This podcast channel is about you: successful international entrepreneurs, successful expats, successful investors, sponsored by HTJ.tax.
Thank you for joining us. My name is Derren Joseph from HTJ.tax. We’re a team of cross-border tax advisors, accountants, and lawyers who seek to demystify the somewhat confusing world of international tax. We do these live streams at least every week. But regardless, we do produce content daily, which is published on our various social media: YouTube, LinkedIn, Facebook, Twitter, and basically wherever you get your podcast.
So, you were invited to submit questions. So, if there are any other questions you want to touch on, any issues you want to discuss or touch on, please feel free to type them in the box below. I know some of you did send them by email. If you sent it, yes, we’ve seen it. We have it. But time permitting, there is still time to type in the box below. Of course, although we are licensed tax advisors, we are not yet your licensed tax advisor. So please keep in mind that nothing we say here should be construed as advice. We are having a general conversation about what I hope would be considered important tax principles that remote workers or nomads need to keep in mind as you make your way across the world.
This is being recorded. So, for those who cannot stay for the entire duration, it will be available wherever you get your favorite podcast. It will also be available on our website, where we have over 2000 articles on international tax matters and over a thousand videos on YouTube and various podcasting platforms. So, let’s jump into the questions. And again, if you haven’t given it in advance, feel free to type in the box below. We go through them in the order in which it was received.
So, let’s start with Portugal. Yes. For those who have the privilege and the opportunity to work remotely, Portugal is an increasingly popular jurisdiction. Someone is asking whether they can run an LLC from Portugal tax-free under the NHR.
The NHR stands for the Non-Habitual Residence Program. This is contentious, as I know different advisors are saying different things. First of all, let’s start with what an LLC is. So. LLC is a unique creature of law. It’s a hybrid entity. So, it does provide limited liability protection. It was designed to provide limited liability protection. It typically won’t confer any special tax benefit if you’re US-based. So, it’s not really a tax play, but it’s all about limited liability protection.
Without the benefits of limited liability protection, should there be some sort of dispute with a customer, a client, or a supplier, whatever the case may be, you would be laid bare. They can come after you for your personal assets as well. That’s why it’s super important that, as we tell clients all the time, you know that the last thing you may want to do is have anything in your own name. You might want to use an entity. Now the LLC, from a tax point of view, is transparent. In other jurisdictions, the closest comparison would be a partnership if there’s more than one of you, a sole proprietorship, or a sole trader if there’s just one person.
That’s essentially what an LLC is, at least within the US context. If you are living and if you move to Portugal or if you spent time and became tax residents there, I know there are some conversations about whether, under the NHR, the income derived from the LLC can be enjoyed tax-free. Now, the NHR allows foreign-derived dividends to be received in Portugal tax-free. But remember that with an LLC, because it’s transparent, it doesn’t technically give you any dividends.
There are no dividends within LLC. They’re (called) “distributions,” which is more than just terminology. This has a different definition in law. This is something that needs to be really kept in mind. That’s the first thing. So, t how are these distributions treated? When the NHR was designed, it was contemplated that the benefit would be given to foreign-derived dividends. And since a distribution technically is not always a dividend, it may be, under certain circumstances, it can be interpreted as such. But you know, you can’t just assume that anything that comes from an LLC can be treated like a dividend in Portugal. It depends on the facts and circumstances. So, having said all of that, is it possible? Generally speaking, NO, because for most people, they are single members, or what we call a single-member LLC. They are the real person who is running the entity. Once they decide to run that entity from Portugal, one of the tests in international tax is determining where an activity is to be taxed or where entities are to be taxed.
One of the tests is around management and control. So that entity, even though it is a limited liability, if the company management and control are being exercised from Portugal, it becomes taxable in Portugal. So essentially, it is treated as a business profit, or some people treat it as a capital distribution or capital gains, and therefore it is taxed at 28%. And some people treat it as business and are taxed at 20%. Regardless of how it’s interpreted, it will really not be subject to zero tax. As I see in discussion forums, that’s what it is being positioned as, that there’s this incredibly smart way of moving to Portugal and enjoying zero tax.
