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VOICEOVER:
We invite you to attend the January 2023 Nomad Offshore Summit here in Lisbon, Portugal.
This podcast channel is about you. Successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax.
DERREN JOSEPH:
Good evening to those in Asia. Good morning to those in the US or the Americas. And I guess good afternoon to good day to those anywhere in between. Welcome to HTJ.tax, our weekly live stream. We do this every week to see what’s coming up next. Just have a look at HTJ.tax/events. So we do live streams every week and we release videos every day talking about all things international tax.
So far I’m seeing familiar faces, welcome back, get to see you guys again. And for those that are new, welcome. We talk about all things international tax. Now, this is not, how it goes with people who are properly licensed. We are legally obligated to say that this is not advice. We’re having a general conversation about general principles and what the intent is that you would walk away from this with an appreciation of the key concepts that you need to keep in mind when engaging with your preferred advisor.
So again, this is not advice. You can take it as educational. You can take it as entertainment. Either way, the secret is to always get professional credible advice. Thank you to those who sent in your questions. I did get them not as many as we typically get. We had just under a hundred RSVPs for this. I know some of you said you can make it, and for those who can, I did reply to those that I got saying yes, we do record it for those who are wondering. Yes, as you could tell by logging into Zoom this evening or morning, this is being recorded and it will be available on our website as well as YouTube and across several other platforms as well.
So you can have a look at our website if you need to leave early. Oh, if your colleagues want to catch up with this recording at some of the point in time. So all good. If you did not get a chance to submit your questions in advance, you can feel free to type in the box below and we will get to them in the order in which they are received. So without further ado, let’s jump in. So I guess they’re the most popular topic that’s been kind, of buzzing around is the new visa.
I know we talk things tax, but you know, it’s come up right, the new 10-year visa available for Indonesia, for those who love Bali. You know, I love Bali. We all love Bali. So there’s a new option on, on the menu in terms of spending time in Indonesia. I think, you know, Indonesia tends to be, it’s beautiful, it’s a magical place, One of my favorite places in the whole wild world. So no doubt, no doubt. But it seems as if you know a number of, of, you know, talking heads as, as they can, you know, they’re just trying to keep up and get, get attention as, as, as anyone else would in this space.
They repeat what they see without the kind of doing their due diligence. So first of all, I’d wanna say that there is no, again, I said it last time as a, as a, this date today is the 27th of October, 2022. There is no digital nomad visa for Indonesia. One is being discussed, one is being planned. Whether it will happen or not, we’ll see. But I, I think for those who are really keen fans of Indonesia, like, like I am, the, the key question isn’t really whether there’s a visa to stay long-term in Indonesia because everyone knows that you can stay long-term.
The ways of getting a key a or key tap or you know, whatever the case, you know, social visit visas, visa runs, People have figured out the immigration piece. I think what is really being explored and unholy debated is whether this, this, this digital nomad visa that’s being discussed and as at this point in time does not exist. Whether it would include a tax break.
Because of all the things that you would know about Indonesia, one of the bits that isn’t popularly discussed is the fact that it is a pretty aggressive jurisdiction tax from a tax perspective compared to its neighbors in Southeast Asia. So it’s not a territorial tax like Singapore or Malaysia, it doesn’t have like this sort of remittance nuance like Thailand, and even if the Philippines can be a territorial tax and once you don’t hold a Filipino passport.
So Indonesia’s probably the least attractive jurisdiction from a tax point of view. And if the digital nomad visa does not include some sort of tax relief then, you know, what’s the point some people may ask sim. Similarly, with this 10-year visa, again, I’ve seen just, you know, people have been chatting with a WhatsApp group for Indonesia. I’ve seen people drop in stuff in, when you look at the press release from the government and you can Google translate it from BAAs, Indonesia into English.
It specifically mentions it’s for people who are not working. So the idea that it’s, I’ve seen some already, some sensational headlines. It’s for Entrepreneurs, it’s for, you know, remote workers actually know it is not, it’s this specifically safe for people who’s not, who are not working. Investors may be, but not people who are working. So, you know, pay attention to go beyond the headlines. Don’t just believe what you see online, you know, do your due diligence.
So that’s it. As far as the Indonesia visa goes, if you wanna find out more about Taxes in Indonesia, Bali in particular, and Indonesia in general, just drop us an email, just go to HTJ dot tax and drop us an email. I put you in touch with Dicky and Dicky’s, the head of tax for most rural in Indonesia sits in Jakarta. There’s a satellite office in Bali and as I’ve mentioned before, Moore Rural in Indonesia is the fifth-largest accounting firm in Indonesia. So you know, it’s a pretty established firm and they know what they’re talking about.
So I’ll connect you guys with them if you have any specific tax needs for Indonesia. So, okay, that’s it for Indonesia. Let’s move on. Let’s see the lists. I’m going over the list of questions that I got. Okay, somebody wants to sell products on Amazon, but Amazon USA is gonna sell to the US market. So what Taxes should they consider? Good question. It all depends as you know, on these things.
The answer is it all depends, right? And it depends on where you are first and foremost. Like where, where you gonna be sitting? Are you gonna be sitting in Bali? Are you gonna be sitting in Dubai? Are you gonna be sitting in Portugal, Mexico? Are you gonna be sitting in the US and are you US exposed or not? So the first thing you didn’t specify is if you are US expos as well, that kind of puts you in a category of your own. You’re taxed in your worldwide income regardless of where you reside.
