No tax on trading profits when registered nowhere?

[Sombrero]

Hi there,

a friend of mine is a German citizen, but he is no longer registered in Germany, he quit all his contracts in Germany and he do not have an apartment or any assets in Germany anymore. At the moment he is in Australia on a working holiday visa, so he works and lives in Australia right now. However he told me that he will go to Thailand soon and start to trade crypto currencies there. He said that he legally do not need to pay tax on his trading profits, because he is not registered in Germany anymore and only live in Thailand for less than three months. In Australia he only need to pay tax when he works with an Australian company, but he do not declare his trading profits in Australia because he is working from Thailand. He said this is legal and only possible because of his situation. I wonder if this is really the case?

Is it really legal to not declare his trading profits, neither in Australia, Germany and Thailand?

Thanks for your answers!

 

[scooterguy]

Where is "your friend"'s bank account going to be, for trading purposes?

 

[Sombrero]

As far as I know he uses his personal bank account from Australia or Germany. Is this a problem?

 

[scooterguy]

In Thailand there is no need to declare foreign capital gains, hence it doesn't matter how long "your friend" stays in Thailand, as long as the assets are sold abroad.

But your friend is probably considered an Australian resident anyways. Here are some questions to consider:

1. After the three months in Thailand, is he going back to Australia?
2. Will he keep an abode in Australia during those three months?
3. How is he hired in Australia by this company? Is it through legal employment or does he provide his services as an independent contractor?

 

[Sombrero]

Thank you for your answer.

1. Yes he is planing to go back to Australia
2. No he don't rent an apartment in Australia, he is just staying in hostels and when he leave Australia he do not have any assets there, so he could also decide to not come back to Australia and just continue travelling in Asia. At the moment he don't want to rent a permanent apartment. He only has a working holiday visa.
3. At the moment he just has a casual job and will quit this job before he leave Australia.

In Thailand there is no need to declare foreign capital gains, hence it doesn't matter how long "your friend" stays in Thailand, as long as the assets are sold abroad.

Is this because Thailand has a so called territorial tax system? Any income gained outside of Thailand is free of tax and this includes trading profits as well, right?

Furthermore he told me that after he left Australia he want to get a Thai student visa to be able to stay in Thailand for a longer time and he need this visa to send it to an exchange. When the exchange accepts his visa then that means that Thailand is responsible for taxation and because Thailand do not have tax on profits gained outside of Thailand, he dont need to pay tax even when he is in another country (for less then 3months).

My friend has an exotic lifestyle and his plans are changing a lot, but I am curios if this setup is possible and legal?

 

[scooterguy]

The setup is legal but you have some misunderstandings.

Thailand is not responsible for taxation just because you get a visa there. You can be a tax resident of many countries at once, so it's important to make sure that you don't spend too much time in any given country, and also important to not have economic ties with any of those.

You should also consider the extent and volume of the crypto trading operations. Selling crypto a few times a year through an Australian or German bank account will probably be OK, but if it's a regular activity, German or Australian authorities may consider it an economic activity taking place within their borders.

So, now the question is, how much crypto will your friend be selling and how often? If volume is high, it might make sense to set up something with substance somewhere, and perform the trading activity through that place.

 

[JustAnotherNomad]

Yes, it's possible that this works:

1. Every country has its own rules for tax residency. So you can end up in a situation where you are tax resident in no country. But this can create its own problems because banks etc. expect you to live somewhere and be tax resident somewhere.
2. You can be liable for taxes, even without being tax resident. A simple example would be rental income, which is typically taxed where the property is located.
3. But you can also be taxed on trading income, even when you're not a tax resident. Germany in particular has rules in place for former tax residents who are still investing in German companies, that could apply to crypto in particular. So he'd better check this with a German lawyer. (And then there are of course withholding taxes, like the US keeping 30% in taxes of dividends paid by US companies, and there's also US estate tax if you hold US shares).
4. It's important to give the broker the correct information. If his broker still thinks he lives in Germany (because he didn't update his address), he could end up paying only 15% in US taxes, instead of 30% (because the US thinks he will pay the rest in Germany). That would be tax fraud in the US.