Unless you’re not a US person, you will still pay tax anyway. To make it clear, it will not be subject to zero tax. And if you look at our website, it has over 2000 articles that are free content, and you can search for the treatment of US LLCs in Portugal to go through the articles. It’s important because, in that article I wrote, I referenced a specific case that was not tried but was decided in Portugal in 2017. I have the facts of the case in both Portuguese and English So, it was considered, and the decision of the court is that it would not be tax-free.
It would be subject to tax in Portugal. You can look at it, but the bottom line is that (I know that there are a lot of discussions, even heated discussions) the authorities in Portugal have determined that you’re not tax-free in Portugal. I hope that answers that question.
Second question. Okay, Somebody’s asking, from a tax point of view, what are the top jurisdictions for nomads who want first-world experience and they’re actively running a business? So, the world is your oyster. The world is there at your feet. So, if you search nomad visas on our website, which was last updated sometime in January of this year (it probably needs to be updated soon because this stuff changes so quickly), we have tracked above 56 nomad visas worldwide.
From an immigration point of view, jurisdictions across the world are increasingly becoming aware of the benefits of having a long-term visitor program. So, it’s not just about tourists coming in for a weekend or a week or two, but some people would want to stay a few months up to a year or maybe even two years. With that in mind, jurisdictions are quite welcoming. One of the pioneers would be the welcome stamp in Barbados. And most recently, there’s been one in Spain and lots in between. So, a lot is going on in that space.
You have a lot to choose from. But everybody has their own perspective and their own point of view. It’s very subjective. What is a place that you would enjoy? We do have a package. If you come to our website, HTJ.tax, you’d find that we do have some packages to help you decide where in the world you want to go. But generally speaking, for those who want the first-world benefits, you can enjoy a very low cost of living in emerging markets, but it comes at a price; infrastructure is not what it is in a first-world jurisdiction. like things don’t get handled quickly. You have Wi-Fi problems; it’s slow, it’s always dropping, it’s not reliable, and that’s super important.\ especially if you’re a remote worker. But anyway, generally speaking, the term first world, of course, is quite subjective. But let’s, put aside all those nuances and speak generally of our clients. I think the two most popular jurisdictions right now if you are asking from a tax point of view, but remember, if you are US exposed, you’re going to pay US taxes regardless of where you reside, right? So, there’s not much you can do about that.
So, if you are US exposed and work remotely outside the US, the main benefit is that 9- 11 or foreign income exclusion, which moves with inflation. But for 2022, as we are doing ’22 returns right now. In 2022, it was $112,000. So, the first $112,000 plus your standard deduction, plus you also get a housing allowance. Depending on where you are, that could be 140, maybe $180,000 to $190,000. It’s still declared a new tax return but won’t be subject to taxes. Generally speaking, this is earned income. I’m not talking about passive income, and I’m not talking about self-employed income, which is subject to self-employment tax, but I’m just talking about remote workers who are earning wages from an employer-employee relationship.
If you are in the mid to high six figures, it is notable, right? But once you get into seven figures, it will probably not be as meaningful as an arrangement. And there are options that you could explore if you talk to teams like us. So anyway, from a US point of view, if you work abroad, you enjoy that foreign income exclusion, which is a huge benefit for earned income. Now, if you are not US exposed, well, that’s also a great win right there because typically, once you sever a tax residency with a country of origin and you do so in an appropriate manner, you may be able to break free of their tax net, right? It has to be done in an appropriate manner because, increasingly jurisdictions are becoming stricter, and there are fallback rules. Like for the big English-speaking countries like Canada, the UK, Australia, and New Zealand, it’s becoming an increasingly important issue. Yes, you may not reside in those countries, but depending on your facts and circumstances, you may be living outside for a period of time, but because of the fallback rules, you may still be subject to taxes in those jurisdictions. So, it would be best to have a conversation with your preferred tax advisor about that to ensure that you sever tax residency correctly.
Having said that, let’s assume that you’ve done it then; where do you want to go? If you are US-exposed, a popular place to go is, of course, Puerto Rico because aside from the foreign-earned income exclusion, more importantly, there are some benefits in terms of unearned income or so-called passive income. And you can enjoy, under certain circumstances, 0% tax on passive income. So, it’s a huge draw. Other than that, and this will be for Americans and non-Americans alike, I think two of the most popular jurisdictions, at least right now, would be the United Arab Emirates, the most popular of which is Dubai.