It doesn’t matter whether you and Detroit or in Dubai, you’re gonna be taxed in a worldwide income by the IRS. So your personal income and if you’re running this Amazon store through a company, that company is also assuming that you 100% own and control that company. Then it’s subject to CFC rule control rules and it’ll be taxable to your US return under the guilty, typically guilty regime.
That’s the global intangible tax income tax that’s assuming. Now, let’s assume that you are not in a tax-free jurisdiction like Dubai or on the welcome stamp in Barbados. Let’s assume that you are on a jurisdiction that will taxi for example, in S assume in Bali, or you are in Malaysia in PanAm or whatever. So then another perspective to consider is the jurisdiction in which you operate this company.
Most jurisdictions have some variation of management and control rules or mind and management or Nexus permanent establishment, you know, different terms to denote the same thing, which is the idea that if you are running a company from their jurisdiction and economic activity is taking place within their borders, even though that company’s incorporated in another jurisdiction, it matches or not mind and management exists. Where you are as the 100% owner, director, ceo, and you’re sitting in their jurisdiction, there would be potential corporate tax exposure on your business.
So that’s something else to consider. Last but not least, this is the US You’re gonna be said you’re gonna wanna sell, you wanna sell in the Amazon sellers the US. So they first, you have to consider both direct and indirect Taxes. So the indirect Taxes would be your sales and use Taxes, which would be called GST or VAt, some of the thrisdictions. So sales and use Taxes would occur on the physical products that you sell it historically.
And when I say historically, like pre-2017, you would be taxed where the goods are being warehoused. So what you lose, you look at Amazon, cuz Amazon is, you’re assuming you do an Amazon FBS, right? So Amazon is doing all the fulfillment. So you, Amazon will kind of tell you where your goods are being warehoused in terms of their logistics and wherever it is, it is being warehoused, It is a physical presence in its state that typically will trigger sales and new stacks.
But then there was a landmark court judgment in 2017, which means that sales and use tax, generally speaking, is no longer triggered by physical nexus but by economic nexus. And that means that it’s not about where the physical goods are only, it’s also where, you know, where the consumers were based. So even though, let’s say you are in your goods are being stored in a warehouse, an Amazon warehouse in New Jersey, but people are buying it in New York and it’s above a certain threshold, Yeah, it may trigger sales and use Taxes in New York.
So indirect Taxes last but not least will be your direct Taxes because by virtue of triggering indirect Taxes, particularly where there’s a physical nexus, certain states in our, in our experience of this stuff, they will get really aggressive. And I know the US has a reputation, you know, for being a really complex tax system, the IRS isn’t the most efficient tax administration, but remember you have 50 states under it and the states that do have sales and new stats, they tend to be a lot more efficient and a lot more vigilant than the IRS.
So keep that in mind. So the states, when you trigger that sales and new stats, the states will jump on it depending on the nature, whether let it’s, you have a physical warehouse storage in an Amazon warehouse in North Carolina. North Carolina might say, hey hold on, we see that physical nexus, we see you and we think you do to pay some corporate income tax based on your company selling in Carolina.
I noted you outside of the US but direct Taxes or corporate income Taxes are due as well. And then that potentially may lead to federal Taxes. So the point is, it gets really complex to summarize, you’re looking at direct and indirect Taxes in the US you are looking at corporate Taxes wherever you’re running this company from outside of the US and you’re looking at personal Taxes wherever you are in the world. So you’d wanna sit with a qualified advisor and kind of talk it through someone who’s experienced with Amazon sellers.
And that’s kinda like a niche thing. We’ve had quite a few clients, you know, from the low end, you know, high six, low seven figures, and for those with eight and nine figures as well. So either myself, I’ll pass you on to Aaron Aaron and we have, we have an interview, a long form interview like over now with Aaron on our websites. If you go to HTJ Tax or you just go to a YouTube channel and he can pull up that interview and he goes way deep. If you had a good owner Rabbit Hole, Iran is your guy.
He spent, him and his team have spent their life on sales and use taxes. These guys are gurus. Yes, you can look at software like, I don’t wanna call the name, but if you Google it, they’re two software providers that will pop up. They’re brilliant, absolutely. But if it is, it’s your seller from outside of the US. Sales and use Taxes are complicated on their own. But combine that with the fact that you’re from outside of the US it gets really more complex.
Many of states still require manual registration, so software cannot help you. And you know, some of the reporting still may be manual, so the software can help a whole bunch, but it’s not like, it’s not a pan, it’s not a silver bullet. So you probably want think about getting some advice. Okay, Hope that helps you. Next one. Okay. Okay, so someone has been selling, I’m gonna say any names, I’m not gonna say obviously, right?
So someone has been selling on Amazon for a while and they have not been compliant, they have hit the thresholds, you know, they, generally speaking it’s 200 units, hundred thousand dollars. That is such a generalization. You know, some states have 100 units, some states have a high number of unit thresholds. Some states have a lower dollar threshold or higher dollar amount. It really varies. You have 50 states, yes, but you have over 10,000 sales use tax jurisdiction.
So if you’re had an online seller, again, this is a, this is its own rabbit hole. You need to get specialized advice. But let’s just say, let’s assume you didn’t know. Honest mistake. Hey, things happen and you have not been complying for the last few years. What do you do? Do not panic. You’re not alone. You’re not alone. And I get into this in the interview I did with Aaron again, you know, him and his team qualified accountants and were decades and decades of experience with sales and use Taxes.
