VOICE-OVER:
This podcast channel it’s about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax
DERREN JOSEPH:
Hello, good evening, everybody. And good morning to those that are in different time zones. Welcome to another livestream from HTJ.tax. For those, I’m seeing some familiar names. And for those that it’s their first time we do these livestreams every week or so. So. feel free to visit HTJ.tax for events that may be of interest to you. And you’re always welcome to join us. Everything is being recorded and it will be archived and made available on our website, of course, as well as on YouTube and on Facebook and LinkedIn and iTunes SoundCloud, and about 20 other podcast platforms.
So if you have a friend, a colleague that wanted to make an and can make it, you can send them a link or you can ask them to just visit HTJ.tax and everything is there. So, because it’s recorded, if you do not want your image to show up, all you need to do is keep that camera off for those who sent their topics and questions in advance. Thank you for doing that. We will address them in the order material discussed for those who want to ask a question, you can type in the box below for those on zoom, you can just type in the chat box below for those on YouTube, you can just type below and I’ll check every once in a while.
So, I think that said, but of course, because I’m actually licensed by the US department of treasury. I’m legally required to say that nothing we say here this evening, this morning, depending on where you are, should be construed as advice. You should not take tax advice from any stranger online or anywhere. What you need to do of course, is to engage a professional who understands your situation inside out and is legally qualified to give advice. And then once, once under the cover of a legal engagement and that that’s a different proposition, but right now we’re having a general conversation about general principles.
You can even take it as entertainment, but it certainly is not meant to be legal advice. So without further ado, I’m going to just jump right into the questions that you guys sent me by email and on WhatsApp and on Facebook. So the first question is somebody asking about Spain versus Portugal, which is kind of popular right now. And I guess we get into more of that later on. So, they have been searching for advice online, and unfortunately they’ve been getting conflicting information and there are of course, super confused.
The idea or the issue that this person is trying to solve for trying to resolve is which of those two jurisdictions should they base themselves in of course, everybody’s situation is different and no one size fits all. And we wish strongly resist this idea that there’s this one perfect destination for everybody. Now, the many aspects, both quantitative and qualitative that go into evaluating any given jurisdiction, but for the purposes of our conversation this evening, we’re going to focus on the tax side of things only.
Now in both jurisdictions are pretty welcoming. And from an immigration perspective, obviously the, I mean, they both have golden diesels, which of course is a popular option right now for those who do not want to go the golden visa route and put you on is D2/ D7, depending on whether you want to be earning income or whether you’re going to be surviving on passive income streams and in space. And in Spain, sorry, the non lucrative visa is super popular. And of course the Beckham law is the closest equivalent to the NHR, or the NHR is probably closer to the Beckham law, because I think the Beckham law came first and that both tax regime, they’re both special regime.
Well, I guess I’ll step back and say nothing about Europe, screen stats efficiency. If you’re looking for a low tax jurisdiction to base yourself, it ain’t going to be in Europe. So Europe is probably synonymous with a high attacks with a high attacks jurisdictions. So perhaps it’s just part of the price of success. You know, you want to enjoy the benefits they infrastructure that comes with being based in somewhere like Europe, then be prepared to pay taxes in some way, shape or form, right? Assuming that you do have some means you do have some measure of well, would the NHR in Portugal, the non habitual residents and the backroom law in Spain.
And these are carve-outs which allow you some sort of tax relief depending on your situation and can work in your favor. Although there are circumstances where it may not work a minority of cases, but that probably is beyond the scope of what we’re discussing right now. We’ve written about both of these tax systems on our website at issue did our tax. We have over a thousand articles on international tax issues, but just to kind of get the main points in, in, in Portugal, assuming that you do go NHR, you’re looking of course, a tax and you will find income just like most other places in Europe. There’s a 20% flat tax and salaries and business income, which is deemed to be high value added.
Now we’ve had clients who did apply and there’s a, there’s a, a list of what is deemed to be high value added. And I believe that it’s updated periodically. So don’t assume that you just going to qualify. So again, you want to seek tax advice early on in the planning phase before you entered it, just like this couple who who’ve approached us. So you do get that 20% flat tax as opposed to up to 40 something percent, which is the normal tax bracket for, for Portugal overseas, real estate income, maybe tax-free capital gains and we’ll see securities a taxable at 28%. So your investment portfolio back in the US would still be taxable overseas dividends.