UAE is a union of several Emirates. The capital is in Abu Dhabi, but Abu Dhabi is low-key. The most boisterous member of the Emirates would be Dubai. It is the entertainment hub of the union, and it’s increasingly popular from an immigration point of view. They are so easy. It came into its own during covid when it was, for some period of time, the only international city that remained open to everyone. So, it really secured its place on the landscape, and it continues to be popular. So let me talk more about that later on. But I think Dubai is really popular right now. Some people even consider it the greatest thing ever, but I think it’s not suitable for everyone. While it may be for short to medium term, as a place to be based in the long term, it may not be appropriate for everyone.
But definitely, if you’re going to consider a tax-efficient jurisdiction with first-world amenities, you may want to consider the Emirates and Dubai in particular. Another place is Spain. So, the Emirates is, generally speaking, tax-free, assuming that you’re not deriving any income domestically, that you’re running your business online, or you’re working remotely, and your income is derived from outside of the Emirates.
Spain is nuanced. Now Spain in Europe, in general, is not typically considered a high-tax jurisdiction, but what Spain has done with its nomad visa as well as a previous regime called the Beckham law, has created situations where you can be physically in Spain, or you can be physically residents in Spain. Still, you’re not considered tax residents in Spain, even though that’s where you are, and that’s an amazing draw, although it has a limited time. So, there’s some nuance to it, but typically it won’t last more than five years.
Generally speaking, your income derived outside of Spain will be tax-free with the nomad visa. There are two ways of getting it. There’s a nomad visa and the Beckham law, but I think the nomad visa is quite popular right now. There’s a list of what they’re looking for on their website, it’s brand new, so people are still figuring it out. But generally speaking, you need to pay yourself or demonstrate that you’re earning at least 2,000 euros. But generally speaking, everything outside of that will be tax-free, And again, it’s quite nuanced. So, it’s really designed for that person, just like the Emirates, who derives their income as an independent contractor, a remote worker, or has an employer-employee relationship with an entity or with clients outside of Spain, or in the case of the Emirates outside of the United Arab Emirates.
So, Spain and the Emirates are two jurisdictions that those who want the benefits of first-world experience in a tax-efficient manner should consider. But they’re not perfect. Tax is just the beginning of the conversation. Obviously, non-tax factors will inspire you as you make your ultimate decision. Okay, just looking down the questions, somebody asked a good continuance from the previous point.
In terms of the United Arab Emirates, yes, there are other advisors in the space who are super bullish on the Emirates, and they think it’s the greatest thing ever. My assessment is more measured. It’s not as superlative as other people would make it out to be. I mean, at the end of the day, nowhere is perfect. No space is perfect, and every place has its pros and cons, and that just makes sense. Generally speaking, the Emirates is tax-free, depending on your situation. But you know, of course, everyone is talking about the imposition of a corporate tax at 9% corporate tax, which could draw certain people depending on your situation.
So again, generally tax-free, but you’d probably want a tax advisor to make sure, given the unique track pattern, that it is tax-free. So that’s a huge draw. You have first-world benefits and affordable luxury; as Somebody told me, you have incredible living spaces, entertainment spaces, shopping, and it’s a great hub because it’s Emirate. You are basically one flight away from most places in the world that you’d want to visit. So, it’s a great base. We’ve seen so many of our clients move there. We’ve picked up so many clients who are there. It’s probably our number two jurisdiction right now, after Singapore.
I’m also a resident of it; I have my Emirates ID. I’ve been a resident of the Emirates since 2021, so relatively recent, but long enough to know that I enjoy it. And we will be hosting an in-person event at Capital Club in the DIFC in mid-April, so look at our website. I think it’s on April 11th, just before the tax deadline. We will be talking about taxes to those who are based in the Emirates and have certain questions. So anyway, I’m a huge fan of the Emirates, but it’s not perfect. One of the things that, for me, is an issue is that there’s no clear pathway to citizenship.
