Hi there,
Well, tax is
Pre-warning: Long post, more like a case study with open questions. What can I say tax = lots of text...Have you seen the size of the books accountants and tax folk study for their exams?!!
Spent a fair chunk of my Saturday night reading through various posts. Haha, there's was one in particular where the thread seemed to drag on, 7 pages and then a spin-off thread! and Im not sure if the guy ever decided anything in the end. While the threads were valuable everyone's situation is different so hoping I can get some guidance from the community here before progressing.
There is no TL;DR version, though I will set out the headline level question.
The headline level question is: Is it plausible as a solo company shareholder to be personally tax resident in one jurisdiction while having the company be a corporate tax resident in another? I'm currently in Ireland, likely to move to Portugal.
You can stop here and give your view or you can read the detail.
****
Alright, let me get this one out of the way:
Background: I looked at tax/incorporation matters last year before incorporating in Ireland ….at that time with plans to run the company from here and trade most of the time from here (or move back to the UK and do it from there). On the surface, it seemed like the UK was a lot better regarding paying yourself tax-efficiently via dividends, but at a certain scale (revenue-wise) Ireland’s lower corporation tax rate (12.5%*) seemed to work out better long term and I didn't have much interest in flip-flopping between jurisdictions. Plus even though it's a service business, the whole Brexit thing made me think Ireland might be a better option. The UK seems/seemed to be on the path to increasing corp taxes (but that's a whole other thread). So I went with Ireland despite its hopeless dividend tax setup. It was on the assumption I wouldn't take a big salary.
However, after all of that, I got held up with starting to trade. Now I’m back looking at it again. On the cusp of taking on clients.
High-level situation
Why I'm looking at the tax thing again? I want to extract a lot more funds from the company that I'd planned. This is likely the case for the next 3 years — buying a home. Plus I have what I'll call deferred personal expenses from the past few years, so my personal cost base is going to be much higher than it ever was over that time frame. When I was looking at it last year this wasn't my plan. Back then I was happy with the idea of leaving most of the money sitting in the company account and taking out about €35k (upper limit of Ireland's lower 20% income tax rate) for my annual salary. Doing a complete 180 on that!
Tax aside, I'm not planning to be in Ireland for more than 6 months this year and likely going forward for the next 3-4 years. While Ireland has a low corporate tax base, personal taxes for company directors are pretty much the same as if I were an employee. I'm looking at it thinking the upside only kicks in if you want to pay into a pension or if you want to build something bigger than a company of one. And at the moment I dont want to do either of these things, but having a limited company structure is advantageous (as I may acquire some micro SAAS companies—more on that below).
Goal: This time around, I want to test the assumption that this is a binary decision between two locations. Given the pandemic limited travel stuff last year, I’d firmly landed on “where Im taxed, the company will be taxed—no ifs, no buts.” But as the potential difference in tax cost is a lot bigger I’m triple checking my options particularly as Im considering Portugal irrespective of tax. Even if the NHR thing doesn't work, it's still a place I might go to but if that were under their corp taxes plus regular income taxes then it might make no sense to become a tax resident there. I might only go there 4-5 months of the year in that case. As a final step I will speak to relatively experienced tax advisors in both Ireland and Portugal (and elsewhere if it comes into it).
I know I need to watch out for the "experts" who are happy to recommend shady options and the types who recommend what's easy for them rather than what's best for me and my company. The last part great tip from one of the poster's on this forum. Can't remember their name.
Note: What is unlikely to change (and this is more of an administrative thing I think...) is the incorporation. Already incorporated in Ireland and have a business bank account, and am not likely to disband and re-incorporate elsewhere. Although I may look at the Cyprus option as it came up repeatedly in my research. I was thinking If I went that route, I'd rebase the corporate tax there and not the incorporation. That way I could keep my legal docs and invoices as Ireland. Or I'd link them somehow. Would that still work for the Cyprus non-dom setup?
So, points to consider:
Overall, I think this might have flaws, but then Im here thinking if I was trying to avoid being personally taxed in Portugal and instead wanted to stay taxed in Ireland then someone would be like, “Sorry, you’d trigger a personally tax residency in Portugal” with that setup— haha, anyway I look forward to hearing what you guys think.
