxed too, you don't have to worry about getting your driving license taken from you. You also do not need to stay here for a certain amount of time, just prove that your center of interest is here.
I saw you're from Italy too, so learning Romanian will be quite easy.

 

[alexx999]

I'm also a self-published writer and moved to Romania. If you are living solely out of royalties, you don't need a company or any other entity. You just fill in a form once a year and that's it. The US will withhold 10 percent and then you will pay a fixed pension and social contribution of 350 EUR each month, so 4200 EUR a year and that's it, no bureaucracies or dealing with accountants. Life here is cheap and relaxed too, you don't have to worry about getting your driving license taken from you. You also do not need to stay here for a certain amount of time, just prove that your center of interest is here.
I saw you're from Italy too, so learning Romanian will be quite easy.

Thanks, but i prefer to have Liability protection. I want to start a company.
I did research a little bit more and here's what I found so far:

1) US LLC + NHR = PRO: 10% withholding but almost 0 bureaucracy, bookkeeping and headache CONS: I am not sure it is completely legal as I have seen different opinions on LLC + NHR, being a pass-thru entity, in case of an audit I don't even know how to demonstrate that I'm not conducting or taking important decisions in Portugal, probably they don't care but probably it is not 100% by the book

2) UK LTD + NHR = PRO: Completely legal, easy to form, and fast, I personally and physically know an accountant in the territory that would help me with tax planning orientated to tax optimization, he said that good things can be made to lower your taxes in a well, reasonable way CONS: VAT over 85k£, 19% on NET income, so you'd always try to deduct as many expenses as possible, more bookkeeping and headache probably, still, probably more tax advantageous than a US LLC + NHR

3) Cyprus LTD + residency: PRO: 12.5% on capital gains but lots of expenses can be deducted, love the 60 days rule, the island vibe and the geographical positon is nice, taxation is probably the most favorable of all the three countries listed above, all in one country CONS: Pretty expensive to open and to manage respect the other options I listed, I don't know if it is worth it since right now I am making only 5k/month, probably I'll grow up until 20k by the end of the year by seeing my past months but who knows, prices are between 6-7k $ to do everything, I don't know if it's worth it for a small fish like me

I am not very sure about what to do to be honest, seems like US LLC + NHR Is the easiest path, UK+NHR the second one and i'd have the support of an intelligent tax planning man, the Cyprus one probably the most convenient one in terms of taxes but still too expensive to me

What other countries should I evaluate?

 

[Marzio]

I am not sure it is completely legal

That's because you don't understand the business you are in.

Do you know why @dirtyteller has zero compliance problems?

Because of the nature of the business.

You are licensing your content to Amazon and Amazon pays you royalty.

IT IS AMAZON THAT DOES THE SELLING, NOT THE LLC!

The fact that LLC is transparent or opaque doesn't matter because it's only a means to receive payments from the company that does the selling.

So if you fear that PT could claim that you are managing LLC from PT stop for a second and reflect, what the LLC is really doing? It's buying ads to bring eyeballs to the company that sells the product.

Since the LLC is not doing the selling, Portugal can't claim that you are creating a permanent establishent in Portugal.

That's the same reason why @dirtyteller is receiving royalties without problems in Romania.

 

[kekmaw]

That's because you don't understand the business you are in.

Do you know why @dirtyteller has zero compliance problems?

Because of the nature of the business.

You are licensing your content to Amazon and Amazon pays you royalty.

IT IS AMAZON THAT DOES THE SELLING, NOT THE LLC!

The fact that LLC is transparent or opaque doesn't matter because it's only a means to receive payments from the company that does the selling.

So if you fear that PT could claim that you are managing LLC from PT stop for a second and reflect, what the LLC is really doing? It's buying ads to bring eyeballs to the company that sells the product.

Since the LLC is not doing the selling, Portugal can't claim that you are creating a permanent establishent in Portugal.