So, for those who want the security and benefits that come from not just being a long-term resident, but also from being a permanent resident citizen, the Emirates may not be for you. And you know, I’ve met many people who’ve been there for decades who said, “it is kind of awkward that at any point in time they may have to leave,” or if their circumstances change, the security that comes with being a citizen, is generally not available. There are circumstances for exceptional individuals, but there are no tried and tested programs.
That’s the first thing, citizenship. Another thing would be banking. Banking is very challenging. While banking is challenging everywhere, it is, in particular, in the Emirates. I get why the Emirates has been the target of sometimes fair but sometimes unfair criticism for being a center for nefarious activities. So, they would want to clean up their act. They would want to ensure they don’t go back on any of those blacklists or gray lists. And to do that, they need to make sure that the banking rules are as tight as possible to ensure that people conduct their business affairs in a legally reputable way.
I get why they do it, but it just makes things very difficult. Having said that, at a point in time where we’re all sensitive to the stability of the banks if you are Googling or you’re looking for rankings of the most stable banks in the world, you’re probably not going to see any of the indigenous banks in the Emirates on that list. But if you’re in Singapore, the three main banks in Singapore, CBC, DBS, and UB, would be on anybody’s list of the top banks in the world in terms of stability. They’re just easy to deal with and rock solid according to the stack for people who do this sort of ranking, the Emirates? Not so much.
There’s also a confidence issue. Not so long ago, there was an economic crisis in the Emirates, and you know. As a result, they had to be bailed out by Abu Dhabi, Dubai in particular. For the newcomers, they may have no memory of that, but if you hang around with business people that lived through that time, they will tell you what it’s like. And it was really scary. I put all that together for those that do not like uncertainty, and to a large extent, you know, the things in the Emirates are relatively uncertain, but there’s no certainty anywhere. Black swan events can happen to anyone, any place, anytime. But generally speaking, the Emirates– its way to proceed is with caution in terms of making it the center for where you store your wealth. So just to recap: no pathway to citizenship, banking, a recent history of instability, and general uncertainty, those are the key three or four reasons why I “love” the Emirates.
I look forward to returning in a couple of weeks, but I proceed very cautiously in terms of storing wealth there and things of that nature.
Well, I hope that answers your question. Moving on to the next question. Somebody’s asking about Switzerland. I guess you’re asking that in light of what’s happening. So, for those listening to this recording, we are doing this today, March 21st, a day or two after the news about the instability of Credit Suisse, the second-largest bank in Switzerland. It’s now being taken over as part of the bailout package by the IBS, the largest bank.
To be completely transparent, I worked for the UBS a long time ago back in London. About Switzerland, I’m a huge fan of Switzerland. Whoever asked, you know, it’s been around for a long time, and it’s been a jurisdiction synonymous with wealth management, asset protection, and stability, generally speaking. But hey, we definitely live in uncertain times. What do I think about Switzerland?
I was speaking to a fellow professional who runs a multi-family office in either Geneva or Zurich, last week or the week before. I would mirror his sentiments about the future of Switzerland as a jurisdiction. I think it’s definitely assured. As I said, it has a long history and perhaps longer history than most jurisdictions. It’s been through lots of highs and lows. It is the natural offshore center, at least for continental Europe, if not for high-net-worth families from all over the world, including Asia, Africa, and Latin America.
And with that history comes a measure of comfort and security. So, you have a deep and wide network of fiduciaries of professionals, lawyers, accountants, tax advisors, wealth managers, and bankers who are very familiar with the jurisdiction. That talent pool is deep and wide. So, you have easy access to the best in class in terms of helping you manage your wealth if you want to move there and helping you set up. But it’s not for everyone.
It’s not Dubai. The entry point is a lot higher than in Dubai. You can live in Dubai comfortably on low to mid-six figures. You’d probably need more than that in Switzerland to live comfortably because it is not a low-cost jurisdiction. It is not for everyone. But I’m, I’m pretty bullish on Switzerland. So, I hope that answers your question: safety, security history, legacy, and great talent pool.
Again, for those who are still joining, yes, we have got the questions you sent in advance, but if you want to ask more questions, time permitting, we have half an hour left. Feel free to type them in the box below. We get to them in the order in which they’re received.
Next question. Okay, Somebody’s asking about LLCs. What do you need to consider if you’re setting up an LLC in the US?
