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VOICE OVER:
This podcast channel it’s about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax
DERREN JOSEPH:
Okay. So now we are live. What I will do is I will just able the waiting room. Okay, we’re in, so good evening, good day, good morning to everyone, depending on what part of the world you are, thank you. Thank you for joining us. And what I need to do aside from welcoming, you guys is apologizing. We had a massive, we dropped the ball, we really did. And that we, this event was meant obviously for now which will be 6:00 PM Eastern Standard time. But unfortunately, we incorrectly posted it in Eventbrite as 6:00 PM Singapore time, which would be 6:00 AM Eastern standard time. So, for those who did rearrange the schedule and whatever, I sincerely, I sincerely, I sincerely apologize.
So just a bit of an admin notes, this is being strained. So, if it is that you, you don’t want your, your image to be shown, please keep your cameras switched off and also please keep your mic muted until the end when we might do some, some Q and A please. So, what I thought I will do this time. So, we’ve been doing this, this live stream/ webinar for Location Independent Entrepreneurs, otherwise known as Digital Nomads for a while now. And typically, what we would do is I’ll go through a few slides to kind of set the context and basically to answer some of this simpler question that people may ask. Now, because I think the audience is becoming more and more sophisticated. What I’m doing is I’m going to try it a bit differently this time. So, what I’m going to do is jump straight into the Q and A. So, thank you for those who did send questions in advance. They have been, well-received sorry. I’m just checking. Yep. Making sure that everyone else is on. Yeah. So yes, all your questions have been well received. Thank you for sending them in. So just an apology in advance. We may or may not be able to get through all the questions because we did get a few for which, you know, we’re grateful. I’m glad that we have that level of engagement. So, without further ado, I’m going to jump in, but please bear in mind that normal protocols apply, which means that I have to remind you that I may be a tax professional, but I’m not your tax professional. So, nothing we say here should be construed as advice, consider it like an entertainment, not entertainment, but an educational piece. What we’re going to do is talk about the general principles that may apply and perhaps the key points that you need to take on board as you speak with your own personal tax professional. So again, this is not advice and I’m not encouraging anyone to pay less than their fair share of taxes in any jurisdiction which you’re exposed.
So again, we need to put those disclaimers in place for just to kind of set the scene and to prevent any misunderstandings. So, I have to stop to a crypto. That is, I mean, without a doubt, perhaps in number one conversation piece right now as a one commentator, put it, it’s rendering all the other asset classes, largely irrelevant. So, we’ve had, you know, I’m not kidding when I say almost every day, I’ve had someone reach out to me who has benefited from the bull run and crypto and you know, some peoples, someone today he was up 1.2 million, 3 million, somebody else, 9 million, somebody else, 18 million. So, people are sitting on top of a lot of gains and that is leading to the obvious question. Will you know? Okay, well let’s think about the tax, the tax consequences. Yes, I’ve done well obviously, but there are tax implications and we need to think of that. Now two jurisdictions tend to come up, at least in the conversations that we’ve been having. And those two jurisdictions are Portugal and Singapore. So, I’ll touch on both of those, but before I need to point out that a lot depends on where you are tax resident. And for those who may be US exposed, i.e., they have a us passport, a US green card, and they may have triggered what we call substantial presence by spending a lot of time in the US.
You have special consideration and you should definitely speak to US qualified tax advisor. The US is taking crypto very, very, very seriously. And we get into the US side of things in a bit more detail in our next live stream, which is in about 24 hours’ time. So, I won’t get into too much detail now because we take a deeper dive into the US side later on. But I just want to establish that yes, the IRS is severely backed up. I think in December, they’re like 12 million items of unopened mail and things are really backed and that they’re suffering a staff shortage.
The deadline has been pushed back for mid-April to mid- May, but at the same time, while they are strapped for resource in so many other facets, the one space in which they have got permission to recruit as crypto. So, they are taking crypto extremely, extremely, extremely seriously. And if you look at the new redesigned Form 1040 at the very top, one of the first questions they ask you is, have you been dealing, have you had any, you know, deals, exposure to crypto for the past tax year? So, we do not advise anyone taking any shortcuts once you’re US exposed. You need to take it pretty seriously. Now, what about those who may not be as exposed as I mentioned before, Portugal and Singapore have come up a lot. Now I did write an article, coincidentally, in the magazine, a new magazine called the Portugal living magazine in which I kind of dig. You know, I took a deeper dive into the crypto side of Portugal crypto nexus, but keep in mind that is please consider that as so much understanding when it comes to tax rules, tax rules are very, very nuanced. And I shouldn’t have to say this, but it is extremely nuanced. So, where you see websites with people making sweeping statements.
