Yet another Digital Nomad from EU

[leaveNet]

What's the problem with Romania? Also, it's pretty big, and not all the places are the same. I heard Bucharest area isn't great

Everybody who knows me and who had visited Romania told me I will not like it. And my girlfriend who is coming with me doesn't want to go there too.
I will try to visit it myself in the next months but I think it doesn't fit. For myself, okay, I would give it a try, but for my girlfriend, I don't want to ignore here reservations.
She likes Georgia though.

But c'mon it's not THAT bad if it allows you to save a lot of taxes, and grow your online business.

Yeah, as I said in the beginning, I'm not here to safe taxes in the first place. I'm here to find a way to support my future digital nomad lifestyle, to start a company, and to simplify handling authorities and taxes.

 

[Marie Manila]

I'm looking deeper into the details about Bulgaria now. Looks way better than Romania to me but is not EU. I'm not sure about sending invoices from Bulgaria to Germany and how this is handled. I also read things about banking issues with international transfers.

Bulgaria joined EU in 2007.

 

[leaveNet]

Bulgaria joined EU in 2007.

sorry I wrote Bulgaria but meant Georgia.

 

[mad1max]

sorry I wrote Bulgaria but meant Georgia.

OK that makes more sense. And yes, I opened a private Bank Account there and they want like 15 Euros in fees for incoming transactions from Europe. So you are right Banking Fees are also not great.
You usually can get away with using private bank accounts in Europe for a while though. Not sure if Georgia accepts that though.

 

[kkein]

sorry I wrote Bulgaria but meant Georgia.

Not sure where you are from and how comfortable you are with georgian language (maybe cyrillic didnt discourage you).
But if you don't know, i'd recommend to check that first

 

[FixieHartmann]

Yeah, as I said in the beginning, I'm not here to safe taxes in the first place. I'm here to find a way to support my future digital nomad lifestyle, to start a company, and to simplify handling authorities and taxes.

So you’re set on staying in Europe? Otherwise, why not go the route that I suggested earlier?

 

[orangekangaroo]

sorry I wrote Bulgaria but meant Georgia.

Look I went through same process. Georgia individual entrepreneur scheme looks nice on paper. But you will be personal liable, maybe not so good in IT security. You can not get the IE scheme working with an LLC or LLP. I ran this passed Georgian law firm.

 

[leaveNet]

Look I went through same process. Georgia individual entrepreneur scheme looks nice on paper. But you will be personal liable, maybe not so good in IT security. You can not get the IE scheme working with an LLC or LLP. I ran this passed Georgian law firm.

I thought about going with an LLC IT Free Zone. But I'm not sure that does work out for me. Thank you again for your input, i really appreciate that.

So you’re set on staying in Europe? Otherwise, why not go the route that I suggested earlier?

For you too @FixieHartmann, thank you for your support! I reread it several times now. I thought cutting ties is not enough for German authorities, I have to have a new tax residency immediately because if not, they will claim taxes. There shouldn't be any gap in between official tax residencies. Though if your plan is applicable and a gap of some months is allowed, then I definitely prefer your plan. It sounds less stressful then other plans.

 

[orangekangaroo]

thought about going with an LLC IT Free Zone. But I'm not sure that does work out for me. Thank you again for your input, i really appreciate that

My business does not qualify for that. If yours would it is not a bad option. With Georgia personal tax residency is based upon 183 plus days.

 

[mad1max]

For you too @FixieHartmann, thank you for your support! I reread it several times now. I thought cutting ties is not enough for German authorities, I have to have a new tax residency immediately because if not, they will claim taxes. There shouldn't be any gap in between official tax residencies. Though if your plan is applicable and a gap of some months is allowed, then I definitely prefer your plan. It sounds less stressful then other plans.

I don't understand this! Isn't TAX residency always for a full calender year. Even if you only get to Cyprus 2 Month before the year ends, you should be considered TAX Residence for the full year.

Even if they can claim you are still TAX resident for the year, they can't say therefore your newly created company is German and now you have to pay an exit Tax, right?

 

[FixieHartmann]

For you too @FixieHartmann, thank you for your support! I reread it several times now. I thought cutting ties is not enough for German authorities, I have to have a new tax residency immediately because if not, they will claim taxes. There shouldn't be any gap in between official tax residencies. Though if your plan is applicable and a gap of some months is allowed, then I definitely prefer your plan. It sounds less stressful then other plans.