The LLC is a unique feature in the law; It is a limited liability company that provides limited liability protection. But generally speaking, there’s no tax benefit. It’s not necessarily a tax play. It is more about asset protection. It’s more about protecting yourself and your assets as you engage in whatever your trade or business is. It is tax transparent. So, if there are two of you, you’ll be treated as a partnership. If there’s just one, you’ll be treated like a sole proprietorship or a sole trader. But it’s really easy to set up, and it is fast. I see people offering it online for a hundred dollars, $200, and up.
So, it could really be cheap and fast and easy. But often, these people end up in trouble because, remember, the point of the LLC is limited liability protection. And we’ve seen it all too often. People set up an LLC and use those cookie-cutter operating agreements that they just downloaded from a website, or maybe they don’t have any agreement and don’t practice proper corporate discipline in running the LLC. As a result, in the event of a dispute with a business partner, with a supplier, with a customer, or with an independent contracting employee that you’re using, under certain circumstances, that veil of incorporation can be bypassed, and that protection that you had counted on would not be available to you.
The dispute can mean that whoever’s attacking you can come after you for your personal assets. How do you deal with that? You would want to ensure you have all your paperwork in place. First of all, you should have a separate bank account. You shouldn’t be co-mingling funds. Secondly, you’d want to make sure you keep proper accounting records and it’s not just you have your spreadsheet or you have it on QuickBooks or zero or whatever. It’s not just that, but for unusual transactions, things of a non-routine nature, you’d want to make sure that there are proper records for that as well. You may want to have a meeting. Though it seems silly, especially if it’s a single-member LLC, you still would want to make a note that on March 21st, 2023, you did have a meeting where you considered the purchase of another MacBook or a Lenovo laptop and a printer or a decision was made to empower, let’s say, Boris, to go out and purchase one, on behalf of the business and to use it for business purposes.
After you have that documented, you’ve signed the field, and you’re fine. Next, you would want to keep notes of transactions of a business nature like annual general meetings and again, everything documented, you know, have proper memos and, and whatever you need to, to, demonstrate in the event of a dispute that the business is separate from you and therefore it’s worth the judge or whoever’s looking at it should see no reason for allowing whoever is coming after you to see through that veil of incorporation. So again, you’d want to ensure your banking is done with discipline.
You shouldn’t be co-mingling funds. Keep proper accounting records of everything you do, as well as keep proper business records and memos when you have general meetings and annual general meetings. They need to be properly documented as you run your business. I hope that helps as you consider using a US LLC.
Next question. Okay, someone is asking, I want to start a business; where should I incorporate? And this is where it gets crazy because sometimes you listen to the promoters online, and obviously, you can tell within a couple of seconds that they’re being sponsored, which is no problem; everybody’s running a business, everybody’s trying to make some money, but they may be sponsored by some jurisdiction. For example, in the Emirates, you have 45 or so free trade zones or free zones. How do you know which one is best for you? Typically, you go online, and you’ll see someone’s video or article promoting the free zone that they have a connection with, not the one that’s best for you, but the one that’s paying them the highest commission, right? Or similarly, if outside of the Emirates, or just anywhere in the world, people would tend to steer you in the direction of the jurisdictions that they know that they’re familiar with or that have closer relationships or that they are able to make the most money on.
So, it’s about them, not about you. With that in mind, you’d probably want to sit with a professional who doesn’t think like that, who sees the entire world as available and would understand what your needs are, and who will find the proper jurisdiction that fits you and your specific facts and circumstances. There’s an old saying that everything looks like a nail for someone with a hammer. They have this one jurisdiction they love, and no matter what you say, that’s what they’re going to pitch to you. So, you’d want someone who says, let’s have a conversation.
In that conversation, they’ll want to understand your business model. They’ll be asking so many questions about your business model. Where are you going to be based, or where’s your staff going to be based? Do you sell physical products? And where those physical products are being housed? Where’s the warehousing? Where’s the distribution center? Is the distribution being handled by dependent agents or independent agents? And even for those who are not doing physical products services, where are the members of staff or the member of your team going to be, particularly the key decision makers? Where’s your C-suite going to be? Which jurisdictions are they going to stay because that has implications, right? Or in terms of products, if you sell products or software as a service, some jurisdictions have special tax treatment of SAS. Even though it’s not a tangible product, it does trigger certain tax implications. So, it’s something for you to consider. Not that it’s all about tax, but it’s just something to put into the mix as you decide which jurisdiction is best for you. The point is that no one can, in just two minutes, tell you where’s the best jurisdiction for you. You’d need someone who sits with you and does a lot of listening and then, based on your particular circumstances, helps you decide where the best fit for your entire business situation is.
