Stock market investors, where you at?

[glengoolie]

Some of you might have seen me being quite active recently, as a new member, trying to figure things out. As a stock market investor, my use case is specific and geared towards optimizing the capital gains taxation.

It didn't even occur to me to ask directly, so here it is - if you are a stock market investor or possibly daytrader, what is your tax setup? Where is your tax residency? Are you trading directly or through a company? If through company, where are you and where is the company and how are you getting profit out of it?

I don't want anyone to dox themselves or say anything they don't want because it could get them in trouble or anything like that. So share only if you can do so freely.

To add some value, here are my findings so far:

So far, I found that Cyprus is good to trade through a company, but not as individual. You would have to pay yourself a (minimum)director salary and pay income tax on it, as well as healthcare insurance and social security contribution. If you would live in Cyprus, the company would be considered domiciled there and any income from dividends from your stocks the company would receive would be subject to defence fund contribution of 17%. As US markets tax 15% you would lose 1/3 of your dividend right away. As individual in Cyprus, you can withdraw profits from the company via dividend which is tax free. But you cannot trade as individual because you would have to register as self employed and pay income taxes, which makes no financial sense. But this is still not a sure thing because I have heard different opinions from multiple people and accountants, so it seems even they do not know exactly. Therefore I have contacted the Cyprus tax authority directly and asked to clarify the situation. If self employment would not be required and you could trade tax-free, Cyprus would be the best place for people like me since you would trade tax-free, except mandatory 2.65% for healthcare with cap at 180k€.

UAE is easiest, nothing really to worry about or set up. You just buy a property there to get residency visa and that's about it. But the country just might not be a place you want to live in or spend time in during a year. Although I think it is a perfect place for winter time.

Third option is a setup through country with a territorial tax system. Like Georgia, for example. But I was looking specifically at Malaysia, since it too has no capital gains taxes, like Cyprus, but I think same issues with self employment apply. I have contacted the tax authority with the same questions as for the Cyprus tax authority, so I am waiting for a response. In the meantime I have come up with this plan Cyprus company with Malaysian residence for trading? which I am hoping will work out. I will be able to get confirmation once I land there in person, probably next year. Malaysia seems like a great place to live but I see three issues that can make life miserable, so far, and those are the air pollution, especially when Indonesia is burning their palm trees every other year. KL gets foggy for two straigt months during the summer. The maximum UV index all year round so skin cancer is a real danger. And thirdly, hot and humid weather all year round. I don't like 30+ temperatures so I would struggle but the humidity would probably make it unbearable no matter what. I will see once I'm there and be there for a while.

If you are not a stock market investor but you too are handling the capital gains tax + avoiding income tax from sustained activity(ie. investing), chime in with your know-how if you can.

 

[Fred]

The easiest and most affordable way to achieve your goal is to setup a Dubai Company, get the Residence Visa through the Dubai Company and get a local Business Bank Account for your Dubai Company.

Once this is setup you can open an Interactive Brokers Account in the name of the Dubai Company and the only thing they care about is that the money is coming from a real physical Business Bank Account in the name of your Dubai Company.

The process is pretty fast and straightforward and UAE is working with IBKR pretty well - they just want to see every year updated company documents or if something has changed to the Dubai Company itself.

They accept Personal Bank Statement from UAE bank so you even don't need to live the whole year in the UAE. You are only required to come 1 day every 6 months to the UAE to keep this setup working.

I recommend you this setup for your financial center and to live in some of the countries you mentioned like Georgia, Cyprus and Malaysia or you simple register nowhere for residence and simple travel around as you have your financial center in UAE anyway. This is working till the very end even for having 10m+$ and going with some Private Bank in the DIFC here in Dubai as the residence is getting less and less important for the banks once you reach significant figures (5m+$).

As always the UAE side is pretty simple and solid so once you have your UAE setup you need to check with local tax advisor of let's say Cyprus, Gerogie or Malaysia what's additional required for your Dubai Company Setup to satisfy the local tax authorities of the beside countries.

