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

[osz90]

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

Bulgaria:
Corporate tax 10%
Dividend tax 5%
Personal income tax 10%

I will co-own a Bulgarian company with my brother who will also become a Bulgarian resident and tax resident.

 

[osz90]

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

But more then open to alternatives, this what I have come up with after my research but yeah.. not a super straight forward topic in terms of what's best/easiest/possible if at all.. so definitely curious if you have an other idea!

 

[JustAnotherNomad]

I will co-own a Bulgarian company with my brother who will also become a Bulgarian resident and tax resident.

I guess that can work. What’s good is that you would have substance and non-tax reasons for setting up the company there.

But it’s still a grey zone sind you mentioned freelance work. The Dutch tax authorities may ask who actually did the work and where. And then you must be able to prove that it wasn’t done in the Netherlands and “belongs” to Bulgaria. You can’t do the work from your home in the Netherlands and have your brother send the invoice. Because then there would (most likely) be permanent establishment in the Netherlands. Be prepared that tax authorities may demand lots of documentation.

Considering that the taxes in Bulgaria are lower, you could even check if your brother could take out a salary or dividends from the company and pay tax - and then gift you some money each year. I don’t know the gift tax rules in the Netherlands, but maybe he can just gift you 20k for your birthday every year, without you having to pay tax on it.

But if you send invoices from the Bulgarian company to the Dutch company, beware of transfer pricing restrictions, keep an arm’s length distance. In other words, find a good tax lawyer in the Netherlands and make sure that you keep some profits in the Netherlands. Don’t only use the Dutch company as a pass-through company where the Bulgarian company sucks out all the profits.
Better yet, do not do business between the Bulgarian and the Dutch company at all, if that’s a possibility.

 

[osz90]

I guess that can work. What’s good is that you would have substance and non-tax reasons for setting up the company there.

But it’s still a grey zone sind you mentioned freelance work. The Dutch tax authorities may ask who actually did the work and where. And then you must be able to prove that it wasn’t done in the Netherlands and “belongs” to Bulgaria. You can’t do the work from your home in the Netherlands and have your brother send the invoice. Because then there would (most likely) be permanent establishment in the Netherlands. Be prepared that tax authorities may demand lots of documentation.

But I won't be 'personally' invoicing them, I will use the company to send the invoices. I mean it's not uncommon to outsource work to other countries, so would they look into it that deep as to investigate if one of the owners of the company lives in the Netherlands?

But if you send invoices from the Bulgarian company to the Dutch company, beware of transfer pricing restrictions, keep an arm’s length distance. In other words, find a good tax lawyer in the Netherlands and make sure that you keep some profits in the Netherlands. Don’t only use the Dutch company as a pass-through company where the Bulgarian company sucks out all the profits.
Better yet, do not do business between the Bulgarian and the Dutch company at all, if that’s a possibility.

Yeah so I would be co-owning the Dutch BV too, so definitely wouldn't be taking all the profit. Again, I could invoice them as a 'service provider' I'm guessing? (but, yeah I am really guessing..)

 

[JustAnotherNomad]

But I won't be 'personally' invoicing them, I will use the company to send the invoices. I mean it's not uncommon to outsource work to other countries, so would they look into it that deep as to investigate if one of the owners of the company lives in the Netherlands?

Didn’t you say you want to stay legal? Doing this legally means that you (most likely, I don’t know the Dutch law) have to declare to the Dutch authorities that you have opened a company in Bulgaria with your brother. Even if you don’t have to declare it, they will probably be informed by the Bulgarian authorities.
You may get lucky and nobody will ever care about you. But if you want things to be legal and your setup to withstand an audit, then you need to really plan this well and have documentation about everything. Of course the risk is much lower if there’s no connection between the Bulgarian company and your Dutch company. But if you invoice your own Dutch BV from the Bulgarian company that’s also owned by you, prepare for many, many questions during an audit.
The risk will probably also be lower if you don’t receive any money from the Bulgarian company. But again, when you receive dividends, you will definitely have to declare them, and again then the Dutch authorities may start asking questions about your involvement.
Whatever you do, make sure you have good Dutch advisors who have done that before.

 

[osz90]

Didn’t you say you want to stay legal? Doing this legally means that you (most likely, I don’t know the Dutch law) have to declare to the Dutch authorities that you have opened a company in Bulgaria with your brother. Even if you don’t have to declare it, they will probably be informed by the Bulgarian authorities.
You may get lucky and nobody will ever care about you. But if you want things to be legal and your setup to withstand an audit, then you need to really plan this well and have documentation about everything. Of course the risk is much lower if there’s no connection between the Bulgarian company and your Dutch company. But if you invoice your own Dutch BV from the Bulgarian company that’s also owned by you, prepare for many, many questions during an audit.
The risk will probably also be lower if you don’t receive any money from the Bulgarian company. But again, when you receive dividends, you will definitely have to declare them, and again then the Dutch authorities may start asking questions about your involvement.
Whatever you do, make sure you have good Dutch advisors who have done that before.

Definitely no lawyer over here, just trying to piece together the puzzle. As i said, my circumstances have changed recently so quite new to the whole tax planning idea. To be honest, I'd rather pay someone decent for a consultancy but I can't find many who don't have country-specific interests of their own. Do you maybe know someone?

But back to what you said, its fine for me to not invoice my Dutch BV. And also fine if I don't receive money from Bulgaria -until I leave the Netherlands, 'move to' Bulgaria and pay myself dividends.

