tax residency, double treaty, CRS... is my set up workable?

[osz90]

Hi all,

thanks for taking the time to give feedback on my situation.

I live in the Nertherlands for 4 years already (Hungarian passport). I don't want to relocate, I have things tieing me here. (on advice, I did consider becoming a "ghost" in NL, but would rather avoid the hassle of that if possible)

My professional circumstances have changed recently, where I am not fulltime employed anymore since March and have been freelancing ever since. I still have a couple of outstanding, significant invoices that I haven't sent to my clients yet, because I haven't found the ideal set up for optimal tax purposes..

So I have outstanding invoices I need to bill and also, going forward this is what I'll be doing:
1. freelancing (digital services)
2. start an agency (dutch BV) with a local partner

My main priority is to get invoice those outstanding significant bill tax efficiently (and any future freelancing). I Understand that I'll most likely have to pay local taxes on my dutch BV.

I've been looking at registering a company in Bulgaria. I came across this company nomoretax.eu run by Iven de Hoon, has anyone heard of him / done business with him?
He is saying it will be easy to register a company in Bulgaria, get a bank account, get a property rental contract and therefore become tax resident. (Cost: €6k)
Then pay myself in dividends (5% tax) and the company pays corporate tax (10%).

I have concerns...
Mostly about CRS - he claims that the Bulgarian banks won't be sharing my information with NL since in their eyes I am a Bulgarian tax resident (bank account, company, rental contract) - I guess I can imagine that, but would rather make sure. Does anybody know anything about this, any experience with it? Is it really possible that NL won't find out?

He also claims that even if NL finds out, due to the double tax treaty between NL and Bulgaria, I will still be fine to pay income tax on the dividends from the Bulgarian company in Bulgaria... since my permanent address and main point of interest (company) are in Bulgaria. This is super dodgy in my opinion... thoughts?

If you think all of the claims are bulls**t (I can imagine..), do you have any suggestions / recommendations on what next steps I should take, what solutions I should research?
I am also interested in consultation from an experience, "creative" accountant who can advise me on this in-depth and execute the plan he/she creates for me.

Thanks in advance!!

 

[Spinat]

How would it be if someone just billed your company and send you the money for a percentage. I.e. I send you an invoice from a legit company, you make the payment, I take a percentage (we will agree to) and send the money to an account of your choice or in bitcoins.

 

[osz90]

How would it be if someone just billed your company and send you the money for a percentage. I.e. I send you an invoice from a legit company, you make the payment, I take a percentage (we will agree to) and send the money to an account of your choice or in bitcoins.

i don't see how that's helping,I will have "unaccounted for" money in my bankaccount..

 

[Spinat]

you make a new invoice from the new company to get the money in there. Otherwise there is no way to get the money out of your BV (Dutch) company without to pay tax.

 

[osz90]

you make a new invoice from the new company to get the money in there. Otherwise there is no way to get the money out of your BV (Dutch) company without to pay tax.

ok yes i see, but as I wrote above, my priority is finding a sustainable solution for my freelancing activities (past and future), not the dutch BV

 

[CaptK]

ok yes i see, but as I wrote above, my priority is finding a sustainable solution for my freelancing activities (past and future), not the dutch BV

Like @blue said that is your only real option as you are tied to NL. You clearly live in NL so you can't prove otherwise with a rental contract. Credit card, telephone bill's, bank statements will prove otherwise.

 

[JustAnotherNomad]

I’ve said it many times before, I’ll say it again:
If you don’t want to move to a low-tax country, you can choose 2 out of 3:
[ ] cheap
[ ] legal
[ ] big tax savings

Take your pick.

You could also talk to @Gediminas - he might have some contacts for NL. But the general idea above still holds true.

 

[osz90]

I’ve said it many times before, I’ll say it again:
If you don’t want to move to a low-tax country, you can choose 2 out of 3:
[ ] cheap
[ ] legal
[ ] big tax savings

Take your pick.

You could also talk to @Gediminas - he might have some contacts for NL. But the general idea above still holds true.

I don't mind investing in this if it's for the long run, so legal + big tax savings can work.. do you have a suggestion?
I am in touch with Gediminas already thanks!

