This podcast channel it’s about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax
Right. Okay. So, we are live. Thank you for joining us this evening. Afternoon day. Good morning, depending on what other part of the world you were in. So, we’re going to talk about Taxes for international entrepreneurs or Digital Nomads. I use the terms interchangeably because sometimes people think digital Nomads carries a lot of baggage and implication, so like, yeah, everyone knows what I mean.
So, we were doing this more or less every month now. So, you know, some of you may have seen this before on our YouTube channel. And so, it must be, we have joined us previously for those who have joined us previously, good to see you again. So, the format will be more or less the same. I’m going to talk for about 20 minutes or so go through some slides and afterwards will be the Q and A. And I know that that’s the really important part because that’s what brought so many of you here this morning, this evening, this afternoon.
So, without further ado, I’m just going to jump six important things that I believe that the International entrepreneur or the Digital Nomads should be familiar with it when it comes to Taxes right. Just to give you a bit of background about myself and my team, because I’m not a one person show, my practice is a semi-autonomous unit within a larger practice called Moores Rowland Asia Pacific.
So, we have just over 30 offices in 12 countries. I am actually based in Singapore officially this October, we’ll be eight years that have been based in Singapore and because I’m US qualified, I am legally required to say that nothing that I say here should be construed as advice. We are having a general conversation about general principles, consider it an education piece rather than advisory. And more importantly, nothing that I say here should be construed as encouraging you to be less than your fair share of taxes in any jurisdiction in which you are exposed.
Then of course, we had that in writing. This is how I stay out of jail. So, thank you for bearing with me. So, these are the takeaways I’m going to talk about just probably six or, you know, the title is six things to consider. So, I’m going to talk to about six things, and then we jump into the Q and A, the first thing would be Flag theory.
And I know that there are a number of organizations who have branded themselves like Flag theory. But my understanding is that Flag theory started out as a, as a term coined by a guy in the 1950s, essentially, it’s about diversifying your lifestyle, where they, where you are as a citizen, is not necessarily where you are legally resident, maybe different from where your company is incorporated, may be different from where your assets are stored, your cash or your, your crypto, and maybe a different jurisdiction from where you enjoy yourself.
So, the key thing is just like how investment 101 is that you don’t have all your eggs in one basket. The same applies to international business. You’re not overly exposed to any one particular jurisdiction.
Number two, fake news. So, there are no doubt is no shortage of online influencers and gurus who claim to know everything about everything, which is fine. But I always advise caution when it is a decision with a financial and legal implications. Typically, you would want to get advice from someone who is legally qualified to give that advice. I think that should be, it should be pretty obvious. You know, what I’ve done is I’ve called out a certain issue that I’ve seen misrepresented in, you know, in popular or online landscapes. Some of which we will jump into in greater detail, others, we may come out in the Q and A.
The third thing I wanted to talk about would be direct versus indirect taxes. So now we’ll be getting actually into the tax piece. I think most entrepreneurs, I think more digital nomads are familiar with direct taxes. If you have a company, assuming the company is incorporated in a jurisdiction, which they are taxes payable, then you know, the company files and pays the taxes. And similarly, if you are, as an individual will find yourself in a jurisdiction in which you are required to file and pay taxes. That much is obvious. You’re required to find them pay taxes. What is less well understood are indirect taxes and I think this is, it’s something that is not well understood, but equally. So, it’s an area that is opening up to create a law enforcement in certain addictions, whereas they may not have paid attention to it historically now is a huge deal because as you know, most governments are strapped for revenue. So, every penny count, right? So, they don’t let things slide anymore. So, what I’m talking about, it would be like VAT in the UK and the European union, a GST in Singapore and goods and services, Tax sales and use tax and a US. So basically, it is taxes that are not paid to the tax authority, like a direct tax. It’s a tax where you may be required to collect this extra revenue from the person who is buying your good or your service. And like in Malaysia, where you have a services tax and you remit that on their behalf to the tax authority. So, it just something to keep in mind, as you are in your business models that are evolving internationally.
The place of effective management. So, this is was flag is one of the I probably the first item where I was speaking about fake news, right. There is this misconception that if I incorporate a company in a, for example, you know, one of the tax-free jurisdictions, so BVI or Cayman, or an IBC in international business company in Dubai, then, you know what I have my company is tax free, not understanding the many jurisdictions have and their tax law is something called mine and management and management and control.
What is it basically saying is that, for example, if you have incorporated a company in jurisdiction, X, Y, Z doesn’t matter where it is, but you run that company from Portugal or you know, especially if it’s in a low tax jurisdiction, a lot of no tax jurisdiction or one that’s on the OACD black list? And you run that entity, you manage it from the EU or any other company, you just manage it from the UK or we manage it from Singapore wherever you may be based, then the tax authorities in that jurisdiction may take the view with, hold on. I knew your companies incorporate it elsewhere, but you’re managing it from here. So, we deem it to be a domestic company. Of course, you should ask the question, you know, how are they going to know? Well, when age of social media and we’ve seen cases increasingly becoming common where social media brings undue attention to someone. So, someone thinks, well, I’m managing my company from jurisdiction, wherever I am. Who’s going to know I’m doing it online. I’m a remote worker. Yes. But you may be a YouTube influencer. You may be doing something on social media, which draws attention to, and that draws the attention of the tax authorities. And we can talk about that later on as well.