So, I can live in Singapore, I can live in Portugal and I enjoy my crypto and it’s tax-free, not exactly. Now on our website, HTJ.tax we also do a webinar every once, every three months, I think on Portugal. So, I team up with my colleague Augusto, who is a Portugal qualified tax lawyer. And we also do webinars on Singapore as well and I team up with my colleague Boon Yip who is Singapore qualified. And so, we can, we can take a deeper dive into that. So, but just have that helicopter view. Yes, Capital gains maybe tax-free but trading, crypto trading is not tax-free in Portugal. And in Singapore, since Singapore follows English type common law. So, for those who may come from that legal accounting background, you may remember back in the days when you’re studying something called the badges of trade. So, the tax authorities in those that derive from British law. So, this’ll be like Canada, Australia, New Zealand, Hong Kong, Singapore, Malaysia, and so on. They look at what is, yes, capital gains may be tax-free, but there’s a fine line is a great line of it’s a blurry space in between holding an asset, selling it and having a game and actively treating in it.
And so, we’ve had clients come on board who are active crypto traders, and they do hundreds of thousands of transactions per day, sometimes. So definitely that’s an example of trading. So you’re looking at the frequency of the transactions. You’re looking at the holding period. You’re looking at the source of your finance, the amount of time that you spend invested in the activity. So, we can get into that on the Singapore side and on the Portugal side, in those relevant webinars. But just to keep in mind that if you thinking I can live in Portugal, I can live in Singapore and my crypto will be tax-free. If you are a trader, that’s not necessarily the case. And also keep in mind that Portugal, once you become a tax resident in Portugal, you may be subject to tax on your worldwide assets and you declare your worldwide income tax and you declare your assets worldwide as well your financial assets, bank accounts and so on. So, it is a worldwide tax jurisdiction. Yes, you have the Non-habitual Residence Program, but if you are not careful, you may have unexpected surprises. Singapore is a simpler tax jurisdiction because of territorial tax. But anyway, we can get into that at some future point in time at those relevant webinars.
Next topic that came up that you guys asked for, you know, some sort of discussion around would-be non-US exposed persons using US LLCs to run your online business. And if you’re based in a jurisdiction, for example, Portugal jurisdiction outside of the US. A jurisdiction with a treaty, a double tax treaty, like a European country. So, I know that there’ve been some actual cases that have gone to the, the tax court or the relevant body in Singapore and Portugal.
And I’m using Portugal as an example, but similar principle can apply to Spain or France or Germany, wherever the case may be. Now, we need to consider that a US LLC is a hybrid entity. So, it’s not exactly like associate name. It’s not exactly a limited liability company in the way that it may be construed or understood in Europe. It is to some extent a pass through. So, it has some characteristics that make it similar to a partnership or sole proprietor and some characteristics that make it similar to a limited company so there’s a hybrid entity.
So again, just recognizing that is why we say yes, you know, you can go online and somebody who form an LLC for you for $99 but you need to sometimes depending on amounts of money, depending on the nature of your business, you may want to consider getting proper advice before jumping into a situation like that. Now, yes, there were some cases held where the distributions from an LLC in the US were treated as dividends in Portugal, Germany, and some of the jurisdictions. And, you know, therefore you can use a treaty and therefore you can use the non-habitual residence program and basically enjoy tax-free income. Now we’ve seen discussions around that and people have approached US based on that, but we are very careful. We don’t paint with a broad brush. It depends on the fact pattern. It depends on the individual circumstances now that there are some cases where that may indeed be the case, and we would work with you on that. But if there’s no substance in the US i.e., you have no roots on the ground in the US and you run that entity from Portugal, just using Portugal as an example, then, you know, from the view of the Portugal tax authority management control has been exercised from Portugal, even though that company is incorporated in another jurisdiction, management and control has been organized as being done, you know, minded management, management, and control, you know, that’s permanent establishment.
I’m just using all the jargon that you would hear among tax professionals, management and control is in Portugal. So therefore, the tax authority in Singapore and Portugal, sorry, reserves the right to attack that LLC, as if it were Portugal company, even though it is incorporated elsewhere. So again, that’s why we always say tax rules and very, very nuanced. Yes, it can be an LLC distributions from an LLC can be treated in US LLC can be treated as dividends, but not if management and control has been exercised elsewhere, you must have substance to demonstrate that management and control has been exercised within the U S then it would stand up and, and, you know, then someone told me I’m being completely honest is, you know, that put the tax authorities in Portugal or Spain, aren’t sophisticated enough to figure that out, to me, it really doesn’t matter.