 

[JustAnotherNomad]

A typical idea would be to build structure in a low-tax country. You set up a company for example in Bulgaria or Estonia and that company invoices your company and the company pays its taxes in Bulgaria/Estonia. You only pay personal income taxes in the Netherlands for any money you take out of the company. In fact, Estonia only has corporate income tax on distributed profits, so the company also wouldn’t pay any taxes, as long as you keep the profits in the company.

But for that to work, you need substance. You need an office, employees. There must be other reasons than just tax savings for structuring your business like that.

 

[osz90]

A typical idea would be to build structure in a low-tax country. You set up a company for example in Bulgaria or Estonia and that company invoices your company and the company pays its taxes in Bulgaria/Estonia. You only pay personal income taxes in the Netherlands for any money you take out of the company. In fact, Estonia only has corporate income tax on distributed profits, so the company also wouldn’t pay any taxes, as long as you keep the profits in the company.

But for that to work, you need substance. You need an office, employees. There must be other reasons than just tax savings for structuring your business like that.

What you are saying about Estonia, there are solutions for that I believe, eg. Xolo can "provide" the substance. And (maybe I'm wrong, but) maybe your company only pays tax on distributed profit, but *eventually* you will want to take the money out of the company, so one way or the other you will pay that corporate tax (and then the income tax) - or do you mean that I should wait with taking it out until I can relocate my tax residency to a cheap country?

I've been looking into a low-tax country structure, this is the comparison BG vs NL as far as I can tell
(Estonia's corporate tax is 21% so higher than BG)

If I have a company in Bulgaria, I would pay myself in dividends, these are the taxes applicable:
Let's calculate with €100k
Corporate tax 10% (in BG) €10k
Dividend tax 5% (in BG) €5k
Income tax on foreign income 30% (in NL) €25.5k
Total left: €59.5k

--------

If I have a company in Netherlands, I first have to pay myself a director's salary (min.75% of the total company profit), these are the rates:
€100k
75% of the €100k is €75k to pay out as salary
Income tax calculated here: Dutch Income Tax Calculator
Left: € 47,615

€25k to pay out as dividends
Corporate tax 19% (in NL) €4.75k
Dividend tax 15% (in NL) €3.75k
Income tax on local income 30% (in NL) €4.95k
Left: €11.55k
Total left: €47.626

I don't know how correct is this though, validating it...

 

[JustAnotherNomad]

What you are saying about Estonia, there are solutions for that I believe, eg. Xolo can "provide" the substance.

No, it wouldn’t work with Xolo. Xolo is basically a payment provider, to put it in a simple way.

And (maybe I'm wrong, but) maybe your company only pays tax on distributed profit, but *eventually* you will want to take the money out of the company, so one way or the other you will pay that corporate tax (and then the income tax) - or do you mean that I should wait with taking it out until I can relocate my tax residency to a cheap country?

Yes, you

1. Either wait until you have moved to a low-tax country: Cyprus would be a good idea because EU regulations basically mean that the Netherlands can’t charge exit tax. That would be different if you moved to Dubai.
Or:

2. Simply keep the profits in the company and reinvest them. Since you’re not paying tax, it’s easier to build up capital due to compounding interest. I believe Latvia has the same system now and slightly lower tax rates than Estonia.

But you can also go for a country that does charge CIT, but a low rate. And in the EU, there usually shouldn’t be withholding tax on dividends.
So you just find a country to build substance, pay the CIT, then pay out dividends (should be tax free in the country the company is located in), and then you pay Dutch capital gains tax on the dividends. Done.

 

[user9823671]

What you are saying about Estonia, there are solutions for that I believe, eg. Xolo can "provide" the substance. And (maybe I'm wrong, but) maybe your company only pays tax on distributed profit, but *eventually* you will want to take the money out of the company, so one way or the other you will pay that corporate tax (and then the income tax) - or do you mean that I should wait with taking it out until I can relocate my tax residency to a cheap country?