I’m not expecting definitive answers here but angles I may have missed.
PS. Some constraints:
There are some nuances I've forgotten, things I've likely conflated but curious to hear thoughts on this one.
*side-note: the 12.5% can be a bit misleading for small ("close") companies as there is a close company be surcharge bringing it up to circa 19%. I need to look into how it works more.
Well, tax is
Pre-warning: Long post, more like a case study with open questions. What can I say tax = lots of text...Have you seen the size of the books accountants and tax folk study for their exams?!!
Spent a fair chunk of my Saturday night reading through various posts. Haha, there's was one in particular where the thread seemed to drag on, 7 pages and then a spin-off thread! and Im not sure if the guy ever decided anything in the end. While the threads were valuable everyone's situation is different so hoping I can get some guidance from the community here before progressing.
There is no TL;DR version, though I will set out the headline level question.
The headline level question is: Is it plausible as a solo company shareholder to be personally tax resident in one jurisdiction while having the company be a corporate tax resident in another? I'm currently in Ireland, likely to move to Portugal.
You can stop here and give your view or you can read the detail.
****
Alright, let me get this one out of the way:
- Not looking for tax evasion advice, but I want to push the boundaries on how I'm thinking about it. I also want to learn more about setups that people are actually using in 2022 at some sort of scale (versus imaginary ones that haven't been tested/put into practice). In my case, the solution needs to be audit-proof/contestable.
- I will be getting official tax advice on this from a chartered tax advisor in Ireland and I will be speaking to someone in Portugal too, but ultimately want to go into those conversations warmed up. Part of that is sharing my thinking with you here!
Background: I looked at tax/incorporation matters last year before incorporating in Ireland ….at that time with plans to run the company from here and trade most of the time from here (or move back to the UK and do it from there). On the surface, it seemed like the UK was a lot better regarding paying yourself tax-efficiently via dividends, but at a certain scale (revenue-wise) Ireland’s lower corporation tax rate (12.5%*) seemed to work out better long term and I didn't have much interest in flip-flopping between jurisdictions. Plus even though it's a service business, the whole Brexit thing made me think Ireland might be a better option. The UK seems/seemed to be on the path to increasing corp taxes (but that's a whole other thread). So I went with Ireland despite its hopeless dividend tax setup. It was on the assumption I wouldn't take a big salary.
However, after all of that, I got held up with starting to trade. Now I’m back looking at it again. On the cusp of taking on clients.
High-level situation
- “Company of one”. Im the sole director and own 100% of the company
- Revenues will be ~€250,000+ with a reasonable low-cost base (to the end of 2022), so could be looking at 220-230k net of business expenses. A fair whack of that would be gobbled up by personal taxes if I took 75% of it out of the company as salary — like 75k in personal tax (based on 165k salary). Plus the ~12.5% on profits and possibly more due to surcharges for certain types of companies which Im sure my company falls into (need to investigate some more).
- Starts trading in ~two weeks.
- Service business B2B (international clients)
- I thinking of living between Portugal and Ireland (possibly in neither location longer than 6 months as likely to travel quite a bit the next two years, but I do need a proper base).
Why I'm looking at the tax thing again? I want to extract a lot more funds from the company that I'd planned. This is likely the case for the next 3 years — buying a home. Plus I have what I'll call deferred personal expenses from the past few years, so my personal cost base is going to be much higher than it ever was over that time frame. When I was looking at it last year this wasn't my plan. Back then I was happy with the idea of leaving most of the money sitting in the company account and taking out about €35k (upper limit of Ireland's lower 20% income tax rate) for my annual salary. Doing a complete 180 on that!
Tax aside, I'm not planning to be in Ireland for more than 6 months this year and likely going forward for the next 3-4 years. While Ireland has a low corporate tax base, personal taxes for company directors are pretty much the same as if I were an employee. I'm looking at it thinking the upside only kicks in if you want to pay into a pension or if you want to build something bigger than a company of one. And at the moment I dont want to do either of these things, but having a limited company structure is advantageous (as I may acquire some micro SAAS companies—more on that below).