You know, we follow the rules, we, and that works for not just for ourselves and protects our licensed, but works for other clients as well as you may or may not be aware. And I’m sure you’ve seen it on movies, that when someone is found running afoul of the law and especially with the tax laws, one of the first things that authority may ask is who advised you. And they’ve given the name of the firm that you call. The next step for that tax authorities to check, to see whether this is a habitual offender or habitual enabler. In other words, they start auditing all the other clients on the books of that company. So, if it is you go and you sign up with a tax professional that plays fast and loose with the tax rules. If a bear thousands of clients ever get caught, or their clients may be subject to increased scrutiny and including you, because you signed up with them, perhaps knowing that they play fast and loose. So that’s why we do not play fast. And it’s not just for ourselves, but to protect clients as well.
Next point and it’s kind of related to another, someone else came up to us, came, approached us and was asking about again, this person is US exposed and they are living in a Southern European country. And I need to see which one, and they were inquiring about, they have friends and they knew of other tax professionals that advise them if you have, like, you can use a relative’s address back in the US even though you’re living in the Southern European country, use a relative’s address back in the US for you to file it for me to, you know, to, which is an application for US residency. And you get a US residency certification. So basically, even though you are in that other country, in Southern Europe, for example, and you made triggers tax residents in that other country by virtue spending a lot of time there, you can get a form mediator to you, file it. You get a resident certificate from the US and you use that you show that to the tax authority, not Southern European country, and you invoke the relevant article of the tax treaty, and you will be relieved from tax in that Southern European country. Now, that is part of our understanding of that as part of the tie breaker provisions of the tax treaty and what the tiebreaker looks for is, first and foremost the existence of a permanent home back in the US which is why they use a relative’s address, but that your center of vital interest means in the US and if you spending most of the time in that Southern European country, your center vital interest is not in the US and your, your place of habitual aboard is not in the US. So, we believe that to represent yourself as if your center with back in the US and your place of habitual aboard is back in the US when it’s plain to us, when we examine the facts of your case, that it is not, again, not as a dishonest, and we don’t play fast and loose with the tax rules. We know that there are tax professionals who will be happy to take your money and do it, but in the long term, and the long run, that stuff comes back to bite you, and we don’t play those games. So that’s that point.
Moving on, next question. Now, while we go moving to Asia, but, and someone living in Bali, which of course is a popular jurisdiction or a popular destination for those who are location independent, those who consider themselves as digital nomads, they’re setting up a company in Bali and Indonesia and then, you know, they’ve got to run some sort of business, it doesn’t matter what it is and they want to bank in Singapore, which makes sense because the banking and for the financial infrastructure in general, in Singapore, is a lot more attractive and easy to deal with. So we get that, but some way in that is the assumption of understanding that because the money does not come into Indonesia, even though it’s earned from providing a good own, you’re selling something from Indonesia, and you are tax resident in Indonesia, you and your business partners, somehow this is the mistaken belief from what I can read in what you’ve written, that if the money does not come from Indonesia it won’t be subject to tax, and that is not actually correct. Once you are based in Indonesia, you’re based in Bali, even though you may be working online and the money remains in a bank account in Singapore, US, or Europe, or wherever Australia, wherever the case may be. The point is that the business is being operated from Indonesia. So that income is taxable in Indonesia, even though it may not be remitted into Indonesia. And we know that there’s some jurisdictions that do have those rules, so it’s easy to miss to mix them up. So, for example, Thailand, depending on your circumstances, you can be earning money online. And as long as it’s not admitted into Thailand in the same year, then it’s not technically taxable in Thailand. So, we know, but Indonesia is a different, you know, Indonesia is very different. It is one of the more aggressive jurisdictions in terms of tax, to be honest with you. So, you know, we don’t, we don’t try to mess around with Indonesia at all. So, you’re running a business in Indonesia, regardless of where you bank, that income is taxable in Indonesia.
Next question, someone else asked, aside from crypto, one of the most profitable businesses for many of our clients has been PPE. So personal protection equipment, so masks, gloves, and, you know, sanitizer, hand sanitizer and stuff like that. So again, some people have been lucky enough to get in really early. So, you can, you been selling on Amazon and Walmart and some of those platforms, but, you know, things have become quite controlled right now. And that’s another conversation. But if it is you’re selling online into the US, and you’re selling your PPE, selling whatever physical product, be mindful that you may have to initiate some sort of what we call an access study, because people tend to think really quickly about your direct taxes. So, you have your individual tax and you have your corporate tax for your company, but they’re also indirect taxes. So, what we call VAT in Europe or GST in Singapore is called sales and use taxes in the US and by virtue of selling stuff online, you made that, you create what is called an economic nexus with certain jurisdictions, and you may be subject to sales and use taxes. So, you need to speak to a professional. I know you do a quick Google and it says, well, you know, the threshold is 200 units. So, a hundred thousand dollars, not exactly the over 10,000 sales and use tax jurisdictions in the US you know, each state is witness substance further subdivided into sales and use tax jurisdictions. Some, I mean, that is a good rule of thumb. I’m not knocking it. You’re 200 units, $100,000, but bear in mind that some jurisdictions have a lower threshold, a hundred units, $50,000. Some of them have a click through an access. If you’re marketing to someone in their jurisdiction, even though the sales may be low, you may still be subject to taxes. So, you’re better talking to professional rather than because, remember, all States are strapped for cash right now because of the extra expenses. So, they’re not about to miss out on claiming money for online selling. So, at some point you may be found out and you’re going to have a whole world of hurt. So, get advice upfront, registered necessarily, stay on the right side of the law. And furthermore, if you have more than one economic nexus, but you have a physical nexus in a state, for example, how’s your product in a warehouse, in a given state that may lead to actual income tax, nexus income tax liabilities as well, and forget sales and use tax. Yeah, that’s a given which you may actually be subject to income tax in that state income tax. So again, I know things have been going amazingly well, but don’t forget the tax consequences, please seek advice.