And that is part of the whole concept of Nexus, which is basically about having a connection. Where you have a connection with a jurisdiction that creates a taxable presence. And it is a very nuanced definition. Typically, it has been interpreted to mean physical presence. So, if I’m physically present in a jurisdiction, it may constitute nexus, but what are we seeing happening in other jurisdictions? For example, I skipped a slide, right? In other jurisdictions, particularly in the US right now, what they say is that economic activity may constitute an access. So, for example, those who are selling on Amazon FBA, you know, you get your report from Amazon and Amazon tells you all the warehouses in which this store, or your product on the way to the final consumer. And typically, that physical presence was enough to constitute access. And you find that you paid taxes, I’m talking about the indirect tax as a sale and use tax is what we’re finding is that many jurisdictions, for example, and the case study being the US, they were saying, you know what, physical presence, it’s parts of it that can constitute Nexus. But we are also looking at the economic activity. So, if it is that you have ultimate, if you’re selling and you have consumers using that product in a given state or a given jurisdiction as well, you know, we want you to pay taxes, even though you are not there to do your consumers are there, you are benefiting from conducting commerce online in that jurisdiction, in some jurisdictions, we’ll quite a few become quite detailed in his book about click through nexus as well. If you have cooking, if you have a film, if you’re doing affiliate marketing and in certain States that can constitute nexus.
So, the idea of a taxable presence, I want you to take away the idea of a taxable presence can be very, very nuanced. It doesn’t necessarily mean physical presence, physical presence, hell you had definitely, but just business activity can lead to tax nexus.
So no, I’m going to talk about those who may be US exposed, right? And then I’m going to talk about the other advanced economies and then the rest of the world. And that those are the three baskets that I tend to put people into. So, the US is of course, a special case. Y as everyone who is US exposed should know the United States, along with one or other country in the horn of Callie, rich Rhea, there was a really only two countries in a world where you are required to file and pay taxes, regardless of where you reside of the jurisdictions with, with, by following certain procedures, you may be able to sever a tax residency in that jurisdiction. The US the answer’s no, no matter what you do, you count at several a tax residency with a US. If you are a us person for tax purposes, the only way out is surrendering your passport. Are you a green card? That’s the only way out, but their opportunities by immediately moving up or overseas, you have the opportunity to shelter the first $107,000 of your, or your income from US taxes and is something called the foreign earned income exclusion, and the FAA.
And that, and that is a huge incentive. You know, we are seeing people are leaving California for Texas or New York or Florida. How do you immediately, well, not immediately with some doing you, you get the opportunity to legally avoid state taxes, that 30% state tax in California, for example, you can take it one step further. And by leaving the us, assuming that you have been earning less than, let’s say a 110 grant, that whole 110 gram maybe sheltered from, from the U S income tax. It’s something to think about a win the U S because of the, the, the way the TAX networks internationally, that’s different from domestically, domestic, it all about filing and paying taxes on time.
That’s the name of the game internationally with the U S is all about reporting. So, if you don’t fall and pay taxes, you know, pay your taxes. I mean, yes, interest in penalties, but if you don’t report that you have a foreign bank account, not only would you be encouraged civil penalties, but also criminal charges as well. So, they got pretty aggressive and you are also required to disclose the activity of any company in which you hold B on a certain threshold, in terms of a shareholding, what do you control the company?
It has reportable to the US as part of your personal tax return. Now, people see to circumvent this by using nominees. It doesn’t work. It doesn’t work. That that is decades ago that his old school, the IRS sees right through that. And if they discovered that you have been doing it, you are, you’re going to have some Hertz. So, it’s all a School don’t do it. It doesn’t work, pay attention to your banking. As I mentioned before, you need to make sure you report all about it, because over which you have signed in authority, even though you may not be the UBO the ultimate beneficial owner, you are still required to file and pay taxes on it,
So, it just needed to mute someone who is from whom we getting some background noise. Please don’t have to mute yourself until you get to the QA reports, your band, and report it to the bank accounts over which you can sign for your company report, your investment accounts, who overseas you, you have to trust your mutual funds, ETFs outside of the U S everything needs to be reported to the US estimate to taxes. The IRS is not like to wait to get taxes at the end of the year.
They want to get quarterly payments at least so that it needs to be part of the discipline estimating what your TA, what your income is going to be and paying taxes accordingly, and not forget state taxes. And this some, you know, you have 50 different States, 50 different rules. Some States, mostly it’s a domicile States in some States have a more aggressive Tax nuts in others. And you know, for us, they are and what the stickiest state, or maybe for Virginia, even though you may be outside of a junior for years and years and years, you must still be a tax resident of Virginia. So most, what do we, what we tend to council our clients do is before you leave the us to, to work internationally, you would want to sell yourself two, one of the nine States without an income tax. And, you know, just say the most popular TO would be of course, Texas and Florida, but that we, the U remove any possibility of the state’s, you know, rich EA taxing YOU in your absence and all your return to the US your face with a huge tax bill.
