Tax residency for digital nomad

[jonathanv]

Hi all,

I'm looking for the best combination to run a single person consulting business while truly being a digital nomad. I am currently sailing from country to country with no intention of staying anywhere more than maybe 4 months. I will sail in Europe (Spain, Portugal) this coming year and then cross the Atlantic to the Caribbean and then on through to the Pacific.

Goal
My goal is to earn an income to extend my travel indefinitely. I won't be returning to my previous home country for at least 2 years and maybe not indefinitely.

Work
My work is primarily remote, and my main client in the near future will be a US business but I won't actually be performing any services there. There may be some in-person consulting or training in Europe.
I won't be working full time but expect an income of around US 50.000.
I'd prefer to form a business that has limited management cost and effort.

Background
- My previous residency was The Netherlands, and I still own a house there which is rented out.
- I have dual citizenship from NL and UK
- I have 'written out' of the Dutch registry
- I used to have a business registration as self-employed but that was cancelled when I left The Netherlands
- I have the Estonian e-residency but no current business registration in any country

My main questions
- Would it make sense to gain a tax residency in a low-tax country
- Where could I gain tax residency given my travel pattern?
- What would be the best country to form a business in combination with the above giving limited cost and management effort?
- Any other suggestions?

What I have considered:
- I could convince the NL to see me as tax resident and use a US LLC as my business vehicle. If I understand correctly, the US business would be a passthrough entity and I'd declare the income in the Netherlands as I would when I was self-employed
- Form an Estonian OU and not paying out any income or dividend, but this is likely an issue if The NL still sees me as a tax resident
- Stay 6 months+ in Portugal to get my NHR for this year so that the NL IRS won't see me as tax resident, but this would only hold me over for the current year, after that I wouldn't be eligible anymore

I'd welcome your thoughts and creativity!

 

[JohnnyDoe]

Take residence in the Dominican Republic and use a U.S. LLC.
You should also better sell your house in the NL and buy or rent a small place in the DR, which can come handy for storing stuff that you can’t take onboard and create substance.

 

[Businessguy32]

No need to sell his house if it is fully rented and the tax is fully paid on the rental income. Only liability there is if it is vacant for certain periods

 

[scooterguy]

In both UK and NL, self-employment annual income of 50K results in approximately 10K in taxes.

I think that it doesn't make much sense to get too sophisticated setting up companies and residencies in other countries, with such a relatively low tax burden. Even if you set something up in a tax-free country, expect to pay at least 10K a year in miscellaneous costs, plus you'll get headaches that you certainly don't need right now.

I'd say you travel the world, and reassess your situation once you are earning at least 100K, or once you discover a place where you'd like to set up camp.

 

[jonathanv]

In both UK and NL, self-employment annual income of 50K results in approximately 10K in taxes.

I think that it doesn't make much sense to get too sophisticated setting up companies and residencies in other countries, with such a relatively low tax burden. Even if you set something up in a tax-free country, expect to pay at least 10K a year in miscellaneous costs, plus you'll get headaches that you certainly don't need right now.

I'd say you travel the world, and reassess your situation once you are earning at least 100K, or once you discover a place where you'd like to set up camp.

Thanks for your input. My main challenge is the grey area caused by not being an actual resident in The Netherlands. I'll explain:

When I left The Netherlands, my self-employment registration at the chamber of commerce was automatically cancelled and to be able to maintain it, I need to provide services in The Netherlands and maybe even have a business address, which I don't plan on doing. Without a business registration, I can't contract with my key client in the US. As such, I need some kind of business registration. If I register an Estonian OU or a US LLC and The Netherlands sees me as a director of a corporation (DGA in Dutch terms), I end up in a far more complex deal as the Dutch IRS tries to tax company directors at 52k/year minimum.

As you suggest, the easiest solution would be to get back my chamber of commerce registration as self-employed but I don't know how strict they are on the requirement of needing to provide services in The Netherlands. It might also be hard to complete other requirements (business address and proof of residency of where I live abroad). Not having a residence makes things way more complex.

 

[fshore]

Are you or are you not tax resident in the Netherlands?
If not then I wouldn't get another one. Find an address you can use with banks.

 

[Mike Forman]

As mentioned above by fshore, you should get somewhere a residence of choice depending on the fiscal and living environment you prefer and ofcourse banking options.

If you don't do that you might have issues with the Dutch authorities and it will be a legal battle if you should pay taxes or not. Although chances are low if you break all ties in the Netherlands, including close bank accounts, real estate, credit cards,..

 

[jonathanv]

Are you or are you not tax resident in the Netherlands?
If not then I wouldn't get another one. Find an address you can use with banks.