Next one is Barbados. For many of our clients, Barbados, for those who are more familiar with Barbados than others, it is a super popular jurisdiction for location independent entrepreneurs and digital nomads. The welcome visa, which was launched in Barbados, their welcome visa that was launched last year and has been enormously popular. I have not been back to Barbados since the pandemic, but it is a super popular jurisdiction for clients from, I mean, obviously from the US and the UK, but as far as Australia and even South Africa, we’ve heard, you know, we’ve had people reach out to us and they’re in Barbados, really enjoying it right now. Taxes, now they did a quick Google. Some people wouldn’t have done a quick Google, which is right thing to do. You’re trying to educate yourself and you’ve seen, oh my gosh, just like many of the jurisdictions that you’ve come from Barbados does have the equivalent of substantial presence. If you spend more than a certain number of days in Barbados, you will be subject to taxes, according to the income tax act in Barbados, but specific, you’ll be pleased to know that a specific carve out was created for the welcome visa. So at least for the first year of your residents under this welcome visa, you will not be, because you’re still working online. We know that you are not subject to tax in Barbados based on a normal tax rules, this special combo it applies now as to whether this tax-free status rules into your second and third year, we need to talk about that. But at least for the first year, you’re good. Now, if it is you’re US expose, that means you’re just going to be paying and filing and paying taxes back in the US alone. But what about if you are not US exposed and you’re living in Barbados where you paying taxes, now, this is where you need to speak to your advisor. Because the last thing you want to do is create a situation where you’re not tax resident anywhere. I know according to strict interpretation of the rules, you may be able to achieve that. You know, for some people that is the most desired status, we get that, but there are consequences, especially when it comes to banking, because when you speak to some advisors, they just keep their hat on and they remain blind. Or they’re just not aware of the banking rules that are becoming more and more difficult to deal with. Everyone who has done business internationally is aware that banking is the real challenge right now. You know, even if, you know, your Stripe, your PayPal or whatever, just anything that the bank doesn’t understand, their default position is we’re going to lock you, we’re going to lock you out, we’re going to block your account. And every once in a while, the bank properly reserves the right to check it on his client. Hey, we just reviewing your client list and making sure everyone is happy with our service. We want to ask you something, you know, we want to ask you about your account activity. How are you earning your money? And he may say, okay, that’s cool. You know, that’s all good, I’m doing stuff online. I’m doing online marketing, I’m a coach, you know, I’m a therapist, whatever the case may be, and everything is online, my clients remote. Okay, fine. But you understand that we have AML or anti-money laundering rules. Can you prove to us that the money has been legitimately earned? Well, you may think, well, I can show you my invoices, but give anyone five minutes in Microsoft Excel that can create invoices, right? So that doesn’t really count. The one thing that I can tell you that banks feel very comfortable with is seeing a tax return. So that way they know that they’re not going to get in trouble for enabling tax evasion and that they are not going to get in trouble for needling money laundering. So, the important thing is to show them that the money has been legitimately earned. And the one document that creates the greatest measure of comfort with your banks, a tax return.
So, if you try to live that tax-free life that you run the risk of being you finding yourself in a sticky situation, which we have with clients. We’ve had clients that have been locked out of the banking system, because they have been working for a period of time freelancing, and they have not been paying taxes anywhere. And they get to a stage where they can improve the big money that they have been accumulating in. Their bank account has been legitimately are. And that creates no end of problems. But so, I’m just giving you a heads up when it comes to that. So, moving on from Barbados and tax residents, next question that was posed was right. Someone is, they are remote worker and they are working right now, somewhere in Southeast Asia, which is fine. Don’t need to say where it is, but somewhere in Southeast Asia, now the company wants them to come and do some training in the US they’re not a US person. The company’s HQ is in New York and the company wants them to come and spend a few months with the head office. Okay, fine. No, they are going to enter the U on a J visa. So, the question is, would they, the entire situation, the entire worldwide income be subject to US taxes? And the answer is yes. So, looking at strict interpretation, reading Section 7701 of the US tax Code is yes.