I have some case studies that we can get into if necessary, for the Q and A, and the next wouldn’t be, then the next group of paying would be a Kansas. I don’t know if I saw that online. I thought that was an interesting acronym, but basically a UK, Canada, Australia, New Zealand. Now we said that the U S was the one jurisdiction where you cannot break tax residency. Increasingly these jurisdictions are becoming sticky as well. So, unless it, and this applies particularly for those who move around a lot as, as Nomads, as far as digital nomads, if it is that you will know you’re not a bonafide resident of any other jurisdiction, these countries have a fallback rule. So, if you will not read properly resident somewhere, your center of life has not shifted from Canada, from the UK to some of the jurisdiction under certain circumstances, even though you’re not there for years, maybe you can fall back into the tax and any of the CRA in Canada or HMRC in the UK on a, you know, the ATO in Australia. So, it, it is something to keep in mind and to speak with your advisor. About most of Europe, there are the 183-day rules. And once you spend, you know, certain number of days outside of, of Given European country, you tend to just keep their tax. And then, but still sit in, people would, we need to be filed. And some jurisdictions, again, like the kinds of countries are becoming quite aggressive. So, for example, we’ve seen Italy recent time and say, you know, hold on, if you’re moving to a so-called tax haven. So, we have clients in, in the UAE, in Dubai, we have Clients in Malaysia and the MLM to H my Malaysia a second home where their resident their tax free. And then it’ll be, is saying, well, no, you need to pay tax on it. If you’re not paying tax on wherever you are, as a citizen of Italy, we’re going to talk to you back at it until the day. Even if you know, longer live, there are other European countries have increasingly increasingly seen that a rule where if you, or if you, if you are centered, life has been properly shifted and you are taxable somewhere else, or you me, that is not happening.
You may still be tax. It will be back in a European country of origin, something to pay attention, to and speak to your advisers. About right. And this is, this gets into a, a bit more of an EU situation. And I give some examples as two, the, the process is becoming less. SE more involved to set up a tax residency from your European country of origin. And you may be still tasked a resident for a certain number of years after you have left.
So again, pay attention, get advice from someone qualified to do so. The rest of the world and the rest of the world might be thinking, you know, well, I’m not a European don’t need to worry about those fallback rules, and I’m not. American there for, I’m not subject to the citizenship-based taxation. So, I’m home free write. I can live tax free. Well, we have clients that have tried it and there they’ve run into some problems are what do I mean by problems?
And the problems revolve around banking. And when you speak to S tax advisors, and we be up to speed with tax rules, but they may not be all fake or are, they may not be a current when it comes to banking rules. Now, increasingly bands are under a lot of pressure to prevent money laundering. And they’re the QA Sue, and they know their customers are becoming quite aggressive. And what does that mean? It means that you need to prove source of funds.
And I’ll give you an example. Give me an example of a, a client we had in SE Asia, he’s a popular DJ and try not to be too precise of people can figure it out who he is. He is from a certain country. Now he’s been living in a traveling in certain parts of Southeast Asia and as an entertainer, what certain like clubs or whatever, and he’s done pretty well for himself. And he had a situation where he wanted to return to his country of origin, which is fine.
No problem. It still is a citizen who has a valid passport. What is the problem? The problem is that he was banking in whatever country in SE Asia. And then, because he was moving around, he Legally perhaps might not have been required to pay taxes. And when he tried to wire that money Baptists country of origin, there is even though this was a band that he has battled with since he was a child or, you know, growing up a family, whatever, you know, the, the, the money was frozen.
And it was returned to the country of origin where the funds were originally wide from, even though he can prove it is wide from himself, himself. And he called the band and he said, well, don’t, you know who I am and check on lane and S you know, I’m whoever I am, but the, the, like I understand, but how do we know that this money was legitimately earned? We don’t know, you know, I can give anybody 10 minutes and they can drum up an invoice on Microsoft Excel invoices, and prove anything for many banks.
What constitutes real evidence that the money’s clean is a tax return is a tax return. So, there’s a, there’s a strong possibility that if it is that you do move around internationally and you Legally, perhaps because of your situation are not required to pay taxes. You may find yourself in problems with the bags. So, we always advise clients, pick a country to be tax resident, pick somewhere, to be a center of life.
And we can get into that in the Q and a as necessary. So, what should be pretty clear from everything we’ve discussed so far is that you need a team, and there’s no way that one person could understand everything. You know, all the jurisdictions, all eventualities are possibilities. So, you are looking for a team of advisors who would be qualified and experienced in the, the, the jurisdictions in which you were exposed.
So, with that, I’m going to jump into the Q and A. Feel free, at the bottom for those watching on zoom. I’m streaming on Facebook as well. So, sorry, no QA in Facebook, but for those on zoom, there’s a chat box in the lower, right. Please feel free to key the questions in there. I we’ll have a look and once they are right now. Okay. Thanks to those who are all right. I’m scrolling down.
Oh, this is what I have, this is a great question. How to avoid falling under the guilty provisions on setting up a foreign entity abroad as a US citizen living abroad (e.g. USA tax Spain)?
So, this obviously applies to US person’s, which, as we mentioned in the, in the slides or those that have the most arguably the most complex tax situations to contend with now. The IRS internal revenue service, they have a number of anti-deferral mechanisms. And what do I mean by that? They are for, for many business owners, as the holy grail is the ability to run a business overseas, not paying any taxes and, and have the ability to reinvest the profits. So, your earned money, and you’ll be able to reinvest that continuously and your business, right? That, that that’s great. All right. And only pay your profits when only pay the taxes when you do, when you extract money from it.