However, a tax-free normally please bear in mind that Portugal has a pretty comprehensive list of blacklisted jurisdictions. So for those who have offshore structures, basically any structure or any jurisdiction that is attractive and low tax chances are, is going to be in Portugal as blacklists. So that includes, you know, most parts of the, you know, many of the popular jurisdictions in the Caribbean and Dubai, et cetera, places in Southeast Asia. So have a look at that as part of the task planning exercise as well. That’s highly recommended it’s everyone raves about how crypto friendly Portugal is, but of course it’s quite nuanced.
So you want to pay attention to that? Yes, the investment income is tax-free, but trading income is taxable. So just please be aware of that. There is no inheritance tax, but there is a stamp duty. So that’s, that’s things in Portugal, Spain, on the other hand, they’re flat tax is not 20%, but around 20, I think it’s 24%, much of the foreign income is, can be excluded just like in Portugal. Now the Beckham law is a bit complicated and it’s kind of annoying if you really think about it compared to other carve-outs like Ireland and the UK have res non dom, you know, Belgium has a similar plan.
I think Italy has something as well. I think Cyprus has something which allows you to live in the country. You pay taxes on income that arises locally, but you find income will be tax free. So in order to qualify for this hair and Spain, you need a job contract from a Spanish company, and there are rules around how much, how much ownership the directors can have and stuff like that. So, you know, you need to get a company form or you need to connect with somebody who does offer that service. So it is not easy to quantify for them back. And law is my point. Many regions have a wealth tax, but not every region does have wealth tax.
So you can pick a region that does not have one, but there is an inheritance and a gift tax. So what does that mean? We, you know, people have come to us, especially after they’ve been burned elsewhere. And what we tend to say is less trust than math. So if they give us their most recently filed return in whichever jurisdiction they are most, when they’re coming from, whether that’d be a U S a Canada, UK, Australia, we’re able to run scenarios because we have a qualified tax team in Spain and in Portugal that we work with. So if you look at HTJ.tax, we’ve done livestreams where with Ricky, a tax attorney in Spain and Augusto, a tax attorney in Lisbon, Portugal.
And so we work with our teams and we run mock tax returns. That would say, okay, if you were to move, is let’s say moving from the US this is what your US tax return would look like, hypothetically, and this is what your Spain or Portugal tax return will look like hypothetically. So we can just cut through the, the nuance and you can get, you can quantify what the impact of the move would be. So for some people, it’d be one jurisdiction for some people will be the other, depending on your situation. Of course, there’s more to it than just tax, but that’s an approach that we were spending a lot of time doing, and we believe it’s highly recommended before you move somewhere, rather than, you know, have a, a mock tax return done, just to see what the impact of that big decision would be.
Especially for those who are sitting on a comfortable nest egg. So most of our clients do have the earnings. Are they working still there and things on the six figures or seven, and the net assets, investible assets in seven or eight figures. So these are not decisions that they take lightly. So,it’s definitely worth it. Thanks for asking that. I hope that helps that’s, that’s a process that we would recommend and one size comfortable. And we’ve, we’ve seen many scenarios in which someone thought that they were being tax efficient by moving from one jurisdiction to the other, based on just headline in full forgetting, the tax rules are quite nuanced and when it, and when you dig into it, and when they finally settled, we realized that their tax bill is actually higher, that they may have made a mistake.
So highly recommend get a mock tax return done. Next question. Someone’s asking about a crypto Portugal. So yes, for the most part there’s no, there’s no sales tax or there’s no capital gains tax. So if you are a crypto investor, it’s fine. Jurisdictions like Portugal will work in your favor. However, many of our clients, and perhaps some others amongst you here, crypto traders, and the person who asked this question, didn’t specify whether they were an investor or a trader. So I’ll give both.
So if you are an investor that is, and of course this did that. The distinction is quite nuanced as well, and it’s defined in differently in different jurisdictions. But generally speaking, when it comes to Portugal and many other jurisdictions that we deal with, if it is that your strategy, just speaking very generally it’s to buy and hold, you probably qualify as an investor. In which case you would be tax-free unfortunately, which is good. However, if you are a trader, so like you’re actively buying and selling and the loss of short term gains, and it’s something that you probably doingMfull-time, it’s not something, you know, you have on this side, yielding passive income. You’re actively involved in buying and selling. We have clients that do dozens of trades per day, or a much more than that. If you’re an algo trader, an algorithmic trader, a high-frequency trader that will definitely qualify as business income. So please keep, keep that in mind, trading income is not tax-free investment income when it comes to crypto will be tax-free. I hope that answers your question.