It's generally a good idea to get a proper tax residency and explain that's where you live. Makes your life much simpler.

 

[Sombrero]

You should also consider the extent and volume of the crypto trading operations. Selling crypto a few times a year through an Australian or German bank account will probably be OK, but if it's a regular activity, German or Australian authorities may consider it an economic activity taking place within their borders.

My friend is actually trading small amounts of crypto and he reinvests his profits by buying crypto. Therefore he not regularly transfers his profits into his personal bank accounts in Germany or Australia and if he do so it will be around 1k probably.

So, now the question is, how much crypto will your friend be selling and how often? If volume is high, it might make sense to set up something with substance somewhere, and perform the trading activity through that place.

I am curious what you would consider a high amount? Also does it make any difference if someone is trading a 50k account once a month or a 5k account 100 times a months? Would you start to set up something with substance when you trade a 10k account?

I know that for a lot of people it is not that much money, but it is possible to make a living from the profits of a 10k trading account.

1. Every country has its own rules for tax residency. So you can end up in a situation where you are tax resident in no country. But this can create its own problems because banks etc. expect you to live somewhere and be tax resident somewhere.

That's right, but most people already have a few bank accounts before they leave there tax residence, so they can simply keep there bank accounts. It is also possible to open up bank accounts without the need to show your tax residency. In Georgia it should be possible to open up a bank account only with a passport.

4. It's important to give the broker the correct information. If his broker still thinks he lives in Germany (because he didn't update his address), he could end up paying only 15% in US taxes, instead of 30% (because the US thinks he will pay the rest in Germany). That would be tax fraud in the US.

That's difficult, because for most people it is simply out of there imagination to don't be registered somewhere. What do you think will be the response when someone contacts there exchange/broker to tell them that he or she is not living in there country anymore and that they can not provide an alternative address?

I guess that there will be a buerocracy loophole and people simply dont know how to deal with this situation, so they may decide to restrict there account. My experience is that you only have trouble with these special situation because the system is simply not made for such an amazing lifestyle.

---

Here a short summary because you both agreed that it is a possible setup:

It is legal to live in Thailand and to pay 0% tax on trading profits (it doesn't matter how high these profits are), because Thailand is a territorial tax system and the profits are gained outside of Thailand. As soon as these profits are very high, it is necessary to have a bank in a country with 0% income tax. It only requires a bank in this 0% income tax country, because in this case there is no permanent tax residency. I think it should be much easier to open up a bank account in a 0% income tax country then to get a permanent residency or citizenship.

That means it is possible to make unlimited profits and to pay 0% tax while living in a territorial tax system country, is that right? However this only works for very experienced and profitable traders, because they dont need to write invoices and deal with customers and they can work remotely.

In the case of my friend I think the situation is the same, even when he lives and works in Australia for some time. He is not a permanent resident in Australia neither is he able to get support from the state or from the health system.

That is really interesting! I am looking forward to read about your thoughts.

 

[Mike Forman]

He seems to be nowhere a resident so whenever German tax authorities challenge him he should proof where he has a tax residence and where he resides all the time. If he resides nowhere then he is a traveler and his permanent residence will remain Germany.

You state he sometimes transfers to his account in Germany, so he is still tied to Germany.

Perhaps he will be lucky to stay under the radar and never questions will be asked. But if he will be challenged tax authorities will higlikely send tax bills, unless he can proof his residence in another country (rental contract, residence permit, bank account, salary, employment contact, utility bill, credit card spending (with a local credit card), flight tickets, hotel bookings, other spending and subscriptions, tax certificate,.. ).

The recurring advice on this forum is :

1) break ALL ties with previous country of residence / citizenship (no assets, bank accounts, credit cards, don't live there,..)