And you know, we, we go through this in, in considerable detail. The point, the, the, the point I want to get to here as we just briefly top line summarize it, is that there are amnesty programs like amnesty and or, but name or amnesty by name. So there are programs for those who have not been 100% compliant with their sales and use tax where you can, you can. And the way amnesty works is that you need to get to the tax authority before the tax authority gets to you.
So you do your calculations, get your paperwork in order, Cary professional and say, Hey, Mr. Tax office for XYZ state, I’m sorry, we have not been 100% compliant, Here are our numbers. Now some states will say, just give me your numbers and we’ll send you the bill. And then some states say, no, it’s okay. You calculate what you think you owe us and send it, send a test probably with some of your working papers and, and we’ll take it from there. So each, again, each state, each jurisdiction is gonna be slightly different.
But the point is that you go to them before they go to you and yeah, you know, it’s, you know, I know what some of you are thinking that they, you probably have heard online, sitting online forums because they’re like specialist forums or online sellers, right? Cause some of my clients, some of our clients tell us this, that there are qualified tax advisors out there, US qualified advisors that say, Hey, if you haven’t been compliant, don’t worry about it. Walk away form a new company and start over.
And my response when they say that is, that’s what the other tax lawyer told you. Okay, Did he put it in writing or did he tell you on Zoom? He told me on Zoom, ask him to send it in an email. Crickets. Nobody’s gonna put that in an email because that is condoning, you know, tax evasion. So, which is on offense, you know, civil criminal penalties, blah, blah, blah, blah, blah.
So nobody’s gonna tell you to break the law in writing. But you know, some guys play fast and loose and they may tell you to do it over a call. All I say is caveat tu beware. Again, I say this all the time. The US is one of those jurisdictions that it’s kind of like in the movies, the movies get it pretty accurate because we’ve seen this with our clients. If one person gets caught, that one person gets caught brick and the law not paying Taxes, trying to evade Taxes.
So, so their non-compliance is deemed to be willful. And willful is not defined in any statute. So we look at case laws. So you intentionally seek to evade a known legal duty. So that’s your non willful was your non-compliance was willful, okay? Then the first thing they’d do, the the has or the tax office will have a conversation with you. And they, one of the questions, just like in the movies, who helped you?
Who were your enablers name names, and you’ll be incentivized to do so. And our clients tell us they will, you know, the IRS would be, or the tax authority would be easier on them because they’re cooperative. And you know, if you say, you know, hey, this tax advisor, Derren Joseph and he has this website and he’s on YouTube, and he told me in, in an email to, you know, to evade, you know, he was my enabler, he helped me incorporate a new company.
They’ll say like, Okay, they may be a bit more lenient on you for helping them by providing that information. And what they’re gonna do is they’re gonna go to Darren’s profile within their records. Because every client would, that Derren advises or helps with the compliance. My, my, my ID would be part of the return. And they’ll go through and they’ll pick up every single client that I’ve done and they’ll audit them.
So I, I say that to make a point. So if it is that you work with an advisor that plays fast and loose, you may not get caught, but one of his other clients may get caught, one of, one of his or her other clients may get caught. And once they do and they give up the advisor, then every one of the advisors clients will be under investigation, which would include you. So be very careful in who you choose for advice, but the point is, if it is, you haven’t been 100% compliant with your sales and use tax as an Amazon, as an online seller, get professional advice as to how to engage with the amnesty programs, how to come clean and get things done the right way.
Hope that helps. Okay, next question. And don’t worry, Frank, I see your question below. I’m just gonna get through the questions that were submitted ahead of you. So please be patient. Thank you. Appreciate it. So next question somebody’s asking about, Yeah, okay, I’m just gonna summarize what you’re asking. How do you tell what the right tax team is to work with that? That’s a great question.
And at the end of the day, obviously it’s a personal choice. Ideally you want someone who’s qualified, they must have some sort of license, they must have some skin and game and chances are they would not be popular. And here’s what I mean by that. When you are licensed to practice in, at least in an advanced economy, so like Europe, uk, North America, Australia, New Zealand, right? They, you have a license to practice as a tax advisor or a tax accountant or tax lawyer.
There are rules around your conduct, right? There are rules around your conduct. Like when I started this live stream, I had to say that, you know, hey, nothing I’m saying here should be construed as advice. I’m having a general conversation, General principles, you need to sit with a qualified advisor to get actionable intelligence, right? To get an action plan for moving forward to help you to tax returns, to help you structuring, you need to sit with someone who knows you inside out. I know you’re sending me a message and I’m gonna talk to you messages, but nothing you could say in two or three sentences would equip me with all the info I would need to give you real actionable advice.
It’s not gonna happen. So we’re constrained in how we put forward our message. For someone who is not qualified, there are no rules. So they can make lots of promises, they can say lots of stuff, which they don’t have to back up and they can straight up lie and they or misrepresent themselves or misrepresent outcomes. And there will be no tax, there will be no consequences because they have no license. So that’s why I say, you know, if you want somebody with skin in a game, someone must have a license, right?
So that’s first and foremost understand too that domestic Taxes way different from international tasks. And I’ll give you an example of a, of a prospect that approached us a couple days ago, and this is typical of what we, what happens all the time. You know, someone approached us, you know, they have modest income, annual income, let’s say in the low six figures. You know, nothing to get, nothing unusual, right? And they’re exposed in three or four jurisdictions. Again, that’s typical of the kind of clients that knock on door come through the website, that exposure, three or four jurisdictions because of how they work.