That's the same reason why @dirtyteller is receiving royalties without problems in Romania.

How about this setup with the US LLC and being a resident of Georgia? Since there is territorial tax there and from the US POV there is a tax treaty with Georgia through the old USSR treaty, it would be an effective tax rate of 0%?

 

[Marzio]

it would be an effective tax rate of 0%?

Works but only for this specific setup (receiving royalties from Amazon).

 

[JohnnyDoe]

You are not self-publishing if you have a KDP account on Amazon. AMZ is your publisher.
You self-publish if you print your own book and sell it through Amazon, in which case AMZ is your distributor.

You optimize your tax setup in completely different ways for the two scenarios.

 

[alexx999]

You are not self-publishing if you have a KDP account on Amazon. AMZ is your publisher.
You self-publish if you print your own book and sell it through Amazon, in which case AMZ is your distributor.

You optimize your tax setup in completely different ways for the two scenarios.

yes, as you see i am a newbie on this tax planning thing, so, citing the structures I proposed above, which one would you think is the smartest one? there are different things I am doubtful about the NHR, first: I have read on this website Here that your company needs to be in the EU, so, i understand that there are exceptions here, one being that the US LLC is a pass through entity therefore not deemed as a company per see, also, i guess that if the source of income comes from royalties, even using a LTD in the UK is different than running, let's say a wholesale business, therefore i don't think this "company has to be in the EU to apply" is true.

1) US LLC + NHR = PRO: 10% withholding but almost 0 bureaucracy, bookkeeping and headache CONS: I am not sure it is completely legal as I have seen different opinions on LLC + NHR, being a pass-thru entity, in case of an audit I don't even know how to demonstrate that I'm not conducting or taking important decisions in Portugal, probably they don't care but probably it is not 100% by the book

2) UK LTD + NHR = PRO: Completely legal, easy to form, and fast, I personally and physically know an accountant in the territory that would help me with tax planning orientated to tax optimization, he said that good things can be made to lower your taxes in a well, reasonable way CONS: VAT over 85k£, 19% on NET income, so you'd always try to deduct as many expenses as possible, more bookkeeping and headache probably, still, probably more tax advantageous than a US LLC + NHR

3) Cyprus LTD + residency: PRO: 12.5% on capital gains but lots of expenses can be deducted, love the 60 days rule, the island vibe and the geographical positon is nice, taxation is probably the most favorable of all the three countries listed above, all in one country CONS: Pretty expensive to open and to manage respect the other options I listed, I don't know if it is worth it since right now I am making only 5k/month, probably I'll grow up until 20k by the end of the year by seeing my past months but who knows, prices are between 6-7k $ to do everything, I don't know if it's worth it for a small fish like me

4) Cyprus LTD + NHR in Portugal: I think i would prefer Portugal rather than Cyprus for logistics and the fact that cyprus is a small island

 

[Marzio]

You are not self-publishing if you have a KDP account on Amazon. AMZ is your publisher

Since we are talking about royalties i assumed we are talking about that option.

 

[thedirtyteller]

How about this setup with the US LLC and being a resident of Georgia? Since there is territorial tax there and from the US POV there is a tax treaty with Georgia through the old USSR treaty, it would be an effective tax rate of 0%?

Isn't that limited to a certain amount though? I believe after around 500 000 GEL a year, or something like that, he'll be paying 20 percent.

You are not self-publishing if you have a KDP account on Amazon. AMZ is your publisher.
You self-publish if you print your own book and sell it through Amazon, in which case AMZ is your distributor.

You optimize your tax setup in completely different ways for the two scenarios.

Almost everyone who uses the word self-publish refers to publishing books on Amazon though, and other such platforms.

 

[alexx999]

I am now even more confused than before

 

[JohnnyDoe]

Almost everyone who uses the word self-publish refers to publishing books on Amazon though, and other such platforms.

it’s a marketing trick used by AMZ, but one should understand his own business.

