Low tax burden life plan suggestion for freelancer

[dziter]

Hello everyone,

First, thank you for great content and quality answers available on the forum. It's a specific subject, really technical from my point of view but so interesting.

About me:
I am IT freelancer, developer, working remotely so I have my business 100% online. From far, I could be considered as a digital nomad. The truth is I work a lot and don't really travel like crazy in the world (Of course I would like but it's more a single lifestyle I will say).
Currently french soletrader living in Poland for personal reason (my gf is polish), it's time for me to setup a real company (LLC): my turnover is around 100k€.

My needs:
I am looking for a good scenario to avoid big tax burden, not so difficult (time and money consuming for this turnover) to maintain but to continue to have a good quality of life.
More a global advice (personal + corporate) to know from where to start.
I will really like to have my base in EU and would need to be able to use payment gateways like Stripe for my trading company.
Reputation of juridiction is important I will say. I know how Panama can be interesting but I don't want to base my life somewhere just to be richer, happiness and close to EU is important for me.

I read a lot of blogs these weeks and even spoke quickly yesterday by phone with a maltese tax advisor.
The thing is, there are too many parameters to take into account and my mind starts to blow off: CFC rules, double taxation treaties, not an expert at all and I don't know costs to maintain structures in different countries ..
I want to pay less taxes (not nothing, to be clear) and have a legal situation.
By legal, I mean not have to run away from countries and be able to obtain a tax resident certificate to avoid high taxation from my origin country: France.
For that, I think I will really need to live at least 6 months in the country (only Cyprus exception in Europe may be with the 60 day rule).

From what I read online and heard, I saw:
- Cyprus holding + Maltese Company
- BVI holding + Maltese Company
- Cyprus Company only
- Interest in NHR Portugal program (developer is specific profession) but Social Security contributions may be not so interesting (NHR + Malta may be).

Other places like Bulgaria, Georgia, Czech Republic seem interesting too but I will not want to live on long term to theses places I think, perhaps because of sun I am dreaming.
However, I am completely open-minded for every suggestion and will really look carefully about it.


I will close my soletrading business in France before end of the year. My goal: be tax resident somewhere else for 2021.


So finally :

- Where is a great place to live and so become a tax resident?

- Where should I incorporate the company?

- Should I setup only one company or a dual structure seems more appropriate in my case (IBC + local company)?

- Do you have any idea how much it costs for the full package (taxes, maintaining companies fees + accounting, social security contributions.. everything) for a freelancer like me?

- BONUS: I am really interested about real estate investment (to rent, passive income). If there is a country where we could have easy mortgage to invest in EU, I am interesting to know it.

Thank you everyone by advance willing to help me with this,
Have a nice week-end.

 

[user9823671]

If your gf is Polish, then are you expecting to be living in Poland for foreseeable future? If so, set up the business there. They have low corporate tax IIRC and if you are wanting to stay in EU, then having a business anywhere apart from where you are living / resident / home country is going to be cause issues with CFC laws.

From what I read online and heard, I saw:
- Cyprus holding + Maltese Company
- BVI holding + Maltese Company
- Cyprus Company only
- Interest in NHR Portugal program (developer is specific profession) but Social Security contributions may be not so interesting (NHR + Malta may be).

You cannot just setup a business in a foreign jursidiction and then pay the tax rate there as you have no substance (CFC (controlled foreign company) laws. Unless you want to get creative (expensive) or illegal there isn't much choice away from your home country or the country where you live.