Remote worker clients moving around homes and number of jurisdictions. Typical, pretty typical, right? And I said, Okay, yeah, I’m happy, you know, let’s, let’s get to know each other. Show me your most recent return from two or three of those jurisdictions and we can see if there’s something here. You know, if we can help you, if we are the right team to help you because we don’t claim to know everything, you know, maybe we are not the right team. Maybe we are. Let’s see your tax returns and let’s see how everything fits together.
We had a look at his tax returns and ooh, it was, it was not in, not in a good state, right? He was paying way more Taxes than he needed to. His effective tax rate was way too high. Why? Because this person, he was working with domestic tax council in each jurisdiction. So his tax team, they didn’t know about other jurisdictions, they didn’t know international tax, they didn’t speak to each other, they didn’t understand how to negotiate the nuances of tax treaties, totalization agreements, foreign tax credits, nothing like that.
So he was being double taxed, triple tax, he’s being tasked all over. So I said, okay, things, things are not so good, but we can help you out. And I sent him a proposal as to whatever dude gets upset, you know, he says our prices are way too high. They, his, the tax teams that did the returns, they were like a small fraction of what we were charging and as saying, yeah, I know, I know they were cheap because, you know, obviously look at your situation and you know, he walked away all upset and you know, he, he was not a happy camper and so chances are he’s walked away upset.
So he’s gonna go back to the same tax team who got him into that situation. So he can’t get out of the, of the, the rut that he’s in. All tax teams are not created equally. You know, I know it’s a bit extreme, but I compare tax professionals with medical professionals, right? So there are gps for example. But if you, if you need newer surgery or if you need a cardiologist, you don’t expect a GP to know cardiology or to know the latest techniques in brain surgery.
That’s like a highly specialized area of medicine. Similarly with international tax, yes people know, international people know domestic tax, but international tax, it’s a whole other beast. You know, we train with, you know, our teams are qualified in multiple jurisdictions and it takes a whole lot of time and a whole lot of experience to be able to do what we do. And again, when people get trained up to that level and invest so much in themselves and their teams, they’re not gonna give that away for free.
So, so my point is, look for someone who’s licensed, look for experience in multiple jurisdictions and don’t expect it to be free and don’t expect it to be cheap because you know who’s gonna invest years and years of time in terms of training and experience and then give it away for pennies on dollars. Just doesn’t make sense. That does not add up. And in business as a business person, you should know if it seems too good to be true, it probably is. So be very careful in choosing your tax team, okay?
Hope that helps. Okay? Right? Somebody is, okay, Yeah, you’ve been traveling for a while, I can see you’ve been traveling for a few years and you’re thinking of giving up your US citizenship. So that’s a particularly us question. Now and again, we at HTJ, our tax, if you go to cloud slash events, we do live streams every week and there are live streams particularly dealing with US exposed clients and just like we have live streams that particularly focus on Indonesia or Australia or Portugal or Spain (Struggling with US taxation in Spain? Our experts are just a message away – reach out) or whatever.
So this is something we’ll probably get into in the US one, but just generally speaking, if you, you can give up your US passport or green card. If you green card holders, you can give up your US tax status, right? First of all, you’d need to have another, assuming you’re citizen, right? You need to have another citizenship lined up and you’d need to make sure that the last five years of your tax returns are in order. So, you know, I know you’ve been traveling already, so you know, make sure all your wide income has been properly reported, the companies that you’ve been working with or through or have been reported as well, the foreign back accounts, any, any other structures that you may have full disclosure because with the US it seems counterintuitive.
You may think, hey, tax offices just want their money. The new goal isn’t necessarily money. The new goal is information as you’re probably aware. So a lot of the tax reporting, particularly to the US is geared around getting as much information as possible on, on you as a taxpayer. So, and, and we know this is super important because the penalties for not reporting certain investments or financial holdings are way more than the penalties for not paying some tax, right?
It’s, it’s disproportional or civil and criminal penalties thrown in. So sometimes it can be pretty draconian. So we, that’s how we know that’s a clear message from the authorities that hey, information is what we are after. So make sure all those information returns are done for the last five years. So, I don’t know, you didn’t say where it is your resident, but you need to check for the US near US embassy, you can probably make an appointment online. You go in, you, you know, you go to the relevant section and say, Hey, I wanna give up my US citizenship.
They may ask, Are you sure? You say yes, Some of them will deal with you on the spot, some of them give you a cool enough period, go, come back and take a second appointment. Especially before covid, they used to do that a lot. Now they kinda deal with you on the spot once you get in, right? So you, you basically, you get a certificate of loss of nationality and you, you sign up for the paperwork and it goes to dc but it’s, whenever it’s approved in DC it’s backdated to the date at which you signed it at the embassy.
So that that’s your effective date, right? So that it says that’s a process from an immigration perspective. From a tax perspective, again, I said that you need to make sure you’re clean and clear for the last five years you may be subject to exit tax. So how does the exit tax work? It, it’s three ways in which it’s triggered, but most people focus on two ways in which it’s triggered, which would be if your net assets and excessive 2 million, which gets to be pretty easy, right? You, you have a decent house and you probably cross 2 million.