Next question. On the list, right? Yeah. Choosing an international tax advisor. That is, that is obviously quite, quite difficult because let’s be honest. It’s the wild west. Yeah. When you look online, there are many people who are they’re well-meaning, they’re trying to help. Some people are just trying to be super helpful. They, you know, they’re like helping people and they’re giving their advice, but they’re not qualified to do so, which may or may not be an issue. But what it means is that they, you know, I guess, there’s some built-in risks, like for us being part of a medium firm.
So I sit in Singapore and we have off offices, most rolling from as far north, as took in Beijing, down to Sydney, Melbourne, Australia. And we also have offices in Dubai, Portugal, UK, and we are held to account. We have personal liability, professional liability insurance. We are qualified and registered in jurisdictions in which we practice. So if we make a mistake, then we are held to account. We have skin in the game. It’s not, yes, we’re running a business. So we hoping to make money. But if we mess up, we’ll have a price to pay. So we are highly incentivized to be careful, right.
Which is why, I guess when you look online, many of those who are qualified in the international tax base, they, in terms of speaking and giving advice in a free manner, they don’t do so as freely as someone who’s not qualified, because there’ll be no consequences. If they say something wrong, no, don’t get me wrong. It’s just being, not having a qualification and not being registered or licensed. Doesn’t mean that someone knows less because I, you know, I follow some international tax, personalities online, and some of them are not qualified and they are brilliant.
They know their stuff, but sometimes they make mistakes, just like any human being and because many of them work alone. So they’re not part of a governing body. They don’t have a continuous professional education every year. They don’t have people sitting in the office to bounce ideas off of, and to discuss complex cases. And sometimes it just trying to figure stuff out on your own, and that puts them at an advantage, a disadvantage. So anyway, have five things that I would consider in deciding on an international tax advisor. So, you know, as I hinted, they need to be part of a team because I think it’s impossible that one person knows everything.
I think it’s just natural that an individual would have more experience in one jurisdiction or one area practice over another. And when you look at larger firms, they, they are highly specialized. And it’s not that they’re inefficient or being silly. It means that, I mean, the U S task would alone is 12 million words. So, you know, the people that specialize in different areas of federal tax, and then you have 50 states and DC, so you have different state tax rules. Now, one person cannot know all of that. And, you know, similarly in Singapore, yes, someone would know income taxable global corporate tax. What about indirect tax? These are areas of specialization. So bottom line, first, someone needs to be part of a team. Secondly, the team should be quantified and exposed in jurisdictions in which you have some sort of exposure. And I think that that just makes sense. Someone could spend time reading about a jurisdiction online, but that’s different from actually practicing in that jurisdiction. Of course. So that’s number two members of the team must be specialized in multiple jurisdictions. Thirdly, they need to be multilingual. So it’s one thing, reading English, translations of tax rules in Indonesia, for someone living in Bali, but that’s a translation.
It makes a whole lot more sense if that person would speak Bahasa, Indonesia so that they can really understand and get the stuff that may have been lost in translation. So they should, you know, members of the team should also be multi-lingual. So that’s the third thing. And fourthly, you know, they need to be up to speed with all the changes, especially right now. I think there’s no jurisdiction to the sitting. Still, everyone is changing in light of the turmoil that’s going on in the world right now. And physically, physically, you need to get a sense for what the fees up front, you know, there should be some sort of public Fefe shadow for us who are regulated by the American Institute of Certified Public Accountants, AICPA.
We need to have a fee schedule available for clients to have a look at. So there are no surprises at the end. So five points, I think you probably want to consider, they need to be part of a team. They need to be quantified in multiple jurisdictions and, you know, qualified, licensed insured. They should be multi-lingual. They should be proactive and keeping up with the rules and you should have clarity on the fee structure. So hope that helps. Next question. Yeah, there is overlap between international tax and investment migration, right?
So citizenship by investment and residency by investment company, formation work permits, immigration matters because there are tax implications to that as well as immigration implications to some corporate structures as well, depending on what you’re trying to achieve. Right? So sometimes you would need to consult a team that is familiar with the investment migration space or international migration space. How do you choose someone in that space to be fair? I understand that people, I mean, there are people that are helpful, but again, it’s like international tax is the wild west.
Most people that you would find online again, then on licensed, but very futuristic, relatively few jurisdictions require that someone be licensed like in Australia, for example, it’s a requirement that someone be properly licensed to play in that space, but in other jurisdictions now. So I think we’re possible you’d want to avoid brokers because invariably, they are just chasing commissions and they’re going to pass you onto someone else. Who’s going to do the actual, heavy, less heavy lifting. And you’d want to check on whatever jurisdiction you are interested in. You can probably check with a government body website to see whether the team that you interfacing with.