 

[dziter]

@user9823671 : Thank you for your answer. It's exactly the thing I am wondering.
This is the thing I thought at beginning. The fact is, I can't be soletrader there. I have to build a LLC (Sp zoo here) because I am working with a freelance platform which doesn't accept soletrader except in few countries and Poland is not in the list (I call them, insist but it's LLC or nothing). So, these days I spoke with accountant and here is the answer of one of my questions:

So if I understand well, I have 2 scenarios:
CIT: 9%
LLC which is employing me and giving me a small salary up to 85000PLN (around 19k€): 17%
+ may be social security contributions for the employee (myself)
PIT: 19%

OR
CIT : 9%
PIT : 19% on full dividends + social contributions

I asked some people here about social contributions (called ZUS here) and they told me it's fixed price even if no turnover except first year may be. The guy is soletrader and is paying 1600 PLN/month (around 400€).

So thinking about the full package, I think 9 + 17 + 19 + social contributions, it's possible to improve no?


If we have to move, taxes should not be the only reason but I am considering it now. Sun can help too ..

If I can be tax resident in a place like Cyprus just staying 2 months/year and put everything at my gf name in Poland (flat), is it a working possibility? I mean, I am not against rent a flat full year in Cyprus, stay 2 months there/year to become tax resident if I save a lot with potential taxes somewhere else.

"You cannot just setup a business in a foreign jursidiction and then pay the tax rate there as you have no substance (CFC (controlled foreign company) laws. Unless you want to get creative (expensive) or illegal there isn't much choice away from your home country or the country where you live."

I don't know anything about CFC but I see that I was not clear with my explanation.
I know that to have an efficient legal setup, I have to live in a low tax/territorial country. I am looking for it: becoming tax resident in Portugal/Malta/Cyprus?
In my examples, it was : living in Malta (malta company) and holding in Cyprus OR the contrary, living in Cyprus, or something with NHR in Portugal (the maltese tax advisor told me to look at it, and holding in BVI too).


Thank you for your help.

 

[dziter]

I am also thinking about another scenario (because at the end I need a LLC for the freelance platform, it's big part of my turnover) :

Is it possible to setup an offshore company + use soletrader status in Poland (much more interesting with taxes this small 'company')?

So the offshore company will be the public trading one (LLC for freelance platform), just a "buffer/transit", and the soletrader part the private one to "cash out". 100% full-outsourcing, no idea if it's legal because same director. Usually it's the contrary: holding + subsidiary, so I am just wondering in my situation if it's possible in the other side.

 

[jackfrost]

NHR will not fly legally. That would only be relevant for passive income. In the EU Malta/Cyprus would be what you are searching for but 100k turnover is hard on the limit. You ideally want to have at least 100k -profit- to even think about it. Also dont move for tax reasons in general. Just dont. Either you want to live there and the tax regime is a bonus or just dont do it.

 

[dziter]

@jackfrost : Thanks for your answer.
in Poland, it will be 30% taxation.
in France, 30% just for PIT (even 41% because of progressive tax).

So if I just have to live 2 months/year (cool for holidays too) in Cyprus to cut half of the tax, I think it’s worth. At least a good start. No?

To sum up, right now I need a new company by the way « doesn’t matter where ».

 

[jackfrost]

You need to do the whole calculation.

If you pay 30% = 30.000 in taxes on the 100k in poland and 10% in cyprus or whatever it is right now that means 20k saved BUT you also need to account for probably 10-15k depending on structure for two companies, registered address, accounting, few legal consultations, and so on. On top of that the much higher rental and general cost of life in Cyprus or Malta. On top of that flights to cyprus/malta going back and forth for family or whatever.

Also the 2 months are kind of a myth. If you live 2 months there and 10 months in Poland you will be deemed tax resident in Poland. Your point of interest in life will undeniably be in Poland and nobody will give a s**t about your Cyprus tax certificate (if you even get it).

So at the end of the day you will not have saved taxes, maybe even have higher taxes (through the whole calculation above since that is ALL part of playing the game) and maybe get into much bigger problems because of point of interest etc pp.

If you do it be prepared to really have your point of interest in life on either island for definitly > 183 days more like 200+ days and cutting all ties to Poland except for family visits and do the whole calculation above which will also tell you that 100k profits is really the entry point to all of this and at this point you are not even really saving soo much in taxes as other increased costs make up for it. At this point it is only worth it if you really want to live in the sun on an island.