If you spend more than 183 days, the 183-day rule, you will be subject to US taxes on your worldwide income. The 183 days have calculated a bit differently. Like it would be in Canada or Australia or Portugal. So, it’s calculated a bit differently. And that is a look back period of a few of two years or whatever, but just to keep it simple, there’s a 183-day sort of rural. Now, this is where it’s helpful to get advice. You really need to seek advice. And in this case, you’re going to be talking to both an immigration attorney, as well as a US qualified tax professional.
Why in the US there are at least 130 visa categories, and each of them have their own nuanced rules. Now, if you’re in the US on a J visa or Q visa, even though you trigger a substantial presence as per Section 7701, you can be seeking classification as an exempt individual and therefore not be subject to tax on the income that you earn while you in the US. But the rules are very, very precise because it’s, again, it’s a carve out. So, you need to seek advice. So, you’re doing the right thing, but you just need to seek advice to make sure you have no unexpected consequences of spending time in the US.
So, moving on right now, we come to Estonia. We’re going to talk about is Estonia. I know Estonia is super popular. Estonia has its promoters as there’s Belize or Panama. You know, everyone, every jurisdiction has its fan. So, Estonia has no shortage of fans. Can you talk a bit about Estonia and similar companies with deferred corporate tax regimes and how this fit into other countries, tax regimes, blah, blah, blah, blah, blah? Okay. So, for those who are not familiar, Estonia is super popular for a number of reasons. And one of the reasons is that corporate taxes, you are allowed to defer corporate taxes until you take a distribution, you take a dividend payment until you take money out of the company in the form of dividends, you don’t have to pay taxes. So, you just let it roll over year after year, which is amazing. And that’s a great opportunity if it is that you’re building a business and you really want to reinvest every penny that you make and build that company. So, you know, it’s, so those who are fans of Estonia that is absolutely justifiable, given that huge benefit, that huge opportunity, but again, one size doesn’t fit all. It works for some people, it may not work for others, and you should really seek advice to make sure that it’s the right fit for your situation. So, if it is that you are digital nomad, if you are location independent professional, remember what we mentioned, we kind of touched on earlier, the idea of permanent establishment, which is a technical term, but basically where’s minded management being exercised, whereas management and control. If you are a one-person company, or your business partner, if you’ve you guys, and you’re starting a company, where are you, where are you based, where are you located? Because even though it’s an Estonian company and its base, it’s incorporated in Estonia, if you guys decide to live in Portugal, or if you guys decided to live in the US or Bali or whatever the case may be, and you run that company from that jurisdiction, the tax authority in Bali or Portugal, or wherever, reserve the right to attack that is stolen company as if it were a local company. Why? Because mind and management are being exercised from within their borders. So yes, those rules that does amazing benefits can be enjoyed with a Portugal company, but there’s always fine print when it comes to taxation, there’s always fine print. So, in order to do that, you need to have substance and what we call substance in Estonia. So, you need to have key decision-makers sitting in Estonia. So, one of you, you need to sit in Estonia. You ideally, or you hire a CEO, you know, whatever, speak to, whoever’s advice you to set up a store there and make sure that the way your situation is structured allows you to enjoy the benefits that you’re looking for. So, you know, my little feedback from, for non- US persons.
And, you know, with these questions have to answer US persons separately. From non -US persons, again, you know, for those who may be, again, they’re in jurisdictions with a double tax agreement, double tax treaty with Estonia, and remember that all the most tax treaties, they follow a template, right? And they therefore have a standard, what we call a limitation of benefit clause. So, in other words, it is intended to discourage what we call treaty shopping. So, people setting up companies in jurisdictions just to enjoy the benefit of whatever the treaty might give them, if it is you are not, if you’re not physically, if that company is not an Estonian company, as in the company is being run from Estonia, it is being managed as being controlled for Estonia. There will be a limit, there’s the potential that you may not even be able to enjoy tax treaty benefits because from the tax treaties point of view, it may not actually be an Estonian company, even though it’s incorporated there, right? Because you’re running it from somewhere else. Now, those are the non-Americans. Now let’s talk about those who are US exposed by virtue of having a US passport or a green card, or what we call substantial presence under Section 7701, you have an Estonian company. Now it depends the way it’s treated again, depends on where you are. You know, we’ve established on whether you are, would have an impact, but the added layer of complexity is the fact that you may be US exposed. So, we need to determine whether it’s what we call a CFC, a controlled foreign Corp, or not if a controlled foreign corp, by virtue of the Estonian shareholders, those shareholders in this Estonian entity being more than 50% US exposed, then certain rules that apply. And this is where we talk about stuff like GILTY, this is where we talk about stuff like Subpart F, we talk about stuff like PFIC, and it’s perhaps beyond the scope of what we’re doing here to take a deeper dive into as I mentioned earlier, we ended about 24 hours’ time, we do a specific livestream on US issues only. So, we’ll take a deeper dive into that then, but just the point I want to leave you with, as you speak to your advisors, always get advice from someone who understands your situation inside out is that even though Estonia may allow you to defer paying taxes until there’s a dividend payment, those anti-deferral rules are just that they’re anti-deferral rules. So even though Estonia may have one rule, the US may see differently for some control foreign Corp, or even if it is not even a CFC, but if it’s minority health and it’s involved in, if it’s what is called a PFIC or passive foreign investment company, because a certain, it passes the asset tests and the earning test, so it’s deemed to be a passive or a company that is built or created for investment income as opposed to being an actively a trading company, then special rules that apply for that.