Are they listed on the website? Are they qualified? Have they been licensed or accredited by that jurisdiction? Otherwise you, again, you’re dealing with a cowboy who may or may not know what they’re doing. And unfortunately, given what we do, we have seen quite a few cases where people have been misled or quite honestly, swindled. We’ve seen losses in the five, six, and even seven figures. And you know, many have gone to court. Some people have just disappeared. So, it is crazy town are there, but just bear in mind that everyone is running a business and therefore there may or may not be biased.
We do offer that advice. We do keep a database of, I think, 80 to 90 jurisdictions and the investment migration programs, whether they be residency or citizenship, but we have the information and we can advise clients, but we don’t actually do the implementation. So in other words, we have no skin in the game. We are not incentivized by commissions. If it is that I feel as if my team is specialized in, for example, Caribbean passports, then, you know, when you have a hammer, everything looks like a nail, right? So you would think the solution to every problem is a Caribbean passport or Vanuatu passport or Belize company or Panama foundation or whatever the case may be.
So I would think you just want to work with someone who is not biased in any way or the other, trying to sell you on something that they offer and someone who listens to you and provide something that fits to your situation. We administer a questionnaire with quite a lot of questions, just to get to understand your situation, both personal and professional corporate, and to make recommendations as to what fits, you know, once we make a recommendation, we would pass you on. If you agree with it, we pass you on to someone who is fully accredited to actually carry it out. So this would be someone who’s actually on that country’s website, someone who’s licensed or qualified in that jurisdiction attorneys, accounting firms or whatever.
And you know, so there would be a say, no misunderstandings. And so hope that helps bottom line. If you find a team that’s not trying to sell you a push a pre-packaged solution, which they want to force everyone to chase a commission. So someone with no dog in and raise someone who’s completely agnostic and will listen to you and see what fits your unique situation. Hope that helps. Next question. What is the biggest mistake when it comes to international tax structures?
Pro yeah, I was on a call zoom call just before this, with some entrepreneurs based in a country in Southeast Asia. I won’t say which one. And they have investors as well as team members in a Western jurisdiction. So in north America, so either the US and Canada or Canada doesn’t matter which one. So that’s the way the team is. It’s in, they entities incorporated in somewhere in Southeast Asia. Most of the shareholders on the team is in Southeast Asia, but they also have some minority investors and team members in north America as well. And I think a common, it just reminded me of what I think most common mistake is an international tax structures or international tax planning.
The belief that if you incorporate a country, a company in a different jurisdiction, or if you have a bank account in a different jurisdiction is not taxable where you are for most jurisdictions, not all, but for most jurisdictions, we will plan. There is the concept of nexus or permanent establishment. So if, even if you have a company incorporated in the BVI, for example, or in Hong Kong, if it is, you’re actively running that company in Bali, as in you’re making key decisions on management and control is in Singapore management and controls Australia, even though it’s incorporated somewhere else, it becomes taxable and it’s taxable where the decisions are being made.
So somehow I guess some people, and, you know, it’s no fault because there’s so much misleading information online. Some people believe that the key to tax minimization, the key to tax optimization is simply to pick a so-called low tax jurisdiction, incorporate corporate there and continue business as usual. Absolutely not. Absolutely not. Once you continue to be in another jurisdiction other than where it’s incorporated, it may be taxable where you want, if you are a key decision maker. So in this scenario, which I started off discussing where you have the main part of the team is in Southeast Asia, but you have key decision makers and investors in north America, even though the company is incorporated in Southeast Asia, the company may be taxable in North America because there’s permanent establishment in North America.
You have management and control to some extent, be an exercise in north America. So if you ask me, what is the biggest mistake in international structures, which you obviously you have to be conscious of where decisions are being made, not just where you’ve incorporated, not just where you’re banking, but where are decisions being made? I think that’s number one, the concept called permanent establishment. Number two, the other big mistake that people make is in banking, right? So I think it’s relatively, it’s becoming more difficult for non-residents to incorporate companies internationally, generally speaking, but I think banking is a huge challenge.
And so people incorporate, choose a jurisdiction without being conscious of where’s the money going to flow because international banking rules for a number of reasons we can get into later on international banking rules are becoming more and more strict as I’m sure many of you are aware. So when it’s kind of like the way I explain it, it’s like when you go out to dinner, you go out to a nice restaurant, you go out to dinner. So, you order your meal, your main course being conscious of pairing it with the wine, right? Because the wine has to pay with a meal. Similarly, when you incorporate in a jurisdiction, you need to think of the banking, the banking needs to pair with the company that you’re forming.