 

[glengoolie]

Same setup as #3 but with UAE instead of Cyprus as the umbrella. So then it is all about the managerial and cost overhead of running this setup. One should also keep in mind that Cyprus is in the EU so that might be advantageous in some cases.

To expand on the ideas, I will also mention the last two possibilities:

Straight up moving into a tax heaven. Usually, this has two downsides - you might have a problem with banking and opening up trading account with a broker. Secondly, these places are usually not famous for quality of living or being cheap.

Second one is the country with a lump sum tax. But these usually only mean that they won't tax your entire capital gains but instead you pay a fixed price based on their own metrics. The downside, beside being expensive, is that like Switzerland, they will most likely tax you on your income if you are an active trader since it might be considered sustained activity and therefore subject to income tax instead of capital gains tax. Similar issue like i mentioned with Cyprus and Malaysia, both of which are 0% CGT countries, yet they might make a distinction between active income and passive income and tax you anyway.

 

[Fred]

Straight up moving into a tax heaven. Usually, this has two downsides - you might have a problem with banking and opening up trading account with a broker. Secondly, these places are usually not famous for quality of living or being cheap.

Well if we are tallking about UAE thats for sure not the case.

Saxo Bank and Swissquote both are advertising here in the Radio as well as on big banner spots along the Sheikh Zayed Road - same goes for plenty of CFD Brokers.

See attached only 2 examples - one big ad banner at the Sheikh Zayed Road in Dubai right now and even on a small screen inside our Office Elavator Saxo Bank is advertising.

 

[Capa]

Same setup as #3 but with UAE instead of Cyprus as the umbrella. So then it is all about the managerial and cost overhead of running this setup. One should also keep in mind that Cyprus is in the EU so that might be advantageous in some cases.

To expand on the ideas, I will also mention the last two possibilities:

Straight up moving into a tax heaven. Usually, this has two downsides - you might have a problem with banking and opening up trading account with a broker. Secondly, these places are usually not famous for quality of living or being cheap.

Second one is the country with a lump sum tax. But these usually only mean that they won't tax your entire capital gains but instead you pay a fixed price based on their own metrics. The downside, beside being expensive, is that like Switzerland, they will most likely tax you on your income if you are an active trader since it might be considered sustained activity and therefore subject to income tax instead of capital gains tax. Similar issue like i mentioned with Cyprus and Malaysia, both of which are 0% CGT countries, yet they might make a distinction between active income and passive income and tax you anyway.

Do let me know of your result because I could use a similar setup. If you are staying in Malaysia, what about trying out Labuan? There's issue recently about economic substance etc but qualified business with trading license is taxed about 3%, and director's fee is tax exempt for non citizen. I'm looking at equity holding license (not sure if this is valid for daytrading) with about $5k USD annual cost.

 

[glengoolie]

I will. Though, as I have said, that is plan for next year so it will take some time.

From what I have heard about Labuan, you have to run a real business there, with employees and real income. So not suitable for trading stocks at all.

 

[glengoolie]

update:

the cyprus-malaysia setup is a must because you cannot setup up a local malay company and run it on mm2h visa.

also uae property based visa is a no go since you need to buy at least 5M AED worth of real estate so the only path is through setting up a free zone company.

 

[Fred]

update:

the cyprus-malaysia setup is a must because you cannot setup up a local malay company and run it on mm2h visa.

also uae property based visa is a no go since you need to buy at least 5M AED worth of real estate so the only path is through setting up a free zone company.

Beside of what you mentioned I always recommend to setup the company to get the Residence Visa as it's the fastest and most streamlined way. I see so many dependent Residence Visas that need sometime 3 months to get issued.