Goal: This time around, I want to test the assumption that this is a binary decision between two locations. Given the pandemic limited travel stuff last year, I’d firmly landed on “where Im taxed, the company will be taxed—no ifs, no buts.” But as the potential difference in tax cost is a lot bigger I’m triple checking my options particularly as Im considering Portugal irrespective of tax. Even if the NHR thing doesn't work, it's still a place I might go to but if that were under their corp taxes plus regular income taxes then it might make no sense to become a tax resident there. I might only go there 4-5 months of the year in that case. As a final step I will speak to relatively experienced tax advisors in both Ireland and Portugal (and elsewhere if it comes into it).
I know I need to watch out for the "experts" who are happy to recommend shady options and the types who recommend what's easy for them rather than what's best for me and my company. The last part great tip from one of the poster's on this forum. Can't remember their name.
Note: What is unlikely to change (and this is more of an administrative thing I think...) is the incorporation. Already incorporated in Ireland and have a business bank account, and am not likely to disband and re-incorporate elsewhere. Although I may look at the Cyprus option as it came up repeatedly in my research. I was thinking If I went that route, I'd rebase the corporate tax there and not the incorporation. That way I could keep my legal docs and invoices as Ireland. Or I'd link them somehow. Would that still work for the Cyprus non-dom setup?
So, points to consider:
- I’m currently resident in Ireland. Dont think Im a tax resident as I haven’t paid myself or earned any income since moving here (it's a long story). I thought registering the company here would have triggered my tax residency here (over and above the length of time I've been here), but seemingly not based on a call with an accountant. And yes, Im an EU passport holder—Irish national. Perhaps safe to assume for the purposes of this that Im a tax resident at the moment in Ireland.
- It's a service business trading B2B internationally (30% UK, 30% Europe, 20% US, 20% rest of world). Quite possible I could have no clients in both Ireland and Portugal (would that matter?)
- 95% of the services will be conducted online. Zoom calls and the like.
- I’m loosely (at this point) planning to move to Portugal. I dont think this will work now, but my original idea was that I would register as a freelancer there and become a non-habitual resident i.e. paying the 20% tax rate. But I suspect the headline 20% is misrepresenting reality, as isn't there a fair whack social security on top, maybe it's deferred for a year?
- I was looking at booking a call via an intermediary who connects you with Portuguese experts in this area. I won't name them as think no links etc are the rules but they had a big-ish marketing campaign before Christmas in tech nomad communities and went viral on Twitter. I then heard about it on a podcast. Thats what got me looking at this again. What I found a bit unnerving about that intermediary is they make all the upside claims about the NHR but there are so many caveats. And they dont tell you who you will speak to, an accountant or a lawyer (using the term generally) isn't necessarily a tax advisor! I'd want to vet who I talk to on this!
- Clients would be invoiced by the company in Ireland.
- The company would in turn contract me as an independent contractor in Portugal to provide the services to its clients i.e. I’d be distinguishing my role as director and my role as the practitioner providing services to clients on behalf of the company. The key here is that with the latter, I would not be doing that as an employee of the company but as an independent contractor (so should avoid paying social security on the double).
- The big question is, is this even plausible when the authorities look at it? Want to be on the right side of things. Of course, I would have the appropriate contracts drawn up to reflect all this i.e. between clients and the company, between the company and I. But my question is: As a company of one, is it a case of where you live = where the company is taxed — no matter what? In reality, I’d be living in both jurisdictions but would have more of a foot in Portugal should I go through with this.
- I would be renumerated directly by the company for my directorship duties only. This would be taxed in Ireland per this (at least I think it would). Then separately, the freelance income would come via the service agreement I have with the company.
- Overall, the company would be taxed for corporation tax in Ireland and I would mostly be taxed in Portugal apart from for my directorship duties (per the point above).
- I would be in Ireland a fair bit. Besides the company being incorporated there, its presence in Ireland would be reflected in:
- my presence there periodically in my capacity as director. Any freelance work I’d carry out from there would be incidental.