So you need to keep both in mind. So, that will be the second. So, to answer your questions, the biggest mistakes, number one, forgetting the concept of permanent establishment and number two, forgetting that banking is super important and becoming quite difficult. So be conscious of where the money is going to flow. Next question. Do you have any thoughts on global minimum tax? Any comments on that? Yeah, we did a livestream on that. I think it’s two, three weeks ago with an attorney qualified attorney from the BPI, as well as another tax attorney, from who practices at a firm in New York, a mid-level firm, mid-size firm, the United States based in New York.
So, you know, that was an interesting conversation. It is, there’s a lot going on, obviously internationally. I think the takeaway is that from most people on this call, it probably is not going to affect them because the threshold is 750 million euros. So if your company has a turnover of some 50 million euros or more, then you will be subject to the global minimum tax, which would probably exclude most of us on this, on this call. Right? So, but, but it is something to look at this whole idea of being of tax-free and not paying taxes anywhere that those days over the, the idea of anonymity and hiding those days over.
So you definitely, if it is that you may have tax exposure in any jurisdiction and you may be delaying coming forward and becoming completely compliant, I always advocate that you should do. So as soon as possible because of free information exchanges and all of these cross-border tax rules, I think, I mean, if it is that you not doing anything much, well, okay. Maybe you’ll be able to fly under the radar, but the people that we deal with they’re on six, seven and eight figures. So they’re not exactly flying under the radar. And when you get caught out, it’s going to be quite painful.
So just make sure that you always get advice. And when you have an international tax structure, I think, you know, we always, I think it’s like having a car, right? So you, you drive your car, but it needs to be serviced, right? Because we’re interior things change. You need to get checked out every once in a while, same as your corporate structure. So because the rules change, it may have been fit for purpose last year, but it may not be fit for purpose this year, or it may not be fit for purpose. Given the changes that are, that are coming in, you know, for example, in the US lots of changes are expected. So tax planning, constant task planning is a must just keep on top of it.
Keep in touch with your advisors, be proactive. Don’t be reactive. Next question. Do I think that they, they increases the coming tax increases would mean that people are going to be at least moving to different jurisdictions. I guess that’s what you’re asking. Right? I’m kind of paraphrasing. So there is this perception that, and, you know, the, the wealthy, they, they go hide in low tax jurisdictions of wiping taxes.
You know, I, it’s something that immediate tends to promote lots of anecdotal evidence that this one entrepreneur, this one investor has done X, Y, and Z. So there’s an academic from his either. I think he’s from both Stanford and Cornell. His name is Dr. Christopher Young and he’s published widely. So what he’s done, I use him as a great resource. So he he’s written a book called the myth of millionaire task flight, hopefully still matches for the rich from, I think he published it when he was at Stanford. And he also published some findings in the American sociological review. This is back in 2015, 2016, I think. And he’s also been quoted extensively in New York times and wall street journal. The point is that he went through U S tax data because the IRS makes tax data available to researchers. Of course, it’s anonymized. So you can’t see who is who, but you can see tax brackets. So the point is when he looked at, you know, years or decades of tax returns, what the data shows is absolutely opposite of what the media publicizes, which is the wealthiest. Someone is the less likely they are to move.
And then he did the same thing in conjunction with Forbes Forbes magazine, because, you know, Forbes does this list of wealthy people internationally and domestically within the us, but internationally as well. And again, same thing for people in the international rich list. The wealthier, generally speaking, both exceptions, but generally speaking with the data says, as the wealthier people are the less likely they are to move. So, but that does not mean that people that are higher income owners don’t have a plan B of course, they have a plan B of course they have second residencies and citizenships. They have homes in different jurisdictions. They have a plan B, but they’re less likely to move than someone who’s a lower income earner. And the reason why is that they just can’t afford to hire tax advisers who help them a tax planning. So this solution is, is a necessarily to run to a low tax jurisdiction. The solution is to get good advice. So my response to request to, to your point, yes, there are lots of changes in the tax landscape, obviously, given what’s going on right now, but I know that things may have changed recently as in the last couple of years because of the crisis that the world is facing.