I hope that helps. Next question, and again, for those who just joined, if you sent your questions in advance, yes, I did get them via email, but feel free to type in the box below, and we will go through them in the order in which they were received. All right, next question.
How does someone become a US person… Again, as we mentioned earlier if it is that you are a US person by virtue of substantial presence and you spend a certain amount of time in the US. Under section 7701, you should have a substantial presence or a green card test. If you have a green card, and you are a lawful permanent resident of the US or a US citizen, then you’re subject to tax on your worldwide income. By just hopping on a plane and leaving, does that mean that you’ve severed tax residency? The only way of severing tax residency is if you surrender your passport, and we help three or four clients every month surrender a US passport or a green card.
So, it happens, but we help way more with this. So, surrender that passport properly to a competent authority, and surrender that green card. And again, just because your green card expired doesn’t mean you’ve ceased to be a resident. We get that all the time. Even if your green card expires, you may still be a lawful permanent resident in the US, unless you’ve surrendered it or taken credible steps to surrender it to a competent authority. However, if you trigger task residency under the substantial presence, you spend more than a certain number of days in the US. The calculation is a bit more complex in most, and that’s not just what’s happening in this current year, but there’s a look-back period of a couple of years as well. But once you are outside of the number of days in the US and below the threshold and you have spent a certain amount of time outside and you’re no longer a tax resident in the US, then you’re fine. So that’s one way you can get out. If you were a tax resident and a substantial presence, just leave and stay out, you’re fine. Other than that, you need to give up your passport or green card.
Someone is asking, what are the implications of opening a foreign company? Again, some people are under the impression that you just jump on a plane and move to Dubai, or you just land in Dubai and rent in the nearest free zone, you open a company, and everything that company does is magically tax-free from day one to the US. Unfortunately, that’s not how it works. There are quite a number of rules that are Anti-fraud rules. Otherwise, everybody would do it, right? Just open a foreign company, and that company does its thing, and it’ll be tax-free to the US until there’s some sort of distribution, right? It doesn’t exactly work that way if it is that you control that company or you together with other US exposed persons, other US persons as previously defined. You join together, run a company, or have shares in that company; that company is considered a CFC or Controlled Foreign Corp.
The US is one of many jurisdictions to have CFC rules. I mean, many developed jurisdictions have developed markets. They have CFC or Controlled Foreign Corp rules. But from a US point of view, the CFC rules mean that there will be distributions; even though the company doesn’t pay you whatever, it retains the profit and doesn’t pay out to you either as a dividend, a salary, a bonus, or whatever. That doesn’t mean you’re tax-free. There’ll be deemed distributions under something called guilty, which came into existence in 2017 under the tax-cut and jobs act in 2017, I think it was.
What else is there? There are the, there are also PFIC rules, and this will apply to even companies that are not CFCs as well. You need to have a look and see whether it applies to PFIC rules. The PFIC rules came in the 1980s under President Reagan. And then you also have one that dates back to the 1950s and 1960s. 1960s. The point is these are all Anti-fraud rules. Regardless of what people think and say, the IRS is pretty smart, and the US tax regulations or rules and procedures are pretty comprehensive.
So, it’s probably worth having a conversation with a qualified tax advisor before, you make certain steps. Chances are, if you think you’ve figured out a loophole or you know of these loopholes or hacks that people promote in various places online, check it with, have a look, and consider it with someone who’s US qualified, just to make sure that the effect is what you are looking for. Because, again, the consequences for non-compliance can be pretty aggressive from a US point of view. When it comes to international tax rules with the United States, it’s a bit counterintuitive.