Now the government has, obviously the US government is obviously aware of that. So, they have a number of laws to prevent the ability to defer income. Because obviously that will put you in an advantage, let’s say to someone who runs a business within the U S Wright, where, you know, they make a profit every year, they need to pay taxes before they can reinvest what is left over into their business. Right? So, it was just being fair well for everyone, so that there is something called PFX pacify, an investment companies that is something called Subpart F. And there’s also something which was recently created under president Trump’s tax cuts and jobs act in 2017 called Gilty, which stands for global intangible, low tax income. So that’s at a tax levy on companies controlled by US persons, outside of the US, particularly those companies’ in a low tax resurrection. So, we see in a lot of it and where we operate in Singapore and Hong Kong, right? If you were in a, a high tax jurisdiction, for example, Europe, it’s, perhaps it perhaps is less of an issue that is for those who operate in a low tax jurisdiction now in terms of how to legally avoid it. And I know that the go-to response is I’m going to get a nominee. I’m going to get a nominee, no attribution, attribution rules mean by that. And really it doesn’t work because they know what the law to speak to is shared of value and voice values, and so value being a shareholder in the voice. So even though you may not be on paper, the controlling shareholder, and this is a big deal for people who operate in Bali and Indonesia, or in Dubai, where, you know, you, you are legally required to, if you having an onshore Emirati company, you need an apparatus. So, you must have a nominee, but once you have that control in voice, you are controlling the company and it falls into guilty. So that’s the anti-deferral, you’re going to be paying tax on money, even though you have not extracted it from the company, it, it falls onto your tax returns. How do you avoid it? There’s honestly, you can’t, honestly, you cannot, no, you can minimize it. A and there are certain elections, as you can make where you can enjoy a lot more tax than the default, which is your tax ID, your ordinary tax rates as an individual. So, then ways to avoid of minimizing it, but to legally avoid, it means you’re going to take on a Partner who is a real partner, not a partner with a paper, but a Partner who is actively engaged in running this business with you. So, yeah, I mean, there are people online who do whatever they do, but we, we are a goody two-shoes we, we, we follow the law and Legally, there’s no shortcut.
There is no hack to avoiding this other than doing it. The right-wing next question, how to structure earnings in a foreign entity owned by us citizen, living in broad, do earnings carry fire. It needs to be declared on what’s a fiscal exposure there. So, I guess that ties into the previous question. Anti-deferral rules, whether they be Pacific rules, support F a recent or guilty, meaning that the earnings they need to be declared in the year in which they earn, assuming it’s a CFC, a controlled foreign court, as we mentioned. And the response to the previous question, if it is that you are really not, the, the, the company really is not controlled by US exposed persons, then it’s not a CFC and therefor it’s not subject to these anti-deferral rules. And then yes you can. If assuming that you’re in a jurisdiction like an IDC in Dubai or Cayman or BVI, whatever the case may be protected, theoretically, it will be taxed and you can reinvest and you can plow it back in those profits and reinvest and, and you know, scale your business. And it will be taxable to you as a US person upon receiving a distribution, either in the form of dividends or a salary or bonus or something like that. So, the key is to not have it be a CFC, a controlled foreign Corp, a company controlled by US exposed persons and control being a chef, a value-add voice. So again, that nominees don’t work value on a voice that that’s a sure now you can use the stove idea. And I’m sure that if or when I scroll down, some of these is going to be shared in Estonia studio, the studio, as soon as a lot of fans and, and, and they respect that, but the tax rates are pretty high. So you can, I mean there people who do it seems like in perpetuity, they just, they just never take a distribution and they are continuously reinvest the profits. But when you do that, strike those profits, the corporate tax rate at a stone is in a low twenties plus it’s plus you ping, as a shareholder who is receiving dividends. So, you know, it, it is, it is pretty aggressive when you contend that you have much lower tax jurisdictions you have in Bulgaria or a 10% YOU of Ireland 12%. And of course, you have tax free in other jurisdictions. So, you know, I, I guess it’s you need to do some sort of sensitivity analysis, some sort of comparison. Is it worth picking a jurisdiction like a stone, you and there are others as well where you allow it to perpetually re-invest to avoid the, the, the guilty or are they or whatever? And, but when you do pull it out, you’re going to be stung. Do you choose a little chat’s jurisdiction when it comes up? You know? So, you know that there needs to be some sort of comparison. So anyway, the next question. Yeah. What is it? Which is the best, what it will be the best jurisdiction to be tax resident. If you have the choice, no one size fits all. And I know when you go into the chat groups, everyone has to say like Panama, Uruguay, Estonia. You know, they wanted a little card and whatever. It really depends. It really depends on who you are and the nature of your business. One cannot propose a solution, I think is professionally irresponsible. When people do it proposes a solution without understanding your circumstances inside out, and which is why you find it, that people who propose those things. There are one person shows working from the garage, which is fine, but it means that their exposure is limited. We have professional liability insurance, seven figures because we know things Get when we make a mistake, there are serious consequences. And so we’re very, very guarded and we try to follow the rules and do the right thing. We see influencers who are not based on an advance economy. They are hired, you know, I’m not hiding, but they are an unregulated jurisdiction. So that won’t go to Singapore where they’ll be held to account for giving by the, by they may go to a Malaysia. There will be in Western Europe, whether it would be held to account, they go to Eastern Europe. They wouldn’t be in North America to go to the central or South America as the case may be. So, a and these are the people who say one size fits all my point is it does not.