 

[Marzio]

I am now even more confused than before

Do you have a Kindle Direct Publishing account?

Yes: everything we said about royalties is valid
No: go back to square one

Isn't that limited to a certain amount though? I believe after around 500 000 GEL a year, or something like that, he'll be paying 20 percent.

In case he receives royalties from Amazon there's no limit since it's passive income.

The limit you are referring to is for the Individual Entrepreneur scheme

 

[LimitlessPossibilities]

I consider the best option, to use a local LLC in the US, so that you can also sell audiobooks on audible (only UK and US companies are accepted) and live in Portugal with NHR.

For Portugal, the story you are going to tell the tax inspector matters. Have a good story (amazon is selling and you only receive dividends from the LLC). Don't tell them you do the ads; have a company do it for you - or at least the major work, so you can prove you don't work for the LLC. Okay, risk closed.

 

[SmartestSmarty]

How about this setup with the US LLC and being a resident of Georgia? Since there is territorial tax there and from the US POV there is a tax treaty with Georgia through the old USSR treaty, it would be an effective tax rate of 0%?

Would this then also remove the VAT element of marketing spend for US ads? And could it also remove VAT on marketing spend in the UK?

I'm also a self-published writer and moved to Romania. If you are living solely out of royalties, you don't need a company or any other entity. You just fill in a form once a year and that's it. The US will withhold 10 percent and then you will pay a fixed pension and social contribution of 350 EUR each month, so 4200 EUR a year and that's it, no bureaucracies or dealing with accountants. Life here is cheap and relaxed too, you don't have to worry about getting your driving license taken from you. You also do not need to stay here for a certain amount of time, just prove that your center of interest is here.
I saw you're from Italy too, so learning Romanian will be quite easy.

How do you not have to pay any tax on the royalty income in Romania? Is that genuinely the set up in Romania?

The DTT agreement between the US and Romania says royalty income can be taxed in both countries, hence the WHT of 10% in the US. Not sure how you avoid tax in Romania on royalty income. Can you elaborate?

 

[Marzio]

The DTT agreement between the US and Romania says royalty income can be taxed in both countries, hence the WHT of 10% in the US. Not sure how you avoid tax in Romania on royalty income. Can you elaborate?

It's called double tax treaty because the purpose is to avoid being double taxed.

This means that if there's 10% US WHT on royalties the same item of income can't be taxed again in Romania.

How do you not have to pay any tax on the royalty income in Romania?

Because he is not using a company.

You instead will need to form a company because you don't have a EU passport.

 

[SmartestSmarty]

It's called double tax treaty because the purpose is to avoid being double taxed.

This means that if there's 10% US WHT on royalties the same item of income can't be taxed again in Romania.

It's actually called a double tax treaty only to determine how double tax will be treated, it does not necessarily mean there will not be tax in two countries. It is only the resolution of that double tax. If you read the treaty between Romania and USA in regards to royalties, it clearly says it can be taxed in both countries. Whereas the treaty with Georgia clearly states it will be taxed only in one country, same as the United Kingdom etc...

Portugal is another example where double tax is allowed on Royalties, it is simply capped at 10% for the country that applies WHT depending on the direction of the exchange.

It's actually called a double tax treaty only to determine how double tax will be treated, it does not necessarily mean there will not be tax in two countries. It is only the resolution of that double tax. If you read the treaty between Romania and USA in regards to royalties, it clearly says it can be taxed in both countries. Whereas the treaty with Georgia clearly states it will be taxed only in one country, same as the United Kingdom etc...

Portugal is another example where double tax is allowed on Royalties, it is simply capped at 10% for the country that applies WHT depending on the direction of the exchange.

Further more, it actually says in the treaty between Romania and USA that Royalties will be treated as income in the contracting state.

So, those royalties he is receiving should be taxed as income in Romania.

https://www.irs.gov/pub/irs-trty/romania.pdf

Source: Article 12, sections 1 & 6.