So it’s a, a relatively low threshold, but it is what it is. So if it is that, that’s one way net assets. So you get to deduct your debt, so like mortgages and stuff, but net assets over 2 million. The other way is if your average tax bill for the past, let’s say three or five years has been more than a certain amount and that amount goes up with inflation, but let’s say if it’s more than 165, $170,000 your tax bill for the past few years, then you may wanna look at that more carefully because it seems as if you may be a covered expat.
Now if you’re not a covered expat, then you know, you, you, you’ve seen, you’ve had an appointment at the embassy on October 27th, 2022. You sign off all the documents in 2023. When you go, when you go, when you are working with your tax team to do your 2022 returns, you’ll do a dual status return. Dual status being you hold two status for the year part of the year up until October you were US person. And from the end of October to the end of December, you were not a US person.
So you followed due something called a jewel status return together with a 4 8 54, which I like to put as the goodbye return because that the, your way of communicating to the IRS a this is my last return as a person, I’m out. So there’s typically no exit tax calculation. If you were not a covered expat, if you were to be a covered expat as explained earlier, there’ll be an exit tax calculation, which assumes, you know, just, you know, keep it simple cuz it could be kind of nuanced because like they deferred task liabilities.
So if very, very simple, it assumes that you liquidate everything as of the date of your expatriation and that gain, that capital gains, that deemed gains that’s gonna be taxed to capital gains rate. So that’s basically how it works. So that’s what you’re looking at. If it is you and give your citizenship, of course we advise not just to jump in, get proper advice, get planning, because there may be some pre-expatriation planning, which can help you optimize your tax position before you make such a big decision. Hope that helps.
Next question. How do I set up a company in the US of now? Yeah, this, this is another interesting one that I, we, we get emails on this almost every day as well. I got one yesterday from someone in one of the Emirates, I think it’s Abu Dhabi about San company in the US right? Okay. Again, you know, it’s not that I’m, look, I’m chasing business here. I mean, we get something like, we get over 50 inquiries via our social media every day. So, you know, I’m, I’m, I’m actually in the situation of looking to recruit staff. So things are, are pretty busy for us. The so, but I do tell you that you need to be careful. I know that you just Google for and see in the US and there’s some popup that you see or some paid ads at the top of the Google results that show you that for $99 or $199, you can set up a Delaware LLC and that’s all you need.
Well, it’s cheap and easy to get into a situation like that. It could be really tricky to get out of it and to unravel it if that is not the right fit for you. Before we, you know, the first thing we need to understand is what is in nature of your business? Do you need a local LLC or do you need a local C corp? Because in the US they’re different. When you say a company, they’re different types of companies, right? There’s an llc, which, which is a limited liability company, but then that company can be treated in different ways for tax purposes.
It can be treated as a pass or it can be treated as a taxable entity. So it can be treated as something called a C corp. There’s also, they, they, there’s also an option to elect to be treated as an S corp, but that’s normally reserved for us exposers persons. But, you know, it can be treated in different ways is my point. Also, you know, the US is not just, it’s one jurisdiction, but it’s also made up of a number of little jurisdictions. So the federal government does not form companies.
Federal government doesn’t form LLC. This, the analyses is a creature of the state. So you need to go, you need to pick a state form a company and then tell the federal government here form a company in Delaware, Florida, Hawaii, whatever. And this is how I want it to be treated for tax purposes. So the second thing is that which state, you know, where, which state you gonna pick? I, I know Google comes at the top because you know, Google has a Delaware, I know Delaware comes at the top of Google search results because Delaware has a fantastic brand, but it’s Delaware, the right jurisdiction for you.
Where do you have Nexus? Where do you have permanent establishment? Where do you have independent agents? You know, where do you have physical product? Where do you have a, you know, some sort of showroom or storage facility warehousing that, that drives where you see where your entity is gonna be. So where your client’s gonna be? Do you have boots on the ground in the US or not? Is it a physical product or is it a service?
So we really need to understand your business model in, out, in, and out, inside out, whoever, not me, but whoever’s helping you form that company or that entity in the US needs to understand your, your business model inside out. What about banking? You know, where’s where the funds gonna flow? Is it gonna remain in the US to be reinvested in the business or do you need the dividends pulled out back to the whole code, a parent company, wherever you may be? What is the long term plan? Is it to grow within the us?
I know we do another, our most popular live streams, those on migrating to the us. So for some people they’re setting up business with a view to moving to the US themselves, that that’ll be a whole different model we’re gonna prepare versus those who are planning an exit. Some people, obviously the US is one of the most vibrant financial markets in the world. You set up a company in Dubai or be valued at let’s say two x and given just being, just for the purposes of the discussion, you set up the same company in the US it might be 10 x in terms of the valuation.
It’s a more liquid, a more vibrant, dynamic marketplace. So are you setting it up for an exit? So we need to work through all of that before we begin to really get into that conversation as to what the right structure is for you. And it’s not gonna g it’s not gonna be as cheap as 2 99 or whatever it is you see online, but that is the cost of doing things the right way. I always say it’s easier to be proactive and spend the money upfront in getting things done the right way than having to fix it on the back end where you correct mistakes that were made.
But, you know, I must declare that we have a conflict of interest here because as a a firm, we probably make more money helping clients fix mistakes that they made on their own or through advisors who are not experienced. Then we do helping clients get things done right the first time around. So, okay, hope that helps. Moving down how, Okay, so all right, somebody’s asking how easy it’s to move to the us.