We need to understand who you or what, what residencies you have because the residents can make a difference. What citizenships you have, what is your business model? We need to understand that a business model inside and out, where are the key decision-makers based? Where are your customers? Based where are you banking? What do you want to bank? Because you know, jurisdictions, I had mentioned backing is really difficult right now. And most banks as a default would be, we don’t want your money. If you are not resident where you are not a resident in our jurisdiction, why do you want an account?
So, it really, it really depends. You need to sit down with an advisor who understands you and your business inside out, and then you can work out your options. Now, then there are some great options opening up as they are in the world, opens up in a way on our website. HTJ at our Tax, I’ve updated it recently. I’m with, you know, look, I think we put it in today. The three countries in Asia that are not essential travel has been locked down, but there are some jurisdictions where would the right permissions and falling the right immigration rules you can be let in. So, in Asia Indonesia is opened back up so far as which means Bali is opened back up for those who get the business. So, the social visa let’s see Thailand is opened back up for a long stay. And for those who get their section nine visa, I think for The Philippines you can re-enter the Philippines now with, with the right permission. The second Caribbean islands have open back up, you know. I understand that. I think Dominique is opened back up central America. So, they are the places that have opened back up. And that I’ll love coming up. Particularly the us exposed to people who were kind of blocked previously. Okay. So, what else is asking? What if you are from the country Venezuela? So, if you are from a country, which is subject to sit the sanction, so a Venezuela Iran and, and, and so on, obviously you are, your options are slightly limited for where you, as a, as an entrepreneur would be able to set up your business. You would want to choose a jurisdiction without the sanctions. So as to where that is, where you can go, I honestly can’t say right now, I think we need to probably discuss that offline. What would we be options? Because we need to check the rules to see what is a lot on what is not a lot. If you are in Venezuela still, then no one who is US six Bush really should be helping you because it’s against the laws of the US to, to work with Venezuela right now. But if you are, that is real and citizen outside, legally outside of Venezuela and living and working abroad. Then perhaps there may be an opportunity to work with you. So, we can probably catch online, offline my email address with type of thing, how to take it up. So, if you scroll up in the chat box, you’ll be able to reach out to me. The next question you seem skeptical, but the residency possibilities offered to international professionals. Can you tell us some more about it?
So again, my caution is that a one size is not at all and it’s, you know, it’s hard. And I think it’s professionally responsible to paint with a broad brush and say it a solution for everyone has a Billy’s company and a story in a residency. So, when you eat a residency programs in particular, it is not technically an immigration program and is not. When you looked at the definition of a residency in the dictionary, it’s not technically not what. It’s an ability to access government services, which is which of course is great. And then at his store, he has done a wonderful job of it. But as to whether it is the right jurisdiction for, for every what I really think it depends on the facts and circumstances. I think any qualified professional would first one to examine and the fact pattern and, and follow that through. And, and not only in a goes for, in corporations, it doesn’t know where to go from banking, but also, you know, residency as in a legitimate residency where you are according to the immigration law is in a jurisdiction, have permission to stay there. So, one size can fit all. And when we have people that may be driven by commissions and sorry, this, let me just turn off. I’m getting a bus in a bar, right? So, when people are driven by commission and monetary incentives, sometimes that creates a bias and that’s a natural, we are human beings. People are running a business. If it is that I’m being given more commission by one incorporation agent over another, I’m going to need to pay my rent, right? I’m going to do it. Or if I’m, given create more commissions by one residence or immigration, Agent, I’m going to push the people in that direction. because I need to pay my bills. So, I get that. But all I’m saying is that that may not always be best for the client. And I think the client should always come first, next question. How to deal with, I guess, far as an income exclusion for a foreign entity owned by us, citizens, living abroad, not sure what you mean by, by the phone and come up with a foreign entity.