 

[daxbr]

9...)
+ may be social security contributions for the employee (myself)
(...)
So thinking about the full package, I think 9 + 17 + 19 + social contributions, it's possible to improve no?
(...)
Thank you for your help.

Not to discourage you but the "social contributions" you seem to ignore are close to 30%.

 

[Marzio]

living in Poland for personal reason

Read this.

 

[dziter]

Hello,

Thank you all for your answers. My situation needs to be changed more urgently: the owner of my flat asked me to leave (one month notice). So I have to think what I really want to do. I am more thinking about real relocation, I mean staying 6 months in this place at least.

Today, I had a private meeting with a polish accountant & tax advisory.
Salary and dividends are taxed the same in Poland.

There are 2 options in my case:

1 - LLC + giving myself a CEO salary

I will not detailed everything here because it's the least interesting option.

2 - LLC + soletrader

The best option here to have LLC and cash out the maximul legally (everyone is doing that to save on social contributions) is to setup 2 structures: LLC + soletrader.

I will give you all the details and calculations based on a 100k€ turnover, may be it could help someone some day here too.
Allowed me to give you the calculation in local currency (4.4 PLN = 1 euro now) PER MONTH:

Income : 37 000 PLN (8300 €)
Costs: 1500 PLN (accounting and monthly business expenses for example)
Social contributions : 1450 PLN (it's fixed amount in Poland, doesn't matter your turnover)

-> Left to pay: 34 050PLN

The soletrader company, will full-invoice the LLC, and need to pay a flat tax rate (better option than progressive) of 19%.
Salary tax - 19% : 6469.50 PLN


ON HAND IS, NET : 27 580.50 PLN / month (6200€) so around 75000€/year*

*This calculation is without the bureaucracy to manage two companies, thinking in mind than I need to have another shareholder for the LLC and give 5% of the shares to avoid second Social mandatory Contributions.

_____

Conclusion: Let's say it's around 30% (more 26 in this case) taxation in Poland.
I don't have any tie in Poland (no family, nothing).

Ukraine is not a place I would like to take residency but thanks for the suggestion because I never heard about it.

If I have a better place to stay (good quality of life, sunny etc doesn't matter) and save some money (I could always decide to move again in few years ..), I am completely in. It's okay for me to move everything and remove ties with France and Poland and stay in a new place during 6 months.

So what are my best choices?

I think I could like to live in Malta but first I need to go there to know (I heard that it's not so cool to live long on this island).
Some people seem to prefer Cyprus which I consider too.

Cyprus :
Personal: Salary tax free up to around 20k€
Corporate: 12.5% on 80k€ (100k-20k)
+ accounting 2/3k€/year
(What about social contributions?)

-> ON HAND : Around 7250/month - 87 000€/year
Am I correct?


Thank you all for your answer and your point of view, I am really interested to go further and understand this stuff.

 

[Marzio]

Ukraine is not a place I would like to take residency

In case you missed it

Under Ukrainian law, anyone who does register is automatically deemed a Ukrainian tax resident even if no time at all is spent in the country

You don't have to live in Ukraine, you can be tax resident but not live there. I thought you wanted to live near your girlfriend in Poland. Cyprus is 4 hours flight and you have to pay 12.5%. You register in Ukraine, pay 5% on your income, rent a cheap apartment near Lvov and in 3 hours you can be in Krakow.

 

[dziter]

Thank you Marzio for information.

I will live with my girlfriend doesn't matter the country.
The thing is, even if Ukrainian will be happy to welcome me a a tax resident, I don't think another country will like if I stay 8 months there and not paying any taxes.

And it's impossible for my to use payment gateway like Stripe, it's a condition too..

I don't want to stay in Ukraine. I will read carefully about it because I never heard about this and it seems like non-dom a little bit.
If private entrepreneur means sole trader, it's not an option for me too. I need LLC.