We do a separate livestream, have a look. We work with immigration attorney Michael Dye. He used to work with the US Embassy in Mexico. So he is, he knows immigration inside out. He has offices in Dubai as well as in Singapore, Indonesia, Malaysia, you know, he has a great team, he’s a great guy. If you please reach out to me and I’ll put you in touch with Michael Dye orr you can look at, to be easier, he’s gonna charge you for a consult. His time’s not free, nobody goes to school for that number of years and then just gives away stuff on a daily basis for free. He might do a live stream, but to get a one-on-one consult with him, you know, you need to pay for his time. We, have a few live streams from the past with him on our website. So again, go to our YouTube channel, go to our website, do a search, it will pop up. Maybe somebody’s requests are answered there. But if it is that you live in a treaty jurisdiction like Europe or Australia or Singapore or in the Caribbean in Grenada, then you’re probably looking at an EVI that is only available to treaty countries.
That is countries of the US has a great relationship with. That’s normally a popular way of getting in. There are visas for entrepreneurs who wanna set up business in the US and of course the EB five s, which is where you pay roughly pay a million dollars and you, you and your family will get a green card because the EB five is about investing in job-creating activities in the US. So there are a number of investment visa options. Have a look oatour website, reach out to me, I can put you in touch with Michael Dye and he will be able to help you get things done in the correct way. Hope that helps.
Okay, so Matt is, sorry, well I, I don’t think you mind me mentioning that your name is ma, right? Okay, so Matt is asking, Hi, this is my question. I paid Taxes in the UK but won’t be going back for a long time. I’ve been away for almost a year now. Can I avoid paying taxes there? I’m self-employed. Okay, Matt, It, it depends on your situation. You know, it really, really depends on your situation. Normally in the UK, tax resident, tax residents is triggered by H M C. His no, we used to say her Majesty, revenue and customs. Well, obviously now we need to say his majesty, revenue and customs because of the king. Okay? So residency in the UK will be triggered in one of two ways. By HMRC it’ll be, there’s a statutory residence test, which is based on the number of days you spend on, on UK soil. So again, you can, it’s super easy, good to HRM’S website, do a search for statutory residence tests, answer the questions, and it’ll give you a guide as to whether you’re caught in the UK tax net as a result of the statutory residence test. And you can tell by the nature of those questions, what, what keeps you, if it is that you are taxed in the UK, what keeps you there, Therefore the threshold that you need to be conscious of when you’re going back and forth from the UK, right? That’s the first way that’s quantitative, that’s relatively easy to get right The way, the other way it’s more qualitative and definitely more subjective. And that’s the center of life. There’s a center of life tests, a center of vital interest test. But basically, it looks at a basic, it assesses whether you have a closer connection to any other country than the UK. So I don’t know, Matt, you didn’t say where you’re living. Maybe you’re living in Bali or maybe you’re living in Malaysia or Singapore, or maybe you’re in Dubai. If it is that you have a closer connection to, I’m gonna say Bali, If you have a closer connection to Bali, then you can argue that, hey, my center vital interest is now Bali, not the UK. So HMRC, please leave me alone. So that is the one that you probably want to pay closer attention to. You didn’t say, you know, what your relationship status typicallly, if it is that you still have a home available for your use and work around to that, obviously just rent it out. So if it is, you have an empty house still in London available for your use, maybe you’re married and you know, your partner or kids or whatever are still in, in the UK even though you are outta the UK for the entire year, and therefore you would be non-residents according to the statutory residence test. You can fail and you can be tax resident just by virtue of your family still being in the UK or you have a home, a place of abode in the UK.
So again, you wanna look at the statutory residence test and hm, C’S website as well as have a conversation with a task professional about that center vital interest or that closer connection test. And if it is you’ve been traveling around as you hint in your email, then you may want to consider establishing a bonafide, establishing bonafide residents in another jurisdiction. So like if you’re, if it is you in Bali, maybe you’re in Airbnb, maybe you wanna get a long-term rental contract, you might wanna get some utilities in your, in your name, you know, Yeah, something, basically some utilities or rental contract things that show a tax return if you’re paying taxes to Indonesia, something that demonstrates beyond a shadow of a dollar. I am a bonafide resident of Indonesia or Malaysia, wherever it is. So therefore please don’t try to tax me back in the uk. So that’s essentially what you’re looking for and that’s what you need to manage. You need to manage the statuary residence test, and you need to manage that whole idea of the UK not being your center vital interest. I hope that helps. Moving on, which EU countries are the most tax-friendly for self-employed or freelancers of Frank, we get to your question.
Thank you for your patience, right? Okay, here’s the deal, right? Europe and tax efficiency are not normally found in the same sentence. I’m, I’m super serious now by moving to Europe, you’re making a decision like many of our clients do. I mean, I am exposed, I’m tax resident in four jurisdictions, so five jurisdictions. Anyway, four, four, i I do four tax returns every year. One of them is in a European country. And the reason why is that, hey, I have made a decision that it’s about quality of life. It’s about quality of experience. It’s not just about penny-pinching. So therefore I voluntarily for my own strategic region reasons make, allow myself to be tax exposed to, to Europe and the UK as well. So it’s not all about tax. But having said that, if it is that you were reliant on investment income or pension income only, there may be more of a conversation to be had. But since you pointed out to, to us here that you are self-employed on, you are freelancer, that means that your income is earned income. It’s not investment income, it’s not pension income, it is earned income. That means it’s gonna be pretty tricky. So generally speaking, the northern European countries tend to be more aggressive or higher attacks than the Southern European countries.