So, the foreign income exclusion, just to explain what it is. And it is a tax planning opportunity often by section nine 11 of the us tax code, which says that if a US person or a us person has defined typically by section 77 Oh one. So, it’s either us citizen or a green card holder. What someone subject to the substantial presence, who, who by, by the nature of spending a lot of time in a U S and a us person for tax purposes, right? If it is that they are working abroad, then as a, they were able to leverage this section nine 11, which says that the first and it moves on inflation. So, this year in 2021, as we do in 2020 tax returns is a 107. It will go up the next year, right? So, do you have a, a 107,000 of your, your income that will be sheltered from US Taxes right now, you can qualify for this amazing benefit in one of two ways, one physical presence test, and everyone gets that by counting your days on us soil, and don’t spend more than 30 days on us soil, then you will be able to enjoy the foreign income exclusion this second way. So that’s an objective, and that is quantitative. The second way is subject in a qualitative. What do we mean by that? It means that we’re talking about the bonafide resident’s test. So, in order to qualify under a desk, you need to basically your center of life or your heart or your, your, your, your city or your personal situation with some of the legitimately changed from the U S and then the jurisdiction. And there are a certain question asking for more than 25, 55, TO evidence this, like, where’s your family under what visa are you in that foreign jurisdiction? More importantly, are you paying taxes in that other jurisdiction? So, anyways, so I don’t want to have those two bases, or you can qualify for the, find an income exclusion as a person. So, your individual, your earned income, not your passive income, not your investment income, but your earned income. We’ll be sheltered from the IRS. Legally using a foreign income exclusion. Now this is separate from your company, the company that you own, and you control at that separate in law companies, a separate legal person from you, but rights and responsibilities of its own. Your company can fire you, you as Steve jobs found over at Apple, right? So, your company, you can find your set up. It’s a separate person at a law. Now, the company does not qualify for the finance, the earned income exclusion you do. So, I hope that clarifies moving on, ah, the Welcome stamp, Dwayne, good to see you hear the welcome stamp program and a lot in Barbados, it has been advised that the nature of the visa is that you would pay taxes in your home country. How does that work would 183-day rule? It does. So, Bobby, it was Bobby. This is a curious example, right? Because with the, some of the other long stay visa programs, The, there is the taxability elements. So, if it is that you are on investment income, then that’s fine. So typically, they want to make an attractive to you. So, they will say, you know, investment income, okay. Find you, you can legally avoid paying taxes on investment income that arises outside of their jurisdiction, but for a, a jurisdiction like Barbados to say, well, not just your investment in combat all of your income, and you can work remotely. You can work on the line and it’s all tax free. And that, that, that is unusual in, in the whole landscape. How so on the face of it, it does seem to be a contradiction to the typical 183-day rule where under normal, a tax laws in, in Barbados, that I assume typically, once you spend 183 days in Barbados it is you would be subject to taxes the buy the tax authority in there. So, it seems as if the tax authority has, we have that right in order to make the visa more attractive.
Now that has implications to that visa holder, in the sense of where is their country of origin? We said that with the US, it really does matter. You know, they are going to be paying Taxes Legally back in a U S any way. So, you know, there are going to be Taxes for suiting European countries and for the terms of countries. So, including Canada, including Australia and New Zealand, there are tax authorities, me, and they need to be careful here that the tax authorities meeting the view that moving to Barbados for a year does not relieve them of the obligation to pay taxes back in their country of origin. They need to check with someone who is qualified on taxes back in their country to make that International Taxes back in that country to help them make that determination. And similarly, Western European countries, as I mentioned, Italy, and some of the other European countries would say, well, you know, you’re going to Barbados from one a year. You still need to pay your taxes back home. We don’t care. So, I think it’s really on a case-by-case basis, each person who takes up that, that welcome visa, which I understand it has been extremely, extremely popular. They need to assess their tax situation so that on returning to their country of origin, they don’t have any uncomfortable discussions with their tax office. They don’t want to get in trouble. And basically is, is the point scrolling down? Does Venezuela have to pay tax on a worldwide income? Sorry, I can’t comment on, on Venezuela. There are, there are certain rules not buy the tax authority, but by the department of justice being US qualified a new US license and being a US person myself, I’m going to be in Miami in a couple of weeks.
Sorry. I really can’t comment any Venezuelan who is still based in Venezuela. If you, if you are living outside of the Venezuela, however, them, the question becomes, okay, well, you know, log-in in Venezuela, good. What are you? And it, you must be somewhere and wherever you are, has laws and that. So, we need to follow the laws of the jurisdiction in which, you know, reside in which you are not a tax resident. So those, those are the laws that would Trump, no pun intended Venezuela, even though your bed is really as a citizen, you will not be resigning on seven Venezuelan. So, the first thing to pay attention to is where are you presently resident? And then you mentioned belief IBC. You know, I have no offense that the beliefs funds, and I know there are a number of Billy’s finders and now, you know, no disrespect intended there. The challenge with that, and I, I believe Billy’s is on the blacklist. So, which has a good thing, which was of course a good thing. The problem with a Billy’s IBC is where you live in a bank.