But generally speaking, wealthy people don’t move, they plan lower income people, apparently according to that research moves. So again, my advice, if I was to give advice is before you make any big decisions, talk to a quantified professional, do like the other wealthy people, right. Take a page out of their book plan plan plan. All right. Next question. Okay. In terms of, right. So in terms of what we’re seeing, yes, I’m seeing the other questions that you guys are putting in the chat box below, but I just need to respond to those who submitted their questions and their issues or ideas in advance. So please, please bear with me. Okay. Someone asked, given our portfolio of clients, our higher income earners, where are they going? Which restrictions are they going to? Those who are internationally mobile. So for those who are in Asia or those who are already in Asia, who those who want to move to Asia, there is one choice. There’s only one choice right now, which is Singapore. Once upon a time, it used to be, you know, caught up between Singapore and Hong Kong, but obviously Hong Kong has had some challenges. So it is definitely Singapore. And you’ve seen the stuff in the press about the, the airport is full of private jets.
I think I saw it in some publication early this year, last year, because so many other wealthy individuals or families from other parts of Asia, presumably in the midst of the crisis of fluent to Singapore. And so it’s hard to find space to Paki jet apparently. So Singapore is a destination of choice, definitely for, and if you want to be in Asia, if it is you in Europe, I believe it’s the UK, Switzerland and Ireland, UK, Switzerland, and Ireland, which, and to some extent, Portugal, but more the UK, Switzerland, Ireland, that’s my perception. Of course, this is just anecdotal. There’s no data. The point before I was running on data, but this one is just purely anecdotal. If it is you’re in the middle east, it’s going to be Dubai. And despite all the challenges, the USA is still as popular as ever. We do. We did a live stream. I think it was last month with a popular immigration attorney, a us immigration attorney. He is based in California, but he has an office and in Singapore and KL in Jakarta and in Dubai. So he moves between the, his teams there. So, you know, he has his finger on the pulse of what’s going on. And he’s saying demand is higher than ever to get into the US for wealthier clients. So that that’s his perspective. But generally speaking, in terms of the region that high-end net higher income earners, high net worth individuals want to be right now, I would say to Europe for, for a number of reasons, which, you know, I guess with the lockdowns and stuff, and people feel as if they may have had access to, should, they need it. Healthcare infrastructure, they have larger pieces of real estate available to them. So even about to stay within their homes, they can have a larger home and whatever, I guess, for a number of reasons in Europe, when we speak to our colleagues who are in the immigration space, so immigration attorneys and in different parts of Europe, they are, again, they are busier than ever.
They are stretched to the max with demand from people all over the world, trying to get in. So that’s what’s the best passport right now. I, again, I’m one size confident, or I know there are lots, if you Google any of I’m sure you have, you have seen all the lists that are simplistically based on the number of jurisdictions you can get into visa free, which, I mean, first of all, to some extent, the whole visa regime is upside down right now, because even though on paper, jurisdiction, X has access to the jurisdiction, why visa free. It has not been working like that for the past couple of years.
You know, you have to make requests, nonessential travel has been blocked, whatever, whatever. So essentially even when you are a citizen, the ability to move, to return to your home country as been difficult to unavailable. So I think that it’s kind of hard right now, we’re in a whole new space, but having said that, if it is that we’re saying the place that people want to be right now is in Europe. And that’s just anecdotal, of course, I’d say Ireland right now it’s in a great position. Why? Because it’s part of the EU obviously, it’s part of the EU, but it’s also within that common travel area with the UK.
So you have, I mean, there’s no border check. It is seamless access to the UK, no border checks seamless access to the rest of the EU. So Ireland has been a popular choice, and I think it’s a most powerful travel document for those who are in the Western world. Anyway, any advice someone’s asking, is there any advice for nomads who may be us exposed? So I have an acronym that I use BSD, which means do your best. So the first thing, if you’re US exposed bank.
So remember to file your Fbars. If you do trigger FBAR. It stand for foreign bank account report, it’s a form called FinCen 114, when it comes to international tax rules with the United States and some other countries as well. So I’m not just picking on the US but when it comes to the US it’s counter intuitive in that the emphasis is on rather than just paying whatever the tax bill is. They want you to report. So if it is you didn’t pay whatever taxes are due, okay find interest in some penalties, but we’re in a low interest rate environment, depending on how much it is. It isn’t may not necessarily break the bank, right.
But if you don’t report certain transactions or certain foreign assets, it can be pretty draconian. I remember a case that was reported a few years ago, where someone in south Florida, they had, I think they had just about a million dollars in an account in Switzerland and the IRS deem that it wasn’t reported for three years. Now, the penalty is a maximum of 50% of unreported balance plus jail term, right? So the RSB, this account was reported for three years. So, you know, 50% of a million dollars is 500,000, right? So this person was fine. $1.5 million penalty for an account with $1 million in it.