Is the emphasis on revenue collection? Not really. The emphasis is on reporting, and we know that because the penalties for not paying taxes, and you may get some underpayment penalties, and there’s interest that would accrue, but the penalties for not reporting foreign bank accounts or for not reporting foreign entities, foreign gifts and stuff like that could be pretty aggressive from, in terms of civil penalty, and it could also be criminal penalties as well. You can go to jail, and nobody wants to go to jail. So, if you are being advised, as a US person, to set up a company outside of the US, make sure that you speak with an advisor, someone with skill in the game. Because often you have these advisors pitching structures, but they have no skill in the game. If it is that, it doesn’t do what they claim it does; you have no recourse because they have no license and no professional liability insurance.
It would be best to have someone who sits and listens to you to understand what works in your unique circumstances. And I hope that helps keep you out of trouble and out of jail.
Next question. Ah, Somebody’s asking what if a US person is not up to date with their US taxes.
It really depends on the circumstances, but there are programs that are quite popular that’s an amnesty. It’s called the streamlined compliance procedure. So, what it does is there’s a look-back period of three years to file tax returns whose due date has already passed. So even though you may not, you may have been out for the past 10, 15, or 20 years, and you have not filed any returns at all. The IRS says, okay, since we haven’t started any action against you, you come to us before we come to you. And in return for that, assuming the reason for your non-compliance is non-willful, which would allow you to come in under the streamline compliance proceeding. That means you don’t have to go back all 10 or 20 years. You just file for the last three years, whose due date has already passed.
For example, if you’re doing it right now, March, 2023, the due date for 2022 hasn’t yet passed, but for 21, 20, and 19, those have passed and are the last three years. So, you go back and fill those last three years for the given returns. The three-year period is driven by the statute of limitations. And then you have six years for FBARs FBAR stands for foreign bank account reports. So, you need to report your accounts outside of the US, assuming that the maximum aggregate balance exceeds a certain threshold plus all the other reporting returns like for gifts or foreign companies, etc. So, you package all that. You work with your tax advisors, draft a letter explaining your non-compliance and submit that package to the streamlined team.
And once your non-compliance is really deemed to be non-willful, that’s it. You pay interest on whatever tax is due. But, the good thing is that you legally avoid penalties, and as we mentioned, penalties can be pretty draconian, it can be pretty aggressive if it is you have a company and you control a company, let’s say, in Singapore or Dubai, the penalty for not reporting that company annually could be $10,000 per company, per year. Don’t think that the IRS does not levy that they levy it all the time.
They are pretty liberal, and it happens automatically. The point is you’d want to make sure that you consult with a qualified tax team and if it is that you qualify for streamline, which you’d usually do if your non-compliance is non-willful, then you can submit under that package. If it is that your non-compliance is deemed to be willful. There is the offshore voluntary disclosure, where the look-back period is a bit more; it’s six years for returns and six years for FBARs as well. (it used to be eight years, but now it’s down to six years). And you may ask, okay, so what’s the difference between streamline and offshore voluntary disclosure,
The difference lies around the concept of willfulness. It’s not defined in the tax code. There’s nothing in the statute. So, I think most advisors, lawyers, and accountants rely on case law. Case law tells us that if you intentionally avoided a known legal duty, there was intent behind it. You can probably get into that with your advisors if there was intent to avoid or evade paying taxes deliberately. If you knew what you were supposed to do and deliberately didn’t do it, you may need to look at voluntary disclosure.
If it is that your non-compliance is deemed to be not willful, you go into streamline. Most of our clients get into streamline, but those who get into the voluntary disclosure because they’re willful, we definitely work with lawyers on that because the penalties that surround that are much more aggressive. So, we work with lawyers on that, but on streamline, most tax advisors or accountants can already lead. It really depends on your circumstance. I hope that helps. If you have not been compliant, you must cap your US taxes. You can reach out to either ourselves or any qualified team of US tax professionals; they should be happy to talk to you and walk you through that process.
Somebody else is asking, where should I be based? Yeah, this is a variance of the question that was asked before. So where should you be based as a remote worker, or someone who runs their business remotely? It really depends on your circumstance. One size doesn’t fit all. Beware of anyone or any team advisors that, even before they met you, already know the answer telling you to either move to Dubai or Georgia, or Bulgaria.