Very few I want to touch a Belize IBC similarly with a Panama company. Yeah, no problem. Panama, but Panama has been the subject of negative publicity. So, you, if you show up in, in particularly what I would call a tier one jurisdiction, you rock up into a US bank or Singapore and, or a European bank, Hey, I want to open a bank account from my Billy’s company or from my part of a median company. Well, I don’t think you will be warmly received. Of course, there will be exceptions to that rule, but generally speaking, you may not be warmly received. So, I believe the ABC is all well and good Pat and Panama’s are well and good, but think about where am I going to receive that many? Where are they going to bank? So, you would probably be locked out of a tier one and maybe some ScentAir to jurisdictions see left with a tier three jurisdiction, a tier three bank is the bank reliable. When you look at the Global index, that score as the, the strength has a bank, is it abandoned? A robust is in a bank is going to be a round in the future as we face economic uncertainties, or is it one of those bands that is going to fall? because, you know, it’s not strong enough and the reserve requirements that are in the reserves on there. So yes, you may get a tit three incorporation that remember it has to be paired with a, a, a tier three tier three bank. So just think, always think about the pairing and if you’re prepared to have them that risk, then go for it. But there is a risk involved scrolling down. What are the transfer and pricing implications of structuring a US LLC on, by a foreign entity, buy you a citizen living abroad of structuring? Are you a chance to present to us a little bit of foreign? Okay. So that it’s a subsidiary relationship, right? So, are you US LLC is owned by a foreign entity now just to loop everyone into that, that concept? So, transfer pricing is a se a discipline within tax at economics that deals with getting the correct price for an intercompany transaction between the related companies. So, for example, if you own a foreign entity, like in this, this person’s case, you may own a foreign company. And then you may, as in a non-US company and you all in a US entity, that’s fine, no problem so far, but if they, if they, you know, they share certain services. So, for example, there’s a shared service in terms of accounting there, she had services in HR that has services in marketing, especially for a digital nomad, too, you know, doing stuff. Everything is online right now. Those shared services need to be priced in a way that because, you know, you know, where people go with this, you know what else we have to go on with this? If it is, you have two companies, one at a high tax jurisdiction, one in a low tax jurisdiction, naturally your intent is to shift as much profit as possible from the high tax jurisdictions in the low Tax. I mean, that, that just goes without saying, and of course, tax authorities have been doing this for decades. And, and particularly those in advanced economies and they are clued up and they want to see documentation that evidences that the price charge for those shared services is an arm’s length transaction. So, if they were, if you need a comparable, you need typically you need to do a study. And those studies aren’t cheap. You know, I’d say ballpark, a decent study starts at around 20,000 us dollars, but you know, it’s worth it for that. Whenever it is that tax authority does challenge you. And right now, along with a Taxes for online transactions transfer pricing, I think that’s the cutting edge of where tax authorities are paying, giving attention, because they believe that there’s a lot of money to be made in collections. In those two spaces, companies that are been involved in shifting profits to low tax jurisdictions and the companies that are using the internet to avoid Taxes completely. So, turn to your question, if it is that you have to companies and they are involved in, in there, are they both, they’re both owned by the same shareholder. You presumably have to have common shareholders. So, this is common ownership and their shared services or share transactions, or maybe one is producing something with gender is buying or selling or whatever the case may be. You need to take advice from someone qualified and competent, and that jurisdiction to make sure that you have the transfer pricing documentation in play so that when the tax authorities Knox on your door, you’re not prepared to answer them that scrolling down. Well, this is a long one to be legal If to be legal in proper one. And it has to be based in a sovereign country and pay taxes there as in the case of the DJ’s are sitting in a region and not being able to Patriot the money. So usually depending on a person’s work, an opportunity for the library of the country would just be chosen, correct? Depends on the individual. Their circumstances depend on the nature of the business I’m with you so far. So, my question is this let’s see, in South Asia, Africa and Latin America, where countries are good to be, based where, when moneys are being made online or from various countries in the region, revenue is not confined to domestic, but from a wide network.
Oops. Okay, your question has been cut.
So, you know, so your question, I, I guess it was two long to fit in that a little box so I can see what the actual question is, but let me see if I can figure it out from what you have written. So, let’s say you were in a, I guess an emerging market. So, like South Asia, South Africa or Latin America, it was, and you’re making money online, but revenue is not domestic, but it’s International well, those countries that you mentioned. So, if you are in SE Asia in one of, as you had countries or South Africa, South Africa is one of the most aggressive tax authorities in the world and they become even more aggressive and a, I guess, Latin, America’s kind of like a, it’s a mixed bag. The, the, the point is, if you are working online, are you working online, running a business online? And that’s why I think, you know, they have no idea of a technology company is redundant because every company needs to have technology on its course. So, I mean that you run a typical company, which means that using technology, you’re doing something on the web.
Remember, we said, in the slide’s we spoke about it, the concept of nexus. And then we spoke about the place of effective management. Even though you were doing something online, management and control is being exercise. Some where you are resident somewhere, you’re living somewhere. If you’re a resident in South Africa, if you’re sitting in Bali, if you’re sitting in Columbia. You are running a company online from that jurisdiction, even though you may not have any Clients in South Africa, even though you have no Clients in Bali and you are sitting in Bali, or even if you had no clients in Columbia and you are sitting in Cartagena, to me, it doesn’t matter who you are running a business from that jurisdiction. You’re spending time that you may be tax resident in that jurisdiction. It doesn’t matter that the money is being collected in another country, in another bank. It doesn’t matter that the company is incorporated in another jurisdiction. You, as a key decision maker, you are there. So therefore, legally that company has already been pulled into the tax and it out of South Africa of Indonesia Bali of Colombia, they already have a legitimate right to tax that company. And they deem it to be domestic because the place of effective management is a local. And so that’s where I say a one size doesn’t fit all on that. I tied this back to the previous question being US one size is not fit all. And for those who want to pay it to the broad brush, they answer to everything has to believe that it’s everything is a story or a Panama, whatever the case might be. It really depends on individual circumstances. Tell me about that individual. What is, what is their citizenship? What are their residencies? Where else are they Legally resident? We need to find that out. We need to find out if the nature of the business, where the customer is, where’s the economic, where they are in banking, where the suppliers, where the, where are they, where housing, because we are housing can create an access as well. So, once we have the picture of that individual and the business, we can make an informed choice, but otherwise understand that the whole concept of nexus means even if your customers are not in the country where you are, even if the money never comes in, sometimes that makes a difference. So, for example, I know with Thailand that it does make a difference or for your honor, the remittance basis in, in Ireland or in the UK, if you’re a resin on Dominic, Cleveland, a remittance basis. So, okay. Generally speaking, right? Generally speaking, you’re running a company from that jurisdiction, even if you’re banking somewhere else, or even if the customers are somewhere else or the place of affect in management, is that a jurisdiction and that jurisdiction typically reserves a right to tax them.