So, my point is that you can’t assume that the benefits that you saw on the website would apply to your circumstances. You really should take advice just to make sure that the actual consequences aligned with what you expect them to be. And I think people well familiar with guilty right now, which is the global intangible low tax income tax, which came in in 2017 and president Trump. So that creates a deemed dividend payment. But then I think there’s right now, there’s a high tack, a high tax exemption. So, any jurisdiction with a headline tax rate of more than 18.5%, and it’s still is 20%. So, it should not for, for under guilty, but you have to be careful with Subpart F and P facts, and then bear in mind that the other jurisdictions as well, when you eventually take that money out is going to be taxed at 20%. Plus, there may be some withholding on the dividend side, but they headline tax rate is 20% when you pull it out. I think Bulgaria is 10%. Ireland is 12% Singapore, 17 Hong Kong, 16 and a half. Dubai is tax-free. And the IBC in Dubai or certain Caribbean islands actually tax free, or you can elect to pay a tap as low as two or 3%, because, you know, because of what we said before with banking, and you want to file a tax return, like a St Vincent IBC, you can elect to pay a two- or 3%-income corporate tax.
So, if it is that you’re looking at tax efficiency, there are lower tax jurisdictions, but also bear in mind that unless that once you spend time somewhere else running that company, it becomes taxable in that jurisdiction. So, if you’re going to be in Bali running that Estonian or that Caribbean company is going to be taxable in Bali or taxable in Malaysia as the case may be. So again, please seek advice. Next question. Can you talk about being self-employed and filing and paying self-employment tax in the US while resident abroad? How can the fact that you do this be treated by the countries that you resident in and as a US have any problems with you doing this while you’re okay?
Right. And this is a US specific question, which of course we get into a lot more detail in 24 hours when we do the live stream on US only, but just helicopter view, if it is that you very few people, when they do proper tax planning, please pay self-employment tax because there’s regular income tax and then there’s self-employment tax that 15.3%. Very few people want to do that if you’re abroad, because one of the advantages of moving abroad is you get to enjoy the foreign earned income exclusion, which excludes the first, it moves it inflation. But right now, it’s around $176,600. Yeah. You get to exclude that you get to enjoy that benefit. You get to enjoy the housing deduction and you get to legally avoid self-employment tax. So, you know, for whatever reason you may want to pay it, if it is that you are making, if you probably in five figure burning region, quite are into six figures so it may be prohibitive to form a company and create a legal structure that allows you to legally avoid self-employment tax. So, we get that. If you are a low-income earner, you maybe start paying self-employment tax. Now, if you’re in Europe, for example, and you are in a country with a double tax agreement with the US, chances are you may also have, and you need to check with your tax professional, that there’s a totalization agreement as well. Once there’s a totalization agreement, which again, this fall, none of that, the IRS per se, but under the social security administration, it allows what the social security administration does. And even though that your tax return does say, Hey, you need to pay self-employment tax. It would recognize if you are registered and paying the equivalent of self-employment tax. So, some sort of social security payment in the jurisdiction in which you not reside in Europe or whatever, the case, typically, Europe, that this topic comes up. So, you can invoke a totalization agreement to legally avoid paying self-employment tax. So, there’s a mutual recognition between let’s say Portugal and the U S or the, you can be in the U S Ireland in the U S and so on. So, you can legally avoid paying self-employment tax. And they would recognize that the contribution that you’ve made to the jurisdiction in which you now reside. So, you’re not going to be taxed twice kind of thing. But for the most part, we, as I mentioned at the beginning, we kind of, we sit with our clients and we assuming that they can afford it, of course, because not everyone can we really coach them and we understand their situation and try to see whether creating an offshore company as in a company that’s offshore to the US may not work best for them if they’re not able to invoke a totalization agreement. So, they’re not in a European country, for example. So, we work with them to create an offshore structure that tends to be a lot more tax efficient. And of course, you can create your own savings vehicle, investment vehicles as you plan for your pensions. Hope that answers that question.