- office space…albeit not sure if a hot desk would suffice (...so would have an Irish trading address).
- banks account/insurance arrangements (at company level) — already have them set up
- will have other suppliers based in Ireland e.g. accountant, tax advisor
- may have some clients in Ireland (most likely will and not just for tax reasons, do want to work with some clients here)
- highly unlikely to have any staff in Ireland and not keen on adding another director just to make this work. Everyone I hire is a gig worker or a contractor. The closest permanent staff member is likely to be a virtual assistant (but again a contractor).
- no board meetings (eh...company of 1), but strategic decisions would be made from Ireland. Key company meetings would be done from there, even though half of them would likely be Zoom calls with advisors etc. based in Ireland etc. The laws/requirements are so detached from the reality of how businesses are run these days...
- Regarding the freelancing position, I may in turn work with one or two other companies (that are similar to the one I am the sole shareholder of). I would be a freelancer through these other organisations alongside working as a freelancer through my own company. To me, this lends more legitimacy to the set-up (a really interesting article here of a case in the UK, the second half is particularly interesting).
- On the legitimacy point, not sure if it is plausible. From another forum where someone was asking about invoicing their own company while living and being tax resident in Ireland, someone responded "...n which case the invoice would have to be raised by the director for goods or services provided as part of a trade entirely separate and distinct from the activities of the company, and at an arms-length value. This would be very difficult to prove....I mean, consider what the function of a director is - they manage and direct the affairs of the company, make judgements and decisions. The financial reward for this is in the form of salary, fees, bonuses, all subject to PAYE. how can you then turn around and say, "well I didn't actually do anything in my capacity as director to merit a salary from the company, but in my capacity, as a "consultant" I provided 100k worth of wisdom to the company...". I don't see how that can stand up to objective scrutiny." Super interesting, but then I'm not proposing that I would pay myself nothing for the directorship duties ...no idea if it makes a difference that I would be a personal tax resident in Portugal...assuming directorship duties would be taxed in Ireland irrespective.
- Tax matters aside, I thought about doing the whole "work through another organisation thing" but I never wanted to do that through my company, always thought it would make more sense to do as a self-employed contractor (that was more of branding than tax thing i.e. keeping direct (to client) services separate from indirect (to client) services). So what I'm getting at is I can argue why this structure is not just a tax thing.
Overall, I think this might have flaws, but then Im here thinking if I was trying to avoid being personally taxed in Portugal and instead wanted to stay taxed in Ireland then someone would be like, “Sorry, you’d trigger a personally tax residency in Portugal” with that setup— haha, anyway I look forward to hearing what you guys think.
I’m not expecting definitive answers here but angles I may have missed.
PS. Some constraints:
- Need to be able to take payments via Stripe
- Strong preference for not killing off the Irish company.
- Need a company. I considered sacking off the company and going to Portugal under the NHR and working as a freelancer, but I want to put some distance between me and clients, plus as revenues build I may look at acquiring some micro saas products/companies that I'd integrate (would use freelancers for product work while I build distribution) and then flip after 6-12 months so definitely wouldn't want this is all tied up as personal assets.
- Before reading the forum I was highly unlikely to consider going the Georgia, Cyprus, Malta, Bulgaria, Romania, Albania routes re company setups but I might be open to it if I could maintain Irish company in my legal docs and invoices. I'm not looking to achieve perfectly optimised tax rates, as tax is just one angle. I also, have my eye on if I ever exited the business i.e. sold it. While it’s a company of one today, I may hire people and then exit at some point. The fact that I’ve got a connection with Ireland also makes me more comfortable from a stability standpoint.
- On the personal tax front, I dont see a reason to look beyond Portugal. While I might be travelling a fair chunk of the year, Portugal seems like a great option as a base (including tax base).
There are some nuances I've forgotten, things I've likely conflated but curious to hear thoughts on this one.
*side-note: the 12.5% can be a bit misleading for small ("close") companies as there is a close company be surcharge bringing it up to circa 19%. I need to look into how it works more.