Looking for a good advisor.. tips welcome

 

[osz90]

also looking at Georgia, since they are not part of CRS

 

[JustAnotherNomad]

To be honest, I'd rather pay someone decent for a consultancy but I can't find many who don't have country-specific interests of their own. Do you maybe know someone?

I thought @Gediminas might be able to recommend someone for the Netherlands. Other than that, I don’t really know.

also looking at Georgia, since they are not part of CRS

With a legal setup, you don’t have to worry about CRS. If you can set up something like what you mentioned, with your brother actually living in Bulgaria, that would be a lot better than trying to hide from the Dutch authorities and risking jail time. Especially if we’re not talking millions. I’m sure you could deduct things like travel expenses, too.

 

[user9823671]

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

who is doing this freelance work? You? In the NL?
Who is going to be at this Bulgarian office?

I think you need to pay and go speak to a professional as I have doubts about this plan being legal / withstand an audit

 

[osz90]

who is doing this freelance work? You? In the NL?
Who is going to be at this Bulgarian office?

I think you need to pay and go speak to a professional as I have doubts about this plan being legal / withstand an audit

I (=our company) would be doing the freelance work in NL (and other countries) and my brother (also doing freelance work to various clients) is in the Bulgarian office

I think you need to pay and go speak to a professional

agreed

 

[JustAnotherNomad]

I (=our company) would be doing the freelance work in NL (and other countries) and my brother (also doing freelance work to various clients) is in the Bulgarian office

That is the issue. You can’t do the work in the Netherlands. Any work you do in the Netherlands would be taxed as a Dutch BV.
Maybe it will be a bit easier for you since you’re not a Dutch citizen, but that’s the general risk.

 

[osz90]

I work & advice on this kind of situations on daily basis and deal with NL Tax as well. I can look in to the situation and give you my preliminary assessment.

Is the situation and the question still actual?

yes it is! and that would be great, I am very interested, how shall I get in touch with you?

 

[Jade33]

Following bc also interested in bg set up.
since these aren't private companies, wouldn't they easily see that you own both the dutch and bg company?
Iven is a belgium lawyer, I saw his page. 6000 euro seems high for a company formation.
I researched plenty of companies and quote around 1000 euro. of course in Sofia you will pay more

 

[JustAnotherNomad]

since these aren't private companies, wouldn't they easily see that you own both the dutch and bg company?

Yes. Dutch law probably requires you to disclose the shared ownership as well.

 

[osz90]

Yes. Dutch law probably requires you to disclose the shared ownership as well.

Yeah indeed, a local advisor confirmed that.

so, in light of that, does anybody see a suitable alternative? Any solution at all? Or shall I just resign myself to the dutch tax system?

 

[JustAnotherNomad]

It’s not necessarily a problem if your brother really lives there. Just make sure you have good advisors and are very up front about it with the authorities.

 

[HeidiInTheAlps]

I'm also following this closely. I'm paying so much Tax in NL, providing consulting services, and mostly in the Netherlands, but that will start to change, to where I'll be receiving royalties income around 200K a year, and resale of digital products, maybe another 75K a year, while I continue invoicing for consulting.

My thought is to leave the consulting income in NL, but the other two bits I want to do something creative with. Sadly, unlike you, I have a dreaded 2nd passport from the USA. Taxing on worldwide income is such crap! Hate it.

But also, thinking of properly changing tax residency, as it is, I spend several months a year in the US, and could make that more - after covid passes, or relocate to Bermuda where my sister just moved. With her on the ground in Bermuda, I could get something set up there.

From the two boxes above, I choose legal and low tax, doesn't have to be cheap, just affordable.

 

[osz90]

It’s not necessarily a problem if your brother really lives there. Just make sure you have good advisors and are very up front about it with the authorities.

Good advisers are part of the question, how do you know who to trust with advice?

I'm also following this closely. I'm paying so much Tax in NL, providing consulting services, and mostly in the Netherlands, but that will start to change, to where I'll be receiving royalties income around 200K a year, and resale of digital products, maybe another 75K a year, while I continue invoicing for consulting.

My thought is to leave the consulting income in NL, but the other two bits I want to do something creative with. Sadly, unlike you, I have a dreaded 2nd passport from the USA. Taxing on worldwide income is such crap! Hate it.

But also, thinking of properly changing tax residency, as it is, I spend several months a year in the US, and could make that more - after covid passes, or relocate to Bermuda where my sister just moved. With her on the ground in Bermuda, I could get something set up there.

From the two boxes above, I choose legal and low tax, doesn't have to be cheap, just affordable.

our situation is not quite the same but some similar aspects indeed. Let me know if you discover some hidden gem of a solution..
I’ve got a new solution offered by someone from the forum: he suggests a UK LLC in his name with a bank account. Only I have access to the bank account. I invoice (some of) my work to that LLC. He ensures by the end of the year the company makes a loss, therefore no corporate tax. From this company send all the money to a UAE bank account, eventually move there for 6 months to pay it out.

 

[JustAnotherNomad]

He ensures by the end of the year the company makes a loss, therefore no corporate tax.

How is he going to do that, especially when only you have access to the bank account?
Basically you’re just shifting the risk from your country to the UK. And from yourself to someone you don’t know.

 

[HeidiInTheAlps]

@osz90 if you find go counseling in this area, I'll need the same advice