 

[glengoolie]

and what abour a canadian llp?

that depends on the legislation. the main idea is that you will trade through a company that resides in jurisdiction with 0% CGT so you have tax-free profits.

this applies to malaysia and to cyprus. and you have to live in a country that does not tax dividends or ideally capital gains altogether. this applies to both mentioned as well.

so when you withdraw profits through dividend, it will be taxed under CGT and not income. so the company also needs to be joint-stock type of company with shareholders and with profit distribution through dividends. this is why cyprus is good option. setting up a join-stock company can be very expensive in some jurisdictions but in cyprus, they are all joint-stock type of companies so there is no overhead.

now, since you would live in malaysia, based on my scenario, the company would be controlled from there and so based on the CRS it's worldwide income, sans Cyprus, will be taxed there. so you cannot use just any country for this setup. they both must be 0% CGT. and since malaysia has no CGT and the company's income is purely from CG, there will be 0% tax.

if needed, you have to pay yourself a salary. since the company is in cyprus, the income should be tax exempt under malaysia's territorial tax scheme.

some jurisdictions will require you to have an office and potentially employees. in cyprus you need director and secretary but both can be filled by you and you can just rent a virtual residency(mailbox) without office.

also, recently i have discovered that you can perform work for cyprus' company as the director without the need to have a work contract or even a salary, while it is defined in the company's statutes. so you are removing the overhead of having a salary, work contract and accounting.

 

[glengoolie]

Beside of what you mentioned I always recommend to setup the company to get the Residence Visa as it's the fastest and most streamlined way. I see so many dependent Residence Visas that need sometime 3 months to get issued.

indeed, i have learnt that this is truly the best and cheapest way to get UAE residency visa. it brings annual financial overhead of few thousands but i guess that should be expected when one is setting up operation like this.

overall the purely cyprus solution is the easiest, fastest and cheapest one there is. unless you rely heavily on dividends. you can set it up so you live there only two months per year so it gives you the most freedom...unless you would like to live full time in malaysia, for example. it comes down to personal preference. and there is still a chances that you could trade without a company and pay 0% CGT. but this is presently disputed and there is no official statement yet.

 

[glengoolie]

as per the linked topic of cyprus+malaysia, is looks like it is a no-go because of how malaysia taxes investments. i need more info on this but it seems 0% CGT in malaysia is not really taking effect, nor the territorial tax scheme.

 

[Fred]

indeed, i have learnt that this is truly the best and cheapest way to get UAE residency visa. it brings annual financial overhead of few thousands but i guess that should be expected when one is setting up operation like this.

overall the purely cyprus solution is the easiest, fastest and cheapest one there is. unless you rely heavily on dividends. you can set it up so you live there only two months per year so it gives you the most freedom...unless you would like to live full time in malaysia, for example. it comes down to personal preference. and there is still a chances that you could trade without a company and pay 0% CGT. but this is presently disputed and there is no official statement yet.

With Cyprus you have to deal with accounting and audit.

You end up paying same like in UAE but will face additional headache and bureaucracy.

UAE outside the EU - so much better in the long run when it comes to privacy.

Maybe it's more something about the personal attitude but for the mentioned purpose UAE has clearly more benefits.

If your business needs to be in the EU then Cyprus but as we are talking about setup for holding assets - it's UAE.

 

[glengoolie]

Maybe it's more something about the personal attitude but for the mentioned purpose UAE has clearly more benefits.

i am very well aware of the benefits but the overhead is a factor for me since i am not a 7 figures guy, yet, and it's not just the cost of running the company(what, 10k a year?) just to get a visa that i can get elsewhere cheaper and easier. but the specifics of UAE itself. for me personally, the lack of greenery kills the place for me the most. even when i watch videos from dubai it just looks empty and depressing. and even though it is tax "heaven, the prices / costs of living are not cheap. i am not saying it is monaco but still, it has ot be factored into one's decision. quality of properties is also subpar. and so on. there is a reason why it's not more popular than it should. so one has to really consider all factors.

but yeah, hands down the best place on paper.

 

[Fred]

The initial setup is around 7k€ and the yearly about 4k€ for Dubai Company and Residence Visa and not small Emirate somewhere in the desert

Did you were ever to Dubai yourself? You can have the same spend like in every central european country and especially compared to Cyprus it won't be more expensive as Cyprus imports everything.

Of course you can easily spend 10-20k each month going 3x a week to Nikki Beach.

I understand your position and subjective view of this all. It's fine but far away from reality.