Down resonating with the Salvador and may company, is it in Salvador is exempt from taxes. OK.
All right. So, you were a resident of this outside the door and your company and in El Salvador is exempt from many taxes.
Okay. I’m not Seeing your question, but that’s okay. Any other questions?
Feel free to write it in the box, you know, and then a few minutes. So, we have left a please feel free to follow us. So social media or YouTube, we are on YouTube, LinkedIn, Facebook or Insta, Twitter, we update it daily. I post a video every day with a video of that is not more than one minute. I try to keep it to one minute with a useful piece of advice of a use of piece of education to help you make an informed choice together with your qualified adviser. So, we post out a new video every day. We do webinars probably every week, at least one a week. We did one last night. This is the second one. So, we were pretty active on online providing information from people who want to make the right choice. Because as you know, all over the world, governments are strapped for cash and they definitely need to pay for their expenses somehow. And they’re looking at you as entrepreneurs, looking at you as a business owner and they are seeing, they’re seeing dollar signs. What do you think about cryptocurrencies in terms of taxation? They are some gray jurisdictions to be Based in terms of crypto, there is Portugal, there’s more to, there are Singapore of course they need to, you know, Singapore is, is pretty Advanced in its own understanding and incorporation embracing cryptocurrencies. So, they are some jurisdictions that a great to be based in. But again, you need to think holistically, if you, if you are like 100% crypto, that’s one thing. But most people, most entrepreneurs, we deal with the diversified, right? Yes. They have some of their wealth in crypto, but they were also running a business. There are also doing this in a real estate, whatever the case may be. So, there are some jurisdictions, a tree crypto. Well, but you have to look at the other side of the coin, right? How did they treat your other asset classes? But the only asset does you want is a crypto then. Yeah. But you have to look, I would say, look holistically at everything of what, of course is a place of non-US person, because if you’re a us person, well, they are IRS at this point at time sees crypto as a, as an asset, as a property. It doesn’t see it as a currency as Portugal does Portugal bill, for example. So, these are the currency Thank Switzerland as well. So, if it is that, you know, it depends on it. Again, it depends on one side can fiddle. It depends on your personal situation and your business, your, your wealth.
Oh, we have one more question. As we approach the top of the hour as a US citizen, living in Indonesia and conducting business online with international clients, how to optimize a worldwide tax issue required by Indonesia and avoid double tax?
Well, as you’re in Indonesia does tax you on your world-wide income once you are deemed to be tax resident there, and historically they would have been more or less turning a blind eye, but within recent times have been high profile cases were the tax authorities had been proactive on Farnaz, who all being based there. We have seen some photographers. I mean, this is quite common. Photographer’s in Bali who will obviously be doing some sort of shoot there being, you know, questioned and so on. And when I visited the US embassy in Jakarta someone a consul official did tell me that he has one or two members of his team. They seem to be almost permanently dedicated to getting US persons out of trouble when they were in Indonesia, working with our permission. So, but anyway, the you see where I’m doing with this. You need to register; you need to get your key test. You need to register, you need to properly pay your taxes in Indonesia, you need to do the right thing. Now you there’s a, there is a double tax treaty between the Indonesia in the us, but you don’t necessarily need to rely on that because the US does, you know, as you probably know, from doing a tax, which is this for a triple one, six, which gives you foreign tax credits on Taxes paid in Indonesia. So, you will not be taxed twice. Once you have a professional, once you have a team that knows what they’re doing, a repeat, you should not be taxed twice. You should not be taxed twice. You don’t need to worry about a double tax, but Indonesia does have the right to attach any worldwide income. If you’re a resident in any part of their jurisdiction, exceptions, of course the rule. Yes, you can. I think there’s by term and in town, or there are some special economic zones where they have their own tax. But very, I, I see very few there that they attract people into like manufacturing and some tourism related stuff. So, I’m assuming you’re not in any of this special economic zone that you had some, one of the other 17,000 islands in Indonesia where you are subject to the irregular tax regime. You will be taxing a worldwide income and no, you will not be double taxed once the team knows they are doing.
And with that, I thank you for your time. And I quite enjoyed the engagement as always, please have a look at HTJ.tax where we have upcoming webinars. I think we have nine upcoming webinars on the website. If any of them interest you, please feel free to join us and let’s continue the conversation. Have a good morning, have a good evening, have a good night, have a good day, depending on where you are. You’ll see you next time
Here are four ways we can help you.
- Sign-up for a free webinar on US Expat Taxes and International Entrepreneur Taxes at www.HTJ.tax
- Stream premium education or videos at www.HTJ.tax
- Contact us for Tax optimization consult via zoom
- High Net Worth. We can quote for doing your US International taxes returns.
Our books and upcoming events are available at HTJ.tax. Please subscribe like, share and comment down below or email us at email@example.com to engage us to advice on international tax or business matters.