It depends. I was previously a tax resident in The Netherlands and I have indicated to the government that I have moved out of The Netherlands but two things can happen:
1. I never hear from them again;
2. They still consider me a tax resident until I prove otherwise.

Both have happened to people like me, sailing with no fixed residence. They might say my center of vital interest is still The Netherlands as I still have family there, I own a house, have bank accounts etc. But I also know someone who has exactly the same circumstances and has been gone since 2019 and not heard a peep from the Dutch IRS.

Personally, I'd like to be ahead of the game and not wait and see what they decide. That's why I am asking about options to define my tax residency somewhere else.

As mentioned above by fshore, you should get somewhere a residence of choice depending on the fiscal and living environment you prefer and ofcourse banking options.

If you don't do that you might have issues with the Dutch authorities and it will be a legal battle if you should pay taxes or not. Although chances are low if you break all ties in the Netherlands, including close bank accounts, real estate, credit cards,..

Thanks, my question is where? Given my travel pattern there aren't many countries where I'd qualify. Portugal seems like the most attainable on short-notice as its part of our travel plans.

 

[jonathanv]

It depends. I was previously a tax resident in The Netherlands and I have indicated to the government that I have moved out of The Netherlands but two things can happen:
1. I never hear from them again;
2. They still consider me a tax resident until I prove otherwise.

Both have happened to people like me, sailing with no fixed residence. They might say my center of vital interest is still The Netherlands as I still have family there, I own a house, have bank accounts etc. But I also know someone who has exactly the same circumstances and has been gone since 2019 and not heard a peep from the Dutch IRS.

Personally, I'd like to be ahead of the game and not wait and see what they decide. That's why I am asking about options to define my tax residency somewhere else.


Thanks, my question is where? Given my travel pattern there aren't many countries where I'd qualify. Portugal seems like the most attainable on short-notice as its part of our travel plans.

This has got me thinking, it may even be enough just to get a Portuguese NIF for the Dutch IRS to see me as definitively gone. That would be easy for me to get.

What if I were to combine Portugal with an Estonian OU? Could I keep all income in the Estonian OU (no tax on reinvested or retained profit) until I arrive or settle in a better location with limited tax on dividends?

But in that case, what about effective place of management / permanent establishment rules?

 

[JimBeam]

Maybe Cyprus could work for you based on 90 day rule.
You would need to rent or buy something there to make some substance.

Generally, you would have to spend there at least 90 days but my guess is that if you leave the country by a boat (and not by plane) you might not get an exit stamp (like if you leave the island by plane) so that might be another benefit to you.

 

[FantomOffshore]

No need to sell his house if it is fully rented and the tax is fully paid on the rental income. Only liability there is if it is vacant for certain periods

Generally speaking, the Dutch IRS views owning a house in The Netherlands as quite relevant in qualifying whether you still have enough bonds with The Netherlands, especially if you are Dutch. Also, on a side-note, rental income is not taxed in The Netherlands.

In both UK and NL, self-employment annual income of 50K results in approximately 10K in taxes.

For the last year 60K of profits meant 16K+ in taxes.

If we take this year:

- 50K results in 20% effective tax if you can prove that you worked more than 1.225 hours (which is a really annoying burden).
- If you do not work 1.225 hours the effective rate becomes 24.3%.

Now if you make 80K:

- 31.7% with hour-criteria met.
- 34.2% with hour-criteria not-met.

Not high, but when you start factoring in car prices, property prices, rent, bureaucracy and cost of energy it might make a large difference. You easily get an extra 3K per month at 80K per year and if your business is an energy-guzzler it will be even more. And you have the peace of mind that when you expand, you are not going to lose most of it to the IRS. This is not of concern to OP though, because he is on a boat.

Regarding The Netherlands, it has bad weather, atrocious cuisine and a pencil-licking tax regulator that chases you at every turn once you're in their sights and I understand OP's concerns.

It is also to be noted that most of the subsidies that allow self-employed people to lower their tax bill by so much are gradually out-phased over the coming decade (and lowered every single year by about 2/3K in deductions). The Dutch government is actively trying to stop the exceptionally high-degree of self-employed people and converge self-employed rates with employed rates. That means that businesses with income sub-100/80K will be paying 37+% effective tax by the end of this decade if that policy will accomplish the spirit in which it was drafted.

Furthermore, the liberal PM who ruled since 2010 is nearing his last term and who knows what will happen if his party does not become the largest, I would say base tax rates are more likely to increase even more than decrease for the higher-incomes and especially for self-employed people. The Dutch IRS loves to chase after people who are not a happy family with two kids and a cargo bike.

Take residence in the Dominican Republic and use a U.S. LLC.
You should also better sell your house in the NL and buy or rent a small place in the DR, which can come handy for storing stuff that you can’t take onboard and create substance.