You select
legal [x]
big tax saving [x]

So no cheating, your business MUST be managed and run from this country. A room with a secretary will not convince the NL authorities the business is run AND managed from Estonia. If you are the boss and you are running the company from NL, even if the workers in in Estonia, the company is run from NL. This will NOT be cheap, but will give a TAX SAVING. But whether that tax saving is more than the cost of the setup is another matter

You may get away with less solid setup, but ideally you need to remove yourself from the day to day management aspect. What the legal definition is, I don't know, but I imagine it is murky and end of the day, depends on the auditor should you ever get audited

 

[JustAnotherNomad]

But you can also go for a country that does charge CIT, but a low rate. And in the EU, there usually shouldn’t be withholding tax on dividends.
So you just find a country to build substance, pay the CIT, then pay out dividends (should be tax free in the country the company is located in), and then you pay Dutch capital gains tax on the dividends. Done.

Actually this is probably less wise because then you’d at least pay the CIT in the country where the business is taxed + capital gains tax in the Netherlands + capital gains tax again on any investment.
It would be better to keep the money in the company (or a holding company), invest it, and then finally pay it out, so you only pay the taxes once.

 

[Snakes6369]

You select
legal [x]
big tax saving [x]

So no cheating, your business MUST be managed and run from this country. A room with a secretary will not convince the NL authorities the business is run AND managed from Estonia. If you are the boss and you are running the company from NL, even if the workers in in Estonia, the company is run from NL. This will NOT be cheap, but will give a TAX SAVING. But whether that tax saving is more than the cost of the setup is another matter

You may get away with less solid setup, but ideally you need to remove yourself from the day to day management aspect. What the legal definition is, I don't know, but I imagine it is murky and end of the day, depends on the auditor should you ever get audited

It's not about the day to day management, its about the strategic management of the company. If you travel to estonia every month and have meetings over there with the local personal and discuss strategic/tactical things and instruct them while you are in estonia and make all key commercial decisions in estonia then the company is located in estonia and not in NL. You will have to make minutes of every meeting so you have evidence that the company is run from estonia.

A company can have more places of management, but it can only have one place of effective management, and the last one is where the company is located.
But be aware, if you also keep doing 'regular' work for the estonian corporation in the Netherlands, the dutch tax authorities could argue that you have a permanent establishment in NL.
This will typically occur when you are representing the estonian company while you are in NL.

 

[JustAnotherNomad]

Obviously it’s also about the day to day management. You can’t hire a director for €500 a year and say you meet him once a month, so it’s a local company. That’s not how it works.
You need to have local people on the ground actually managing the operations.
Yes, you could probably just have customer support staff there and then if you fly there once a months for documented meetings, it might work (but I have no personal experience with that). But you’d have to be able to convince them that you’re not effectively running everything from the Netherlands.

 

[Snakes6369]

Some jurisdictons require a local director (for example Switzerland). You can also be the director of the estonian company as a NL citizen. Of course the local personal has to do daily operations i thought this was the case.

As a freelancer the best way to dodge taxes is to move to another country with a low tax regime.

 

[Snakes6369]

Obviously it’s also about the day to day management. You can’t hire a director for €500 a year and say you meet him once a month, so it’s a local company. That’s not how it works.
You need to have local people on the ground actually managing the operations.
Yes, you could probably just have customer support staff there and then if you fly there once a months for documented meetings, it might work (but I have no personal experience with that). But you’d have to be able to convince them that you’re not effectively running everything from the Netherlands.

If day to day management means making strategic/tactical decisions all the time combined with operational decisions then its obviously important. If day to day managment is just operational work then its different.

 

[JustAnotherNomad]

I think we agree.
What’s important is that if work is done in the Netherlands, there may also be a taxable permanent establishment. So it’s important to really keep things separate.

 

[osz90]

Thank you for all the input!!

Just a last check that I'm totally getting it right, my plan now is to
1. set up a Bulgarian company (have an official address there, etc.), invoice my freelance work to that company, use it as a "savings account" (maybe reinvest the money?)
2. in the meantime still do business in the Netherlands through my dutch BV (maybe send an invoice from my Bulgarian company to te dutch BV?)
3. eventually move away from the Netherlands (how long for is necessary? 6 months? 1 year?), register in Bulgaria as a tax resident (rental contract etc.), pay out the dividends from my Bulgarian company
4. return to the Netherlands/move to an other country with my now legally taxed income

 

[JustAnotherNomad]

@osz90 What kind of substance will you have in Bulgaria? Why Bulgaria?