Moving on, offshore banking. Right. So, I mean, offshore banking, it is sometimes treated pejoratively as sometimes viewed in a negative when I guess, because of the media has become synonymous to being bad things, but it is a legitimate tool that you have access to. It is a legitimate tool. So, if it is that, you know, remember no one country is perfect, no one jurisdiction is perfect. And that’s where for those of you familiar with flag theory, that’s where Flag Theory comes in. It’s an acknowledgement and a recognition that is no perfect jurisdiction.
So, for example, people love, I think like they, I know people like they’re hyping up Portugal right now, but honestly, I think Dubai or the United Arab Emirates is one of the best jurisdictions out there right now for what you get is income tax-free, it is corporate tax free. And, you know, while many like Europe, North America, most of Asia, Australia, New Zealand, they’re all close and nonessential travel the United Arab Emirates for the most part wide open. And they are open for business. So, if it is you’re running your business, you’re doing things. I mean, that’s a hard jurisdiction to be in right now. I honestly believe so well, it’s hot, but it’s good. But and this is what everybody tells the banking isn’t so good. When you look at a list of the strongest banks, you probably not going to see a bank from the United Arab Emirates, and you know that they had some financial trouble and the not so in the recent history, they have had some challenges with their financial system. So, it’s, if it is that you’re looking for a place to store your wealth, it’s a great jurisdiction to maybe form your IBC to get residency, but to bank maybe I don’t think many people would argue if you see, you know what, Singapore’s a great banking jurisdiction. Because when you look at the strongest banks in the world, the most robust and most well-capitalized banks in the world, you will see Singapore span there.
So again, you know, one size cannot fit, everybody, right? So, bank in Singapore. So, depending on your situation or some jurisdictions, it’s just really hard to open a bank account, even if you live there. So, depending on your situation, you may end up having an offshore bank at a bank in a jurisdiction other than where you are resident and that’s okay, what’s this a legitimate business and reason commercial reason for so doing that’s okay. Now, where I think there is perhaps a misunderstanding is thinking that this is somehow going to help tax wise. Not necessarily depending, you know, it depends in your situation. Of course, no one person, two people on the same. Right? But you, if it is that you are working in, you’re earning money, let’s say in Portugal or you are based in Costa Rica or Colombia, and you are running your business from there. The fact that you don’t bring the money in a new bank, you bank the cash in another jurisdiction does not necessarily relieve you of the obligation to file and pay taxes based on the money that you are earning from within their borders. Now there’s some exceptions to that. So, for example, some jurisdictions have special carve-outs. So, we spoke about Barbados earlier. So neighboring Island Dominica has also followed one, one of the islands that not only allows you to have citizenship by investment, but you can also have residency just like Barbados, just like Bermuda, just like Portugal as a remote worker, as a location, independent professional, as a digital nomad, you can set up and you can get a visa to reside in Dominika. But when you trigger tax residence in Dominica, you need to speak to a tax professional. But generally speaking, if that money is brought into Dominica, it may be taxed. Same, like if you are in the UK and you register as resident, so you’re not a Brit, but you have legal residence in the UK. You can register with a special tax regime that is commonly known as Resident Dom. So, resident not domicile. So, once you don’t bring that money in, it’s not tax, and you’re not, you’re going to get, like, if it’s investment income, it’s fine. Or if you’re in Thailand, we mentioned Thailand earlier so there are jurisdictions like that where once money stays outside and can have a tax benefit. But generally speaking, if you’re earning money from within a jurisdiction, it becomes taxable. Even if it does not come in, generally speaking. So please bear that in mind when you conceptualize offshore banking.
Next question. Could you talk about tax efficient vehicles for retirement savings? Obviously, retirement accounts are difficult from an international tax perspective and lots of countries won’t respect the tax benefits, blah, blah, blah. Yep. You’re absolutely correct. So just because something is a tax preferred vehicle in one jurisdiction, like a CPF in Singapore, MPF in Hong Kong, you know, certainly in the UK, it’s not mutual recognition. So, it’s a tax benefit in one jurisdiction, but not in the other. And if you are a digital nomad, location independent chances are, you will always be planning with more than one jurisdiction in mind. So, you need to be conscious of that. But what may be tax preferred in one jurisdiction is not in another. Now then what do you do again, as would be the answer to all, everything that I say you need to get proper advice, to be honest with you. So, you need to understand the jurisdictions in which you’re exposed, and you need tax professionals who are familiar with all the jurisdictions in which you’re exposed, and that will help you. We are not, we, I mean, we, my company is based in Singapore. So, the monetary authority of Singapore is pretty strict. So, they, we can give tax advice, but we have to be very careful when we step on to financial advice, but we can recommend if you are us exposures and you are working internationally, I know it’s really hard because the normal platforms tend to kick you out. Like, you know, Schwab, you know, we’ve heard that once they see a foreign address, or even if you use like a relative’s address, but you log in from an overseas IP, they will pick that up and they’ll lock you up. But we can recommend find that US qualified, qualified financial advisors who can advise you from a US perspective, other jurisdictions, not so much, but the best bet is to understand the jurisdictions in which you’re exposed and speak to someone who’s qualified in those jurisdictions. But the, the honest truth is that you will feel pain somewhere when you are toxic suppose in multiple jurisdictions. What is a tax break in one jurisdiction is not necessarily in the other, so you will be paying tax on it there? So that’s, that’s an uncomfortable truth. That one would just need to accept, unfortunately. So, I’m scrolling any more questions. Okay. If you have any questions and you are on zoom, you can right there, you can just type the questions in the box below. I’m just going to check some of the other platforms now to see with any other comments and okay.