I would like to have other countries suggestions or Cyprus'experts' to answer if my quotation above is correct.
Thanks.

 

[Marzio]

If private entrepreneur means sole trader

Yes, it's sole trader.

Well, the second best option for you would be to start a company in Estonia or UK and open a polish branch.

Both in Estonia and UK is cheap to start and manage a company and can be done online.

Why i'm suggesting this setup?

Because Polish established exit tax starting from 2019 and in case in future you want to move with your girlfriend to another location they will tax you.

If you configure yourself as a small taxpayer you pay 9% tax rate BUT you have to check with a GOOD accountant if the small taxpayer regime can be used by branches too.

 

[dziter]

Thank you very much for this exit tax point, really useful and something to take in consideration.

1 - UK company and Polish branch

I don't know how to do that but I will try to look. I guess I need UK expert for that.

2 - What about UK company and soletrader in Poland?

What's the most interesting and legal?

Last time I spoke with an Irish accountant to setup there and he told me:
"As the company would at no point be centrally managed and controlled in Ireland, you would qualify for 25% Corporation Tax.
The 12.5% rate is a special rate for companies that are based in Ireland, not remotely working in another country.
I'm sure you can appreciate that it is a government initiative to give back to companies that are based here."

Could it be same issue with UK in these two previous options?

 

[Marzio]

I don't know how to do that but I will try to look. I guess I need UK expert for that.

Start by reading this thread.

Option #2 is just wrong and dangerous because of CFC rules that are enforced in Poland.

Basically you are controlling a foreign company from Poland and you can't do that.

What the Irish accountant told you is correct, your UK company instead will be treaty not resident and you will not pay any taxes in UK but only if you don't have UK customers.

If you have UK customers you can't use the UK LTD + Polish branch and you need to use Estonian company + Polish branch.

 

[dziter]

Really interesting, I read everything but not sure to understand everything. I will look for it again for sure, thanks for sharing.

Ok, that is clear. CFC so let's forget it.

'treaty not resident' is a specific rule only in UK or this rule exists in other EU juridictions?
I confirm you that I don't have UK customers. Going with the estonian scheme is more tricky than UK? (In case of I plan in future future to have some UK freelancing opportunities, we can't always plan future..).

Concerning UK LTD + Polish branch, I am just worried than it's the same that :
'1 - LLC + giving myself a CEO salary
I will not detailed everything here because it's the least interesting option.'

The only difference (and I like this point is: to avoid the future polish exit tax, less tricky than polish LLC and to not be stuck with Polish company if I want to move + better UK reputation to trade).

Concerning the taxation of the polish branch, the end of this article is interesting:
https://www.companyincorporationpoland.com/establish-a-branch-in-poland

I think it's the same than 1st option the tax advisor showed me this morning because:

CIT for the Polish branch: 9% (considering the small taxpayer regime)
Polish Salary tax - CEO salary is :
17% up to 19k€
32% above
The same rule applied for dividends.

And I don't speak about potential social contributions.
Only Polish soletrader companies can have a flax tax rate of 19% income.

I don't know if I am correct but this is my first understanding.

So now, I am really wondering if staying in Poland is not the problem..
But, on the thread you shared, last messages seem to pointed out that this scheme will be time/money consuming with Cyprus residency to save "only" 20k€ taxes. I am wondering why?

I mean, UK company + Cyprus branch, what's the main difference with UK company + Polish branch?

And for Cyprus case, is itnot simpler to just setup a local company, pay the 12.5% corporate tax and give a 20k€ salary tax free + dividends or full dividends?

By the way, I am really ready to go further and do the stuff it needs to do to have suitable structure on long term.

Thanks again, looking forward to read from you.

 

[Untangle]

I am in the same boat as yourself.