Well, please read https://www.oecd.org/tax/automatic-...tance/tax-residency/Germany-Tax Residency.pdf - tax residency is actually covered in the first paragraph:

In accordance with the first sentence of section 1 (1) of the Income Tax Act (Einkommensteuergesetz),
natural persons whose residence (section 8 of the Fiscal Code [Abgabenordnung]) or habitual abode
(section 9 of the Fiscal Code) is located in the Federal Republic of Germany are subject to unlimited tax
liability. A person is deemed to be resident at the place where they maintain a dwelling under
circumstances indicating that they maintain and use that dwelling (section 8 of the Fiscal Code). A person
who spends an unbroken period of over six months in the Federal Republic of Germany is generally
assumed to have their habitual abode here (section 9 of the Fiscal Code).

Basically, you are tax resident in Germany if your habitual abode / center of life is there and / or if you have a permanent place to live. Which means that as soon as your center of life is not Germany anymore and you don't have a place to live there and you don't spend long periods of time in Germany, you cease to be tax resident.

A new tax residency is helpful, but not required. However, there are a couple things to consider when cutting ties, therefore you have to work with a tax consultant to make sure that you do everything correctly.

Also, it is not a question about a "gap of some months" but rather making sure that you don't do anything which puts you back into the German tax net, therefore you need the advise from a tax consultant.

 

[FixieHartmann]

I don't understand this! Isn't TAX residency always for a full calender year. Even if you only get to Cyprus 2 Month before the year ends, you should be considered TAX Residence for the full year.

Even if they can claim you are still TAX resident for the year, they can't say therefore your newly created company is German and now you have to pay an exit Tax, right?

Well, you are mixing up a couple different aspects, let's untangle it.

In Germany the tax year equals the calendar year. So if you leave during the year then you still have to file a tax declaration for that year and declare all worldwide income. However, income that you received after ceasing to be a tax resident will only increase your marginal tax rate but not be taxed itself.

This is a bit complicated, so here a rough example.

Say your income for 2020 is 5.000€ / month and you left Germany July 1st. You will have to file taxes for 2020 and you will have to declare 60.000€ in income. The 30.000€ that you earned in the second half of the year will not be taxed in Germany, however the percentage that you pay in tax on the 30.000€ from the first half of the year is calculated based on your total salary of 60.000€.

Basically, normally for 30.000€ income you would pay about 14% income tax, but because your total income is considered you now pay 25% of the 30.000€, so 7.500€.

Concerning getting a second tax residency.

If you move to another country where you would also become tax resident in 2020 (e.g. Cyprus from your example), then you would for 2020 actually be tax resident in two countries and would need to consult the double taxation treaty to see how this situation is handled and who gets to tax your income.

Concerning the exit tax.

Exit taxation for entrepreneurs provides a good overview of the German exit tax and if it applies to your situation.

To your specific question - no, when you leave Germany (even during the tax year) and then set up a new company afterwards then this new company will generally not be covered by the exit tax.

(I am just a random guy on the internet, not a tax advisor. These are rough examples. Please discuss your situation with a tax consultant to make sure that you are fully compliant.)

 

[blizz]

it is exactly what I did before making them move. I toured the big cities. However, at the moment, Romania is bad again with Covid numbers so I would discourage it for now.

it's the way to do it.

What's the problem with Romania? Also, it's pretty big, and not all the places are the same. I heard Bucharest area isn't great

I believe there are no problems other then securing your self living there?

 

[Brace]

It is not a paper thing, same as Cyprus will want you to stay 60 days and rent a property full year.

You will need to make Romania your centre of the universe, you do this with a rental contract, drivers licence, insurance etc, mobile phone etc, this would mean you need to stay the first month to set this all up. After that, you make a few visits a year. I know plenty of guys doing this. Don't get caught in other countries with their residency requirements.

You will get an EU company with an EU vat number and you will have no issues billing your clients.

If you like Germany check out Sibiu in Romania, it is a German town and its airport has lots of German flight connections.

All the other solutions proposed in this thread are complicated or expensive. Just my opinion.