The answer really depends on your circumstances. I think that question has been answered before. But for me personally, in Asia, my base has been Singapore for the past 10 years. I have been based in Singapore since October 2013. Amazing jurisdiction. The infrastructure is above first-world. I was talking to some of my colleagues in London yesterday, and you know, the infrastructure in Europe, the UK, and the US just pales in comparison to some of the cities in Asia.
And Singapore is definitely at the front of that pack. You get beyond first-world amenities and benefits and have the ease of doing business. it is safe. It is clean, and it has the rule of law. It is a fantastic place from which you can operate regionally. And that’s what we do. So, my team we are a member of the Moore’s Rowland in Asia Pacific, and we have over 30 offices in 13 Asian countries. So far north is Tokyo and Beijing, and all the way down to Sydney and Melbourne. So, I sit in Singapore, but we travel liberally easily on a weekly basis up and down Asia. So, it’s a great place to do business throughout Asia. It’s tax-efficient, world-class banking, and everything works. That’s why I’m a huge fan of Singapore because things just work, but it is an increasingly expensive place to do business. So, as a result, those who can’t afford it (and that’s understandable) prefer KL or Penang in Malaysia—many people like Bali. I always caution people about Indonesia. We have quite a few live streams on Bali. I’ve partnered with my colleague from Moores Rowland in Indonesia, Moores Rowland Indonesia is Indonesia’s fifth-largest accounting firm.
So, the head of tax there, Dicky, does live streams with us, and many people, unfortunately, end up in a bad way when they try to circumvent rules. They don’t pay taxes; they use nominee structures. It is invariably a huge risk, and lots of people have been severely hurt financially as a result of taking those risks. So, I suggest you get professional advice if you choose Indonesia, the Philippines, etc. But yeah, Singapore, once you can afford is the perfect jurisdiction to do work across Asia. But of course, it depends on your situation. A lot of people like Bangkok as well. Hong Kong is also reopening. I hear people moving back to Hong Kong. It really depends on your situation.
So, in the Middle East and Africa, hands down, it’s going to be the Emirates. I’m a huge fan of the Emirates. We’ve spoken about that a lot. Dubai is the flavor of the moment. But I caution people about thinking long-term. Proceed with caution anywhere you go. But for right now, there’s no real comparison. There’s no real competitor to the Emirates for corporate structuring as well as to live and reside or to have your base.
In Europe, tax-wise, I like Spain, I’m, I’m not in Spain, but given what’s been going on in Spain, I think Spain is hugely attractive, but the ease of doing business and the ease of getting things done? Not so much. It’s still so old-school. I think of London, but you have to pay for it. It’s not cheap, but sometimes it’s worth investing because you get a return –on your investments. So, I still like London for the ease of doing business banking, infrastructure, and easy access to talent. And so that’s my pick for Europe. And in the Americas, I know people like low-tax places, well not low-tax, but places that are not as diligent in enforcing the tax rules like Mexico. Columbia used to be a thing, but I’m not sure now.
So, Columbia, Costa Rica, and Panama used to be a thing. But I’m liking Uruguay. I want to check out Uruguay. I’ve been speaking to residents and experts about Uruguay. I’m hearing good things about Uruguay. But about The United States, I like again. Yes, the taxes. Yes, there’s this; yes there’s that. But again, access to capital markets, talent, first world infrastructure.
Like Miami in the western hemisphere, it’s one of the few cities that you can basically get to anywhere in the western hemisphere in a single flight. It’s just a great hub for doing business. So just like when you’re in London or Dubai, or Singapore. It’s easy to do business, especially if you do work internationally and you have clients or offices in various jurisdictions like we do. The ease of travel is, is super important. It becomes convenient not just for yourself but also for your team members and important clients. So, I like the US even though, of course, you pay a price, and to me, it’s not about chasing the lowest tax jurisdiction; it’s about being in a place that works for you.
We’ve come to the end of our hour. Thank you for joining us. We do these live streams more or less every week, but we produce content every day. We have over 2000 articles on our website, over a thousand videos on our YouTube channel, and on various podcast platforms. My name is Darren Joseph, and we hope we have lived up to your expectations in making the sometimes-confusing world of international tax and cross-border tax situations easier to understand and navigate. Otherwise, come and look for us at HTJ.tax, and I’ll see you next time.
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