 

[glengoolie]

The initial setup is around 7k€ and the yearly about 4k€ for Dubai Company and Residence Visa

hm, that does not sound that bad really. i was thinking 2x or 3x of that.

Cyprus imports everything

emirates don't?

Did you were ever to Dubai yourself?

not yet, i plan to travel next year. hopefully all the crazynes will be gone by then.

 

[CyprusLaw]

The initial setup is around 7k€ and the yearly about 4k€ for Dubai Company and Residence Visa and not small Emirate somewhere in the desert

Did you were ever to Dubai yourself? You can have the same spend like in every central european country and especially compared to Cyprus it won't be more expensive as Cyprus imports everything.

Of course you can easily spend 10-20k each month going 3x a week to Nikki Beach.

I understand your position and subjective view of this all. It's fine but far away from reality.

As someone who lives in Cyprus but has been to Dubai on multiple occasions, the fact that you call Cyprus expensive compared to Dubai is bizarre.

 

[Fred]

hm, that does not sound that bad really. i was thinking 2x or 3x of that.


emirates don't?


not yet, i plan to travel next year. hopefully all the crazynes will be gone by then.

Yes it's going off topic.

Just wanted to point things out that everybody has a real impression how things are.

By the way the legislation in UAE is relaxed enough that you can have your Business and Finance Center in the UAE and spend the whole year abroad - no issue if thing are setup right - that's simply my point as everything else is subjective.

 

[glengoolie]

Yes it's going off topic.

Just wanted to point things out that everybody has a real impression how things are.

By the way the legislation in UAE is relaxed enough that you can have your Business and Finance Center in the UAE and spend the whole year abroad - no issue if thing are setup right - that's simply my point as everything else is subjective.

that is a good point, indeed. once you move there, it is your official residence so technically you just have to avoid becoming tax resident elsewhere. you are making good points, i give you that. from the looks of it and the options for the type of income i have and plan to have in the future, UAE is a nobrainer. i guess it will be my priority visit next year.

 

[glengoolie]

i think it was pointed out in another thread that even trading through a company is considered trading and not investment, subjected to capital gains tax, so corporate income tax will apply. one advantage is that profits can be made into 0€ by purchasing stocks(or any other securities) at the end of the year so there would be no profits by the end of the fiscal year. but sooner or later the tax would have to be paid.

romania has 1% under 1M, 16% above
hungary and montenegro have 9%
andorra, bosnia, bulgaria, macedonia have 10%
cyprus has 12.5%
ireland 12.5% for trading income
estonia 20% on distributed profits

to get money out of the company you are always better with join-stock company that distributes profits through dividends, not directly like "classic" privately owned llc which would be taxed under personal income. one has to research the cost of such company in respective jurisdictions, and keep in mind that it will be taxed in the place of control(ie. where the owner actually lives, unless you pay someone to hold the position of director and whatnot).

romania has 5% tax on dividends
hungary has 15% + 17.5% social crap
montenegro has 9% tax
andorra has 10%
bosnia has 5% tax
bulgaria has 5% tax
macedonia has 15% tax
cyprus has 0% tax(might be subject to healthcare tax or defence fund)
ireland has 12.5% tax
estonia has 15% dividend

i have included estonia because it has the ability to accumulate profits and tax them only when distributed which means it can grow much better than company that is taxed annually.

i assume the company will be taxed in the place where the owner lives(controls the company from) so i assume the owner and the company reside in the same country.

so the best seem to be:
cyprus' 12.5%+0%(under some conditions)
romania 1%+5%(under 1M profits)
monenegro is 9%+9%
andorra 10%+10%
bulgaria and bosnia 10%+5%

and estonia 20%+15% but it allows you to keep the profits in the company

taking the place itself and costs of living into consideration, cyprus and bulgaria seem like the best bang for your buck. with romania beeing the cheapest and andorra and possibly ireland being interesting choices.

 

[glengoolie]

a side note: cyprus is unclear because the law clearly exempts securities but even accountants and accounting firms do not agree with each other on trading so it is still uncertain what the truth is. i am actively looking into it.