 

[Brace]

In order for Romania to work out, you need to have tax residency somewhere else right? (to avoid their 25% social security 10% health insurance and upt o 10% income tax)
But that country to be one that does not have CFC rules in place for permanent establishment right?
just trying to understand because i am in a similar situation, EU person wanting to go to georgia but realized my ideia does not work (US LLC+ Georgia tax resident)

 

[Segd]

In order for Romania to work out, you need to have tax residency somewhere else right? (to avoid their 25% social security 10% health insurance and upt o 10% income tax)
But that country to be one that does not have CFC rules in place for permanent establishment right?
just trying to understand because i am in a similar situation, EU person wanting to go to georgia but realized my ideia does not work (US LLC+ Georgia tax resident)

It's the opposite. You need to get RO tax residency so that other EU countries won't have questions for you. You don't need to pay anything that you mentioned above since you are going to get money through dividends (5% tax paid by company ).
So after initial setup, you only pay: rent (300e+), accounting( mine is 45e/month), 3% revenue tax and 5% dividend tax. If you invest personally or through the company then there is also 10% Capital gains tax. After all that it's still a bargain if you compare RO to other EU countries. Best part is that there is no 6 months bullshit residence requirement.

The only reason to pay salary/social/health insurance is to hire yourself for a minimum wage. If you have an employee(you), your revenue tax drops from 3 to 1%


I actually decided to stay in my country while keeping Romanian one. So I'll pay 3% revenue to RO, then around 17% to my own country as corporate tax. But after 5-10 years I will retire, move to Romania, take all the money out and move again somewhere warm and nice. So basically it will be 20% corporate, 10% Capital gains and 5% dividend at the end. Which is way better than just using LLC in my country ( 20% corporate, 20-30 dividend, 30-35 capita gains ).

 

[uplana]

then around 17% to my own country as corporate tax.

that's nothing, is that personal tax you pay ?

 

[369]

Have a look at mauritius or zanzibar which should open soon its 0% tax residency with 0 days mininmum stay. Mauritius is 90 days

 

[FixieHartmann]

Have a look at mauritius or zanzibar which should open soon its 0% tax residency with 0 days mininmum stay. Mauritius is 90 days

Can you provide some more information or a source? My hunch is that many EU countries won’t accept a tax residency in a country with zero days minimum stay..

 

[gnud]

Another option for you to consider:
- stay employed with your current company for a couple months longer
- leave Germany now while you don’t have any company or substantial income, cut all ties
- get a digital nomad visa and move to Curaçao, Barbados or any other place that won’t tax you or your company
- work with a German tax advisor to make sure that Germany considers you a non-resident and that you don’t have local income
- keep your German tax number in your bank accounts (for now) so that the banks don’t cancel the accounts
- set up a US LLC, because you already left Germany you won‘t have to inform authorities about it
- wait for a couple months and switch all income streams to LLC
- start working on your business and try to increase revenue

Now you’ve left Germany already, so you shouldn’t have any issues with authorities there. You haven’t lost a lot of money by setting up a proper structure in Cyprus or UAE yet. Now you can decide. If you still don’t make any substantial money you can simply stay in your digital nomad visa country and hustle.

If the money starts to come in you get a tax residency in UAE with a local company that owns the LLC and update the tax residencies for your bank accounts. By using the UAE company as holding you avoid any reputational issues with UAE as your customers only see the LLC.

You stay for a couple months in UAE, get your tax residency certificate and then travel again. If Germany ever asks for proof you have a complete paper trail.

Caveat: This setup does *not* work if you indeed plan to spend a lot of time in Germany. You really have to move and cut all ties. If you want to spend substantial time in Germany you should probably go with Romania, Bulgaria or Cyprus. But you should consider that all EU states are compelled (ATAD) to introduce exit taxes. So if you plan to leave the EU in the future a EU structure might cause issues when you leave.

(Obligatory disclaimer: I am not a tax advisor, this is not tax advise. Germany can still try to screw you if they want.)

Why do you recommend Romania, Bulgaria or Cyprus for incorporation if he wants to spend a substantial time in Germany? Wouldn't that give Germany an opportunity to claim permanent establishment of effective place of management of the company? How can he avoid being appropriated by Germany?