2) make sure you have somewhere a residence (preferable low tax and exemption on foreign income) and have solid proof of that residence

 

[scooterguy]

My friend is actually trading small amounts of crypto and he reinvests his profits by buying crypto. Therefore he not regularly transfers his profits into his personal bank accounts in Germany or Australia and if he do so it will be around 1k probably.

How often will he withdraw 1k? You are talking about making a living off this, so I am assuming there would be regular withdrawals to the Australian or German accounts?

 

[JustAnotherNomad]

Selling crypto a few times a year through an Australian or German bank account will probably be OK, but if it's a regular activity, German or Australian authorities may consider it an economic activity taking place within their borders.

Wrong (most likely).

That's right, but most people already have a few bank accounts before they leave there tax residence, so they can simply keep there bank accounts. It is also possible to open up bank accounts without the need to show your tax residency. In Georgia it should be possible to open up a bank account only with a passport.

If they don't update the address, this is at least a violation of the terms and conditions of the bank, it can also lead to "accidental tax fraud" as I explained with the US 15% vs. 30% WHT example. No bank will open an account for you without a proven address, usually a utility bill or some other official residency document is required.

What do you think will be the response when someone contacts there exchange/broker to tell them that he or she is not living in there country anymore and that they can not provide an alternative address?

They will close the account because anything else would be a violation of AML protocols.

It is legal to live in Thailand and to pay 0% tax on trading profits (it doesn't matter how high these profits are), because Thailand is a territorial tax system and the profits are gained outside of Thailand.

"Because it is a territorial tax system" is about the same thing as saying "Pizza tastes good because it is food". Just because a country has a territorial tax system doesn't mean you don't have to pay tax.
Yes, you can live in Thailand and pay no taxes, but it's not a given.

As soon as these profits are very high, it is necessary to have a bank in a country with 0% income tax. It only requires a bank in this 0% income tax country, because in this case there is no permanent tax residency.

This doesn't make any sense whatsoever.

He is not a permanent resident in Australia neither is he able to get support from the state or from the health system.

Again, doesn't make sense in any way.

If he resides nowhere then he is a traveler and his permanent residence will remain Germany.

This is just plain wrong.

You state he sometimes transfers to his account in Germany, so he is still tied to Germany.

bulls**t.

TL;DR: Please don't believe everything you read on the internet.

 

[scooterguy]

@JustAnotherNomad:

Explain how it's wrong that selling crypto sporadically is not the same as an activity. Most tax systems make a clear distinction between trading as an activity and selling assets you own.

Furthermore, if you hold the assets long enough, most countries also grant tax reliefs. In the case of Germany, for instance, holding crypto for more than a year allows to sell it tax free. Australia gives you a 50% capital gains tax discount on assets (including crypto) held for more than a year.

 

[JustAnotherNomad]

Explain how it's wrong that selling crypto sporadically is not the same as an activity.

Where did I claim that?

Furthermore, if you hold the assets long enough, most countries also grant tax reliefs.

I don't see how that's even relevant here.

 

[Sombrero]

He seems to be nowhere a resident so whenever German tax authorities challenge him he should proof where he has a tax residence and where he resides all the time. If he resides nowhere then he is a traveler and his permanent residence will remain Germany.

This is wrong. Please only answer if you know about the topic, there is already way to much confusion going on.

How often will he withdraw 1k? You are talking about making a living off this, so I am assuming there would be regular withdrawals to the Australian or German accounts?

I am not sure how often he transfers money, but I know that he can live from his profits in low income countries. However he do not earn more then average people in Germany, so the profits are not that high, maybe 1-2k per month.

If they don't update the address, this is at least a violation of the terms and conditions of the bank, it can also lead to "accidental tax fraud" as I explained with the US 15% vs. 30% WHT example. No bank will open an account for you without a proven address, usually a utility bill or some other official residency document is required.