So, and they, they, they’re pretty aggressive when it comes to reporting foreign assets. So do not forget. So that’s B, B for bank, E estimated taxes, like when you’re in the US soil. And let’s say you have your regular employee, you get paid on a W2 and is withholding, right? So your payroll team takes money from your salary, like every fortnight every month. And they send that to the IRS. So there’s a regular payment going to the, to the IRS. The IRS likes to get its money along the way they don’t like to wait until the end of the year, the following year to get paid. They want to get them money in certain installments. So, if it is that you’re working internationally, you need to figure this out on yourself. So only on your own, so speak to your tax advisors and make sure that they calculate what your estimated tax payments should be and make them in a timely fashion. Otherwise, there’s a form 2210, and you have to pay a penalty for that for underpayments. So make sure you pay in a timely fashion. So that’s the E. S stand for state under some circumstances, even though you are out of the US for a year or more, depending on which state, and what’s your nexus with that state, whether you still on certain states, you missed, it will be subject to income taxes.
And mainly you have really sticky states like Virginia, but also California. So we do speak to clients about keeping up to date with it. State tax liabilities are severing ties to their state past pick one of the eight states without an income tax. You know, Tennessee, Nevada, Texas, Florida, Alaska, Wyoming, whatever. So if you don’t pay attention, you may have state responsibilities and you think I’m outside of the US what’s going to happen. We’ve had so many clients on returning to U S at some point in time, the state is waiting for them with a huge tax bill. So state and T transfer taxes. So I said, do your best BEST bank, estimated taxes, state, and transfer taxes.Remember that when you get into, if you’re traveling, you’re internationally mobile, you get into a relationship with a non us partner or whatever, and you transfer assets to them, or you receive a gift from them that may be reportable as well. So transfer taxes and, and failure to report gifts received or sent could be depending on the threshold that’s crossed, it can be up to 30% of the value of the unreported gift. So please keep that in mind called that helps.
Next question. If I keep moving, can I live tax free? Now that is a hot topic, obviously very contentious. I’ve seen lots of arguments and certain chat groups, and you know, what the answer is going to be. It really depends, but generally speaking, it’s of course becoming more and more difficult. If you want to legally do it, it’s becoming more difficult because there’s this whole principle with international amongst the, you know, they OECD and the United nations, but at the international level, there’s this whole principle. One of the governing principles is that money should be taxed somewhere. And what you’ve seen is a number of factors coming into play. So there are fall back rules. So for example, for Panadol, the CRA or the HQ in Australia, or HMRC in the UK, and certainly European countries as well. And the one that pops out a lot for me right now is Italy. We have a client from Italy, and if it is you move to jurisdiction and you ma you move out of your country, right? And you think, okay, I’ve set up a tax resident. I’m gone, I’m out. If it is that you have not settled somewhere else. You’re not a bonafide resident of some other country. Under some circumstances, they have some fall back rules that may come into play. And you may, even though you’re not living in your home jurisdiction, you may be still caught within the tax net of your country of origin. So, you know, we did a live stream last week, I think, with a qualified accountant from, from Toronto, speaking about Canada, we we’ve done a two, three months ago with two lawyers from Australia on the Australian tax situation. And so we get into some detail and in those livestreams, you can have a look at HTJ.tax. But the point is the takeaway is be wary of fallback rules.
And then even if you manage to navigate through that maze, there’s always banking as well. We’ve had so many clients that have been locked out in their home country, why they were traveling there, they’re getting business, they’re earning money online, or they have this one client. Who’s a apparently a popular DJ. And I don’t listen to house music. So I didn’t know who he was. So, but my point is that he’s been traveling and he’s been doing exceptionally well, but he hasn’t been paying taxes. So when he tried to go back to his European country of origin and he tried to transfer money back into the bank, I mean, he opened this account as a kid. He’s been a client all his life. The first thing the bank asked is where did this money come from? Well, don’t, you know who I am, check my website. I’m somebody, right? Sorry. Prove to me, the bank is telling him, prove to me that this money is clean. You have no way of demonstrating, you know, the source of this funds. And it varies by bandwidth. I think one was balanced, feel most comfortable with is a government document, like a tax return that says that this, that declares what this, you know, what the nature of this income is capital gains, you know, rental income, you know, business income, whatever the case may be something that tells the bank, what this fund would these funds are.
If you’re not able to do that, we have seen multiple clients get locked out of the European country of origin. They cannot transfer money back in because they cannot demonstrate this, you know, how this money was earned. So while you may be able to legally travel around and earn money, tax-free at some point in time, you may want to transfer it to back to your home or to a so-called first world jurisdiction, first world bank. And you may have problems. So please pay attention to banking rules as well as tax rules. Hope that helps.