Generally speaking, of course there are exceptions, they always are exceptions, but generally speaking, many of the jurisdictions do have carve-outs. So for example, Ireland and the UK and Cyprus, they have resin on doms where, you know, income that arises outside is in tax income that arises in, you have flat Taxes in Italy, in Switzerland, you have a kind of variant of, of territorial, a wannabe territorial tax system with the Beckham law in Spain or NHR and Portugal and certain concessions for France and for Belgium that we’ve seen in Holland as well. Okay? But you are a freelancer. So I think you may want to be looking at either the, just purely from a tax perspective, obviously it’s this quality of life, what weather are you into? Are you into winter sports? Do you want beach? You know, Yeah, what languages you prefer or what languages you already fluent in, what languages you wanna learn, family, friends, whatever. But purely from a tax perspective, you probably won’t be looking at Spain and Portugal to Portugal. Maybe an attractive and interesting option to you if you fall into the nhr, NHR has this special tax treatment of high value skills, highly skilled individuals. So they specify like people who enter to like biochemistry or it pro IT professionals, you know, they, you can have a look at our website again in our tax, do hr and we have it in Portuguese and English, like what they professions are or what the skills they’re looking at. That’d be flat tax at 20%. But of course, yeah, that sounds attractive because Europe typically is a lot higher than 20%, obviously, plus Europe generally is where wide income. So, so that is a, an interesting proposition, flat tax at 20%. But do bear in mind that you, it’s unlikely, well, depending on whether you could, whether you’ll have to, and chances are you would have to pay social charges, social charges would add another, let’s say 21% to it. So, but that’s what you’re looking at. The other option, I don’t know how you can structure your, your earnings or, or whatever. You may wanna look at the Beckham law in Spain if it’s above a certain threshold because obviously you need to pay for the formation of the company and the company running expenses because the Beckham law works to give you territorial tax treatment. Once you work for a Spanish company, you’ll, so typically you work with lawyers.
So I do live streams with Ricky, who’s a tax advisory firm in Barcelona. And those, those live streams are pretty popular. We normally get more questions than we can ever get through in, in a single hour. So it’s like two, 300 people throwing questions at us. But we have fun, we love it. You can see a few of the, I mean, of the past episodes that we’ve done on our website or on YouTube, and you know, they’re, they’re pretty engaging, but the point is we can run the numbers for you and see whether it makes sense economically for you to consider the Becham law, depending on how you’re structuring, I know that there are so, so I’d say spin and Portugal under the nhr, if it is that you are highly skilled according to their categorization, or maybe if it is that you’re working and you’re above a certain threshold, maybe the back and world would fit for you. I know that there are advisors who may say, hey, form an LLC in the US and channel everything through that. Again, you know, as we were saying early on in this conversation, there’s mind and management, right? So if there’s no substance at LLC when we have, because there’ve been recent court cases, and it’s not just about looking at the outcome of the cases, but what was discussed and what was the merits that the, you know, the judges in questions had to, had to consider, right? So don’t just look at the summary paragraph, but look at a bit of the discussion between, so you can not just look at the letter of the law, but the intent or the spirits of the law as well. I think that’s always helpful. But those who would advocate that form LLC, collect the money in the bank account outside and then you should be free of tax. I think they’re doing you a disservice. And if you get caught is gonna be, no world is gonna be a world of hurt for you because if there’s no substance in that, in that company formed in a foreign jurisdiction, even if it is in the US there’s no substance there.
If you’re not paying taxes there, then that definitely defeats the intent of the law as we discuss in our articles, right? So, so yeah, you sit with an advisor, talk it through, there may be a way of structuring it to be more tax efficient considering nhr, considering back and law may be one of the other jurisdictions, depending on the nature of your income and the structure of your affairs as they stand now. But that, those are, those are the two that kind of pop into my mind easily based on what you’ve shared with us this evening. So reach out to your preferred advisory team and take a deeper dive into it and see what could be done. But again, but one thing I caution is if it sounds too good to be true, it probably is. Yeah. Hope that helps. All right, let’s look at one last question before we wrap up as we approach the top of the hour. I’m just doing a quick look on Facebook to see what’s going on there.
Okay? Yep. All right, last question. Okay, so we, somebody’s asking about delinquent tax returns. You’re welcome, you’re welcome. Somebody’s asking about delinquent tax returns. So we spoke this for us for delinquent tax returns for sales and use tax. So indirect taxes, which is like GST or VAT and other jurisdictions. Now someone is asking about delinquent tax returns for personal income tax. So they’ve been traveling, they’ve been seeing the world, which is all good, and unfortunately they haven’t been keeping up to date with their personal tax filings, which does happen. You know, life gets the best of us. What do you do? Now there are you, first of all, you’re not alone. It happens to a lot of people. So don’t beat yourself up too much. You wanna look at one of the options for coming clean with the RIS and, and, and getting on the, on the right track.
