Strategy for having a European company while travelling for the next 2 years as a digital nomad?

[DaveFischer]

My location
I've lived as a digital nomad for 4 months in Thailand and 3 months in the Philippines, while I kept paying taxes in my Northern European country. I've had to go back to my home country due to corona for 3 monthly, but I've been living and working in Ukraine for 2 months now.

My plan for the next 2 years
I'm looking to permanently leave my home country and travel around between countries for the next 2 years and then finally settle down... meaning, spend more than 6 months in a home country I enjoy living in. I really don't like life in my home country, even aside from the taxes, I don't feel free and I'm travelling and exploring countries where I'd like to live.

My income model
As I'm a freelance IT consultant working largely for European/American companies, it seems that living in Southeast Asia is unfortunately not going to be an option any time soon. Although if I have a customer that'd accept it, I'd definitely love to relocate back to Southeast Asia.

Statistics
I currently have a client that pays €7.000 monthly and a client that pays €12.000 monthly. I'm expecting to earn €200k-500k yearly in the next 3 years. My goal is to leave as much money as possible and have €1.5mln in my corporate bank account invested in stocks and crypto. In Northern Europe I first made my money, paid corporation tax, then dividend tax, then buy stocks, then capital gains tax on the profits and every transaction costs me around 20% in the process... losing that 20% before reinvesting the profits is the difference between making 1,1^25 and 1,08^25 over the next 25 years.

I have around €100k in cash reserves on my personal bank account (taxed paid) and I need around €2-3k to live per month.

Can I leave all profits untaxed in the company until I finally found my tax home, e.g. Armenia, Thailand, Philippines, Panama, Georgia, etc. that I would enjoy living in for 6+ months and just live of my personal cash reserves?

I was told I should find a tax home where I live more than 6 months per year, to maximize my tax benefits, but that kind of goes against my ambitions as a digital nomad for the next 2 years.

 

[Martin Everson]

You can apply for your Estonian e-residency card and setup an Estonian company to house your income there untaxed. Estonian companies are only taxed at point of distribution so you control when the tax is paid.

 

[JustAnotherNomad]

Even in Northern Europe, you can defer tax payments by using a holding company.
I would advise against Estonia because you will be paying 20% eventually to get the money out if you pay dividends. The alternative would be to invoice your own company or pay a salary. In that case, there would be no tax. But the risk is here is that you would be subject to transfer pricing restrictions. That can be a problem especially with capital gains.
The same approach might work with a UK Ltd. (not sure about transfer pricing there).
Use a US LLC or UK LLP if you can live with the fact that you wouldn’t be able to obtain a tax residency certificate for the company.
You don’t have to live anywhere for 6+ months, but it is advisable to have some sort of official residency with that kind of income.

 

[DaveFischer]

The thing I love about the Estonian corporation is that I can postpone my decision to find a solution...
Because I can still expense salary... if the company earns €300k for 3 years and I pay it out as a €900k salary in 2022, then I think 0 corporation tax would be due.

In the UK you have to pay corporation tax 20% on your profits every year, but since I don't want to pay myself my own money... I'd like to keep the money in the company as an investment vehicle, I'd keep losing 20% every year.

The same approach might work with a UK Ltd. (not sure about transfer pricing there).
Use a US LLC or UK LLP if you can live with the fact that you wouldn’t be able to obtain a tax residency certificate for the company.
You don’t have to live anywhere for 6+ months, but it is advisable to have some sort of official residency with that kind of income.

My biggest customer is in the UK, so I'd have to pay 20% corporation tax on my income from the UK. I think that would work out poorly for me.

I could try to find some sort of official residency from January 2021. It'd just have to make sure I'd spend 180+ days there or that this country is the country that I spend most of my time in?

Having tax residency in Georgia, Armenia or Cyprus would suck if I didn't enjoy being in the country, so I ideally don't want to commit to 180+ days to any country just yet...

 

[JustAnotherNomad]

The thing I love about the Estonian corporation is that I can postpone my decision to find a solution...
Because I can still expense salary... if the company earns €300k for 3 years and I pay it out as a €900k salary in 2022, then I think 0 corporation tax would be due.

Yes, if the Estonian tax authorities accept a 100% salary. You may well trigger an audit and they may say that it’s not ok to have a 100% salary. So they might say you can only pay a 80% salary and the rest is dividends. For example.

 

[JustAnotherNomad]

My biggest customer is in the UK, so I'd have to pay 20% corporation tax on my income from the UK. I think that would work out poorly for me.

You often hear such things, but I fail to see how that’s relevant. It’s not important where your customer is or where the company is registered. What’s important is where the work is performed. Maybe you should double check that with a UK accountant. I would expect this to work just like with an Estonian company. But I don’t have any experience with the UK. It just wouldn’t make sense that you should be paying UK income tax only because the company and the customer is in the UK.

By the way, I think Latvia has the same concept as Estonia, but just 15% tax instead of 20%.

You could also go for Georgia if it doesn’t have to be an EU company. 0% tax and 5% on distributed dividends.

 

[DaveFischer]

As long as I don't spend 183+ days in some country... I can pick basically any country for tax residency that has easy tax residency rules like Georgia and pay no taxes?

• Cyprus Corporate Registration -> There is no corporation tax on income outside of Cyprus. Since I will pay out everything as salary if I can have tax residency in a 0% tax country.
• Georgian Tax Residency -> Doesn't tax income outside of Georgia for non-Georgians. It allows high net worth individuals to obtain tax residency fairly easily.

That seems to fix all my issues?

 

[JustAnotherNomad]

No. You need to carefully examine for each country what “foreign-sourced income” means. For example, in Singapore it only covers income that was derived by a foreign subsidiary.
But if you pay a 100% salary, it doesn’t matter anyway. But then you have the transfer pricing issue again.
You can go with Estonia and pay a 100% salary. If you’re not tax resident in Estonia, there will be no Estonian tax. But your home country might say you’re still tax resident there for X years, or forever if you haven’t taken new tax residency.
There are many variables.

Just forget about 183 days, it’s not relevant. Other things matter.

 

[JustAnotherNomad]

That’s not bad, but there are lots of cheaper options for nomads.

 

[CaptK]

So you biggest problem is getting to your funds at a later point.

I say you have 2 options .

UK LLP but your profits have to be sent somewhere you cant leave them in the UK. The LLP will act as a pass through to wherever you choose to pay your funds to. No requirement for residency or minimum stay.

Where you pay your funds is the issue of tax in that Jurisdiction.

Option 2

UAE company with tax residency. You have only got to be in the UAE for 1 day in every 175 days to renew tax residency. This can be on transit whilst on your way to another destination. UAE is an international hub so no issues with flights to anywhere in the world.

 

[fshore]

First you have to figure out how to deal with your current home country and what exact requirement they have for you to become non tax resident.

As long as you’re tax resident there the Estonian company might be a CFC when there is no office/substance in Estonia.