Okay. So that’s it from that source. So I’m going to pick up a question that I just saw. Okay. I’m scrolling. Okay. So the first one I’m seeing in this chat boxes, some job office see remote in, but most of them don’t know what that means. When I ask if I need to live in the country, or if I just need to have tax residency in the country, hope you’re able to help me and them understand this. Okay? I’m not sure what you’re saying. Well, if it is that you are traveling internationally as a nomad and you get a job offer that allows remote working.
I’m not sure I’m not too sure about your context, but what I would do. And what I would advise a client to do is to find out what exactly is the nature of the offer? Is it a contract for service, or is it a contract for employment? There are two different things. And of course it would, the it’s quite nuanced depending on the jurisdiction, but just generally speaking a contract for service is different from a contract for employment. If it is it’s a contract for service, then you are still you more or less what we would call self-employed.
So you’d be responsible for your own tax situation and your value and returns, make sure in whichever jurisdiction, jurisdiction, singular, or jurisdictions, plural, you may be exposed. You that’s your responsibility, not the companies. You need to figure that out. If however, is the contract for employment, then that has implications, not just for you, but for the company as well. So you’d want to speak to the prospective employer about the tax situation, particularly around the social charges, because if it’s construed that you are an employee, then the company may be liable to social charges in whichever jurisdiction you, depending on where you may be exposed, not just the tax situation, but the social charges as well.
I can’t come and beyond that because we we’d need more specifics, but I hope that helps scrolling down. I am working freelance just for one company registered in Ireland. Okay. So freelance, independent worker. Gotcha. I’m from Ireland and moved to Portugal this year. I’m pretty sure I’m still tax resident in Ireland, at least for this year, as I’ve been living there for a certain amount of days between this year and last scrolling down, been in Portugal for the last seven months. So does that mean I have to pay tax here in Ireland next year? I hope to move around more Saturday.
What’s the best way to set that up sole trader company and where, okay. So if it is, first of all, you are working freelance, so you’re not an employee, you’re an independent contractor. Okay. So if it is, you have been in Portugal for more than 183 days, and you said seven months. So presumably that crosses the threshold, you would be tax resident in Portugal. Now, if it is that you still, you believe that you’re still tax resident in Ireland. I mean, Ireland, just like most European countries, doesn’t only have a residents test, but a center of life test.
So what you’d need to do is probably sit with an advisor. You can, you can reach out to us. So we, we do a live stream. So we, we have a colleague, as I think I mentioned earlier, Augusta task lawyer that we work with. And I, I do some of these live streams with as well as a tax accountant from Dublin, that, that we also do live streams. And we, we worked together on client issues. So what we need to do is understand from an Irish perspective, are you really tax resident? It sounds as if you’re tax resident from a Portugal perspective. So you were, and you’ve been working in Portugal for more than six months. So you would probably need to file a tax return. You should not be double taxed because obviously you get tax credits plus as a tax treaty or whatever, but the devil’s in the detail. So if you reach out to us, help@htj.tax, we can have that initial conversation to see whether we understand your situation and therefore we can help you scrolling down. So next year I hope to move around outside of the what’s the best way to set up for my tax purposes. For example, set up as a sole trader company and where, so that’s the thing, you know, there’s tax residents when it comes to taxes in Ireland, this task residents and this tasks down the sound. So even though, depending on your situation, right, even though you may be physically outside of Ireland, you may still be tasked on the salad in Ireland. So if that is the case, then what’s, you know, in terms of answering your question where you tax resident, where do you need to set up, it’s going to be Ireland, right? But if in moving around, you trigger a residence somewhere else and you break down the salary with Ireland, then it will be in another jurisdiction as well. So it depends on your relationship with Ireland and where are you going to be moving to? So I think that’s the question to be asked and answered, but if you reach out to terse, I’ll put you in touch with my colleague in Dublin and they can take a deeper dive into, into your situation to give a more informed response. Okay. I’m gonna switch over and see whether there are any questions over here. Okay. No, there is none. So in the five minutes left, any more questions? Okay, great. Thank you for joining us again. This will be available on our website and on the platforms that I mentioned and a day. So feel free to keep checking, but, okay, sorry. I thought you were asking a question. Feel free to join us for another event or feel free to reach out to us at help@htj.tax If you have any further questions, we were pretty active on social media. So we publish a video every day, dealing with international tax issues. Thank you for joining us and we’ll see you next time. Bye.
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