Again, I know there are people, I’m perfectly aware that there are teams out there that will tell you to hide or, you know, I believe in, you know, getting and having no problems. I have no problems going to sleep. I’m not worried. I’m not looking over my shoulder wondering, you know, if somebody’s out to arrest me or whatever. And I don’t want that fanny about clients either. So I always advise people, just do the right thing. You’ll sleep much easier knowing that you’re doing the right thing. You don’t need to worry about anybody trying to catch you, right? So honesty is the best policy you’d need to sit with a professional and we’d need to understand whether you’re noncompliance was willful or non-willful, like what we discussed earlier, not willfulness isn’t, this isn’t the explored or defined in the US tax codes. So we rely on case law. So if it is that you intentionally avoided or evaded a known legal duty, you have been willful in your non-compliance. If you did not intentionally avoid that known legal duty, then you are non-willful. So most of our clients tend to be non willful. So they’ll fall into something called the streamlined compliance procedure. It’s driven by the statute of limitations. So regardless of the number of years that you’ve been non-compliant, they look back period is three years for returns and six years. F bars, F bars, Stanford, the foreign bank account report, again with international tax, with US international tax in particular, the emphasis is on disclosure.
They want to know what you’re doing rather than just simply collecting Taxes. And we know that because the penalty for not providing information is way higher than the penalty for not paying your Taxes. So for not filling out an information return, it could be civil penalties or jail time, you can cri actual, actual criminal penalties. So it gets pretty aggressive, pretty pretty nasty. So you don’t wanna mess with that. So three years return, six years, F bars, F bars, foreign back account report a requirements since the 19 70 71 Back secrecy act, it is not new.
So people who tell you it’s new, it isn’t. It goes all the way back to before I was born, before probably you and I were born, right? So you wanna get your F bars ready, you wanna get your personal returns ready, including disclosure of any investments you may have made interest in companies and stuff like that, Trust foundation, whatever the case may be, you need to get that all out there, right? And you need to, you get that together with a form 14 6 53 in which you, you need to do some sort of statement explaining the reason for your non-compliance, like what you know, what you know, if there was any drama in your life or misunderstanding of the tax rules or if you were improperly advised by a less experience practitioner you wanna put on there.
Just be honest, completely honest with the I as to why you haven’t been filing. Most, most of our clients file it themselves. If you, your situation is a little bit more complex in the ordinary, we would advise that you speak with a specialist tax lawyer that one of those that we work with, the one that you know on your own, that’s specialist tax lawyers that specialize in drafting those non-willful statements. So you probably won’t pay attention to that. If it is, it’s your noncompliance that was willful. And we’ve seen that again where, you know, people who, for whatever reason, they tried to get away with it, but now they say, you know what, I wanna sleep well at night, so I’m gonna come for out voluntarily, right? So there are, there’s a, there’s a program within the IRS manual itself. So there’s, you know, there’s, there’s voluntary disclosure. There used to be OVDP, but that’s gone, and voluntary disclosure is still available. We that for that, you definitely need a lawyer. We can introduce you to one of the lawyers that we work with and he or she will walk you through the process. We still put together the returns. They work on that statement because the statement is still needed. You still to approach the IRS in the right way and so on. So the point is don’t run; you need to get those tax returns in. It will always haunt you. And we’ve had, we’ve had, I dunno if you’re aware that the iris can have your passport revoked and we’ve, we’ve seen it with increasing frequent frequency.
Up to last month, we had a client, I won’t say part of the world, he’s he or she was in, but we had a client and, and you know, it’s not unusual. We probably see them, let’s say not, not every day, but let’s say every seven or eight months. Now someone approaches us, Hey, my client, my passport was seized. Normally what happens is that the person would approach the local embassy wherever it is you’re living to get your US passport renewed. That’s typically how it would be. And then they take it from you and then you say, Well, when can I get it back? And they’re like, oh, there’s a, there’s some, there’s a, you have a problem with the IRS. Well, we are not allowed to give you back your passport and we are not allowed to issue you a new passport. So you’re in a foreign country and you are without a passport. You need to figure that out. So then they come to us all panicking and, you know, sweating and shouting and we’re super upset. So you can lose your passport, which is, you know, a huge stick that can be, that’s being waved at people right now. You don’t wanna end up in a bad situation. You don’t wanna have a lean against your home back in the US against any investment accounts you may have in the US and we’ve seen back accounts, frozen, et cetera, et cetera. So you don’t wanna get in that kind of trouble. It does not go away. Bankruptcy does not relieve you of any IRS tax debt. That’s fiction. If it is that you do declare bankruptcy, you still have any tax bills, and it’ll still be due in full. So don’t run, and don’t avoid the notices if they’re coming to you. Don’t hide. Just please reach out to either ourselves or you prefer task professionals and, and get things done the right way so you have options most popular of which would be the streamlined. As well as if you have been willfully in all compliance, you’d probably wanna look at voluntary disclosure together with qualified tax attorney. So hope that helps. So that’s it. We’ve come to the end of another one.
Thank you for joining us, HTJ.tax. This will be available on our website, on YouTube, and on about 25 other podcast platforms. Basically, iTunes, SoundCloud, wherever it is that you get your podcast. This is gonna be, have a look at HTJ.tax/events for what’s coming up next week. We do this every week. We release a new video every day. So just look out for us on social media. Have a good evening. Have a good morning, and have a good day, depending on where you are. All right, see you guys next time. Bye-bye.
VOICEOVER:
So if you’re a six, seven, or eight-figure investor, entrepreneur, or business owner who needs a tailor-made solution from a qualified team of professionals, we can help you achieve the international lifestyle, the freedom, and even the tax savings you’re looking for. Visit us at HTJ.tax and live that international.