Personally I use payroll processors (Portage salarial) from the UK. Many others available in Luxembourg, Malta etc.
This way your payroll is done properly and amount can be split and paid between 2 countries. This result in lower taxes paid. Typically they charge 350 euros per month.

Because you are no longer resident in France you won't have to pay taxes anymore there.

You can open an account with N26 in France and get part of your wages paid there and polish tax office won't know about it. It will be reported to french authorities but it does not matter.

This will save you the hassle of having to open structures with your name all over the public registers as a company director.

Keep it simple. 100k is not enough to justify opening structures to your name .

 

[lavel]

This way your payroll is done properly and amount can be split and paid between 2 countries. This result in lower taxes paid. Typically they charge 350 euros per month.

sounds really to be the solutions I have been looking for but 350 euro per months? how many people do you have on the paylist?

 

[JustAnotherNomad]

Lots of wrong or half-true information in this thread.
CFC rules often aren’t an issue at all because they usually don’t apply to active, operative businesses.
You can see here that Polish CFC rules only apply to companies that have at least 33% passive income:
https://taxsummaries.pwc.com/poland/corporate/group-taxation
That’s why it doesn’t mean much that a country doesn’t have CFC rules. The issue is permanent establishment.

If you have a company in Malta (or wherever), but spend 4 months every year in Poland with your girl-friend, working from her apartment, the polish tax office can simply say that you have permanent establishment in Poland and tax any income generated from there as if you had a Polish company (Polish branch of the Maltese company).
That is if they find out. Which is extremely unlikely given the open Schengen borders.

You are of course right that getting residency in Ukraine won’t help you if you don’t spend any time there. The same goes for Cyprus and any other option if you actually live somewhere else.

The biggest risk though is France taxing you. If you can avoid that by not spending too much time in France, then you’ve already achieved a lot.

If you only want liability protection, you can look into opening a US LLC. It’s taxed like a sole proprietor unless you elect otherwise, so you don’t have to pay corporate income tax. But you need to make sure that your country of tax residence agrees with that view. Some countries simply charge CIT anyway when they see a LLC.

Otherwise you will have to decide what you want: If you want a 100% correct and legal solution, you would need substance in the other country. Which means employees, a local office and director etc. That doesn’t make sense with just €100k in revenue.
So you either have to pay the Polish taxes if that’s where you live or you can claim you live in some other country and only visit your girl-friend from time to time without working in Poland, and hope the Polish authorities won’t find out. Which isn’t very likely since there are open borders in Europe and you’re a small fish. Especially as long as you pay some taxes somewhere, it’s not very likely anyone will ever take a closer look.

Exit tax will probably be an issue anyway, even if the company is registered somewhere else, as long as you are a tax resident of a country that has exit tax or there is a permanent establishment.

 

[Marzio]

I think it's the same than 1st option the tax advisor showed me

I think you should change tax advisor because who you spoke to doesn't have a clue.

First educate yourself on the topic by reading from the correct sources, for example deloitte.

Under corporation taxation you'll see that branch tax rate can be reduced at 9%.

You have to understand the psychology of every tax advisor.

He will always advise you the EASIER solution for him to manage, not the one that will bring you more tax savings.

And sole trader in Poland is exactly that: more easier to manage.

If you don't have UK customers you can use the reputation of UK LTD to invoice your customers while working as a director in your branch in Poland which pays 9% CIT.

There's another benefit using this setup other than avoiding the exit tax.

Ad a director of your branch you'll pay only the minimum salary to live comfortably in Poland so that you pay minimum personal taxes.

The rest of the money can be transferred tax free from the branch to the UK LTD head company so that in the future you can move in a territorial taxation country with your girlfriend or in Cyprus where dividends are tax free and you can pay yourself all dividends that you have accumulated TAX FREE achieving 9% total taxes while staying legal.

Another benefit is that the managing costs of the UK LTD are around £200 year so it's the most cost effective solution out there.

You also have access to PayPal, Stripe, all the Fintech's and banking.