Based on aforementioned, this might be a good suggestion depending on how long you are planning to continue to live like this. I am not familiar with the structure but I would say that for you, Dutch "residency" or ties are an unattractive option not just now but also going forward.

By 2027, you will per the current trajectory pay 30% in tax at the 50K level (and that is just the extra that you will pay taking into account solely the phase-out of the zelfstandigenaftrek). It is not a lot of money, but I just wanted to inform you about how the tax situation at your level of earnings (and higher) is bound to worsen over the coming years which might help you in judging what you want to do.

Me personally would rather watch the future unfold from a Dominican beach with a bottle of rum than being at the behest of the Dutch government and the creative department of Brussels & Co.

 

[lavel]

What would be his way out of this tax hell? Maybe that would be a much better question to answer. Paying 16K from 60K Income sucks crock balls!

 

[fardreamed]

People probably hate me since this is the only option I have, but, Sri Lanka.

Get a 100% by you owned LTD + Bank Account
Get residency
Pay yourself a salary with 6% income tax.
Come on nice per year and renew your residency.

 

[Nomado]

Pay yourself a salary with 6% income tax.
Come on nice per year and renew your residency.

Really only 6%?
What is the tax rate on the individual income?

 

[mytoofood]

Generally speaking, the Dutch IRS views owning a house in The Netherlands as quite relevant in qualifying whether you still have enough bonds with The Netherlands, especially if you are Dutch. Also, on a side-note, rental income is not taxed in The Netherlands.

My believing is that most countries look at it this way.

 

[JohnLocke]

People probably hate me since this is the only option I have, but, Sri Lanka.

Get a 100% by you owned LTD + Bank Account
Get residency
Pay yourself a salary with 6% income tax.
Come on nice per year and renew your residency.

Why would they hate you, if some want to live in Sri Lanka there is nothing wrong with that!

How easy is it to go there and get residency?

 

[Cloudbanck]

I'd generally advise to get out of a tax hell country as early as possible - before getting a house, a spouse, children, a dog etc - and stay out, even if initially tax gains are modest. Going back for short visits is fine, but just dont become a tax resident again.

As to the Netherlands, it doesn't seem that owning a property automatically makes you a tax resident. The criteria are more vague. From What is your tax residency? - The TaxSavers
"The Dutch tax authorities look at various ‘circumstances’, so there are no objective criteria. The following circumstances are important to determine your tax residency:

• The address where you spend most of your time.
• Where your family is living.
• Where you work, play sports, go shopping, etc.
• The country where you are insured and where your doctor is located.
• Where your children go to school also influences your tax residency."

An even longer list of stuff dutch authorities look at is here Am I a Dutch tax resident? | Blue Umbrella

In your situation, I would establish residency somewhere to be on the safe side - preferably a country where there would be no or minimal tax on foreign income. So Dominican Republic sounds good, or some other Latam territorial tax country. Paraguay is a classic country for this even if not directly in your path. Cyprus or Malta could work too, but they are more tricky with tax.
And get a gym subscription (or tennis club or whatever you are into), a local health insurance, a bank account in this country, and register with a doctor, and get a rental contract and utility bills. Then you dont need to spend too much time in the country, and can get on with the sailing tour.

And after having made sure that you are not a tax resident in the Netherlands, a US LLC is probably the simplest and most inexpensive solution.

 

[jafo]

If I register an Estonian OU or a US LLC and The Netherlands sees me as a director of a corporation (DGA in Dutch terms), I end up in a far more complex deal as the Dutch IRS tries to tax company directors at 52k/year minimum.

I had to look up "DGA"

and was shocked by this:
https://www.ligo.nl/kennisbank/bela... krijgt als,= € 40.024,31 inkomstenbelasting.
Like WTF??? What do you get back for paying ALL this if you don't even live there?

 

[fardreamed]

Why would they hate you, if some want to live in Sri Lanka there is nothing wrong with that!

How easy is it to go there and get residency?

The Process Takes a couple of months. You need set up a LTD with Sri Lanka Bank Account. For that you need to Have a Plan Of Action, Business a business presentation. You also need to make some Job Posts, for personal assistants and accountants etc. Monthly Salary is 100-200$. If you are smart, you employ Local Friends who send the money straight back to you the money in Cash. All that hustle for a Bank Statement which shows 1-2 Months of business activities and employment.

Why? You request Residency as a Company Director. You will get it for around 1000$ per year. needs to be yearly renewed.
Permanent residency is almost impossible to get.

 

[alley]

Take residence in the Dominican Republic and use a U.S. LLC.

how quick can this be setup ? DR residency can take time I read?