Please just feel free to type your comments down below. So, we have nine more minutes, so hopefully it’s not, I see somebody typing. So hopefully it’s an easy question. So, someone is asking doesn’t sound like it makes too much sense to claim any travel places as a US digital nomad. It depends on what you mean by claim, any travel places. What does that mean? Sorry. I don’t understand. Tax advantages? Yes, there are. I mean, the number one advantage is so, okay. So, like in the US you know, there’s a lot of publicity right now about colleagues and people are leaving California to go to Texas, Tennessee, Florida, whatever people are leaving New York to go to Florida. And by so doing, you automatically save on your state taxes, which is pretty high in New York and California, by moving outside of the US you take that additional step. Not only would you potentially save on your state tax, but on your federal taxes as well. Remember, there’s a foreign earned income exclusion, which one could qualify under the bonafide residence or physical presence. That’s basically the first $107,000 of your income is protected from US taxes. And if you add the housing deduction, now there’s a table that comes out every year. That gives a housing deduction, depending on where you are so simple, it’s pretty expensive. So, I’d only Singapore housing deduction just being random. It could mean $140,000, $50,000 of your income being completely protected from US tax. So definitely there’s a huge advantage to being physically of the US as a location independent professional.
Now, when you are doing well, like the crypto guys that I spoke about earlier, and your gains come into the millions, then, you know, protecting a couple hundred thousand dollars, isn’t feel like much, but for those who are on the five to low six figures, that can be a huge advantage to being US exposed and being outside of the US. So, asking doesn’t matter if you’re an employee or a business owner. Yes, it does because typically as a business owner, you have more opportunities for tax planning, because if you’re an employee, you can only, in terms of tax planning opportunities, would you prefer to advisor? You can really just have a conversation around your salary, right? Or whatever your 1099 type income is but if you’re a business owner as well, then you get to plan not just your personal income tax, but also your corporate income tax. So huge advantage if you are in control of your own business, and most of the clients, we deal with business owners as opposed to employers, as opposed to employees. Another question, and it’ll be the final question as we wrap up, would you mind talking about an example of a past case where you’ve helped digital nomads improve the tax structure, five figure earners.
Okay. So being completely honest, we really touch five figure earners. Most of our clients earn at least $200,000. And many, as we mentioned at the beginning, especially those crypto or whatever, and to the seven or eight figures. So, in terms of someone on five figures, I guess we would make sure that they using the foreign earned income exclusion, as we mentioned, because that is, that has the potential to protect. If you’re on five forgets, that’s all your income. So, there’s, in other words, there’s nothing else to be done, you know, might drop, walk away. It’s done. You can get a lower tax bill in zero. And that’s what the foreign earned income exclusion gives you. So, it’s easy but as I mentioned, we don’t really work unless it’s someone who has a wider business structure, where they may be taking five figures out of their business, but their business is chaining six, seven or eight figures, but they have chosen to enjoy only five figures as they reinvest their profits and, and whatever the chosen asset class, maybe. So, so yeah, on that notes, we’re going to call it a day, morning and evening on where you are.
Thank you for joining us. This video will be available on a website, HTJ.tax, on our YouTube channel, on our Facebook page, and my LinkedIn page on our LinkedIn pages, Twitter, basically most social networks. And we also convert the audio into a podcast and it will be available where you would find your favorite podcasts. So, we basically put it everywhere. iTunes, SoundCloud, SoundCloud, Spotify, Spotify, everywhere. So, thank you for joining us. Visit HTJ.tax, we do have webinars coming up all the time. We have something on US tax in general in 24 hours, we have on Friday nights, Saturday morning, depending on where you are, we have something on Flag theory. We are constantly doing webinars; we are constantly doing live streams. So, feel free to join us, submit your questions in advance or on the day. It’s not a problem. Thank you very much. See you guys next time. Bye.
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