I am pretty sure he did not update his address on his bank accounts. Otherwise he will probably lose his bank accounts. Some people simply don't have a permanent address so what to do when this is the case? Alternatively he could update his address to his australian address, but will he then lose his german bank account?

"Because it is a territorial tax system" is about the same thing as saying "Pizza tastes good because it is food". Just because a country has a territorial tax system doesn't mean you don't have to pay tax.

I understand your point, however the rabbit hole is so deep that it is hard to write it in simple words without being wrong or without leaving some space for other options as well. In other (simple) words:

When trading profits are gained outside of Thailand or outside any other territorial tax system then it is possible to pay 0% tax on these profits. However it requires a bank account in this territorial tax system or any other country with 0% income tax. Does this sound better to you?

This doesn't make any sense whatsoever.

What I mean is that it requires a bank account in a territorial tax system or a country with 0% income tax to be able to don't pay tax on trading profits. If a bank in Germany is used to deposit these profits that can be an issue as @scooterguy said:

"You should also consider the extent and volume of the crypto trading operations. Selling crypto a few times a year through an Australian or German bank account will probably be OK, but if it's a regular activity, German or Australian authorities may consider it an economic activity taking place within their borders."

Again, doesn't make sense in any way.

I think that a working holiday visa is not a free ticket for the government to be able to tax a working holiday maker outside of Australia. He needs to pay tax when he works in Australia, however when he leaves Australia and works in Thailand for example he dont need to pay tax in Australia when working in Thailand. It doesn't matter what kind of work he do, if it is a freelancing job or trading profits.

He is not a permanent resident in Australia and therefore Australia can not tax him in other countries. This would be the case if he is a permanent resident, but then he would also get the benefits from the health system and other support from the government.

I am not entirely sure about that, but I guess that should be right.

 

[JustAnotherNomad]

Some people simply don't have a permanent address so what to do when this is the case?

Then you may struggle to find a bank account, simple as that.
Why do you think people ask so many questions here about getting residency somewhere? Why do you think a typical question for digital nomads is how to get a utility bill?

Alternatively he could update his address to his australian address, but will he then lose his german bank account?

No, why would he? Of course it's possible if the bank doesn't serve that market, but it's not like no bank would ever serve customers outside of their own country, especially if you tell them it's only temporary?
That said, it might be better to keep the old address on file, as long as you make sure that you're not getting a tax advantage you shouldn't be getting (reduced withholding tax).

When trading profits are gained outside of Thailand or outside any other territorial tax system then it is possible to pay 0% tax on these profits. However it requires a bank account in this territorial tax system or any other country with 0% income tax. Does this sound better to you?

France has a territorial corporate tax system. Do you think a French company can avoid paying taxes by using a bank account in another country?
I don't understand where this myth comes from "They have a territorial tax system, so now I never have to pay tax again, as long as I don't use a bank account from that country."
Yes, it's possible it works that way in Thailand, but that is because of the specific rules that Thailand has and because Thailand is happy that Westerners settle there and improve the economy. I actually doubt you'd be able to get the same advantages as a Thai citizen, unless you really set up the correct structure.

If a bank in Germany is used to deposit these profits that can be an issue as @scooterguy said:

I'm not saying I'm 100% sure, but I highly doubt that.

I think that a working holiday visa is not a free ticket for the government to be able to tax a working holiday maker outside of Australia.

Visas and taxes have absolutely nothing to do with each other. They're completely separate matters.

He is not a permanent resident in Australia and therefore Australia can not tax him in other countries. This would be the case if he is a permanent resident, but then he would also get the benefits from the health system and other support from the government.

It's possible that it's like that, but again, if that's the case, then it's because of specific Australian laws.

People really have to understand that every country makes it's own rules. There are no general rules in a positive sense ("As long as X, a country could never tax me" - the rules are literally different for every country) - the only thing that is relatively consistent (but not even that is consistent!) is "If I spend more than 183 days per year in a country, they can tax me".

Long story short - yes, I believe such a setup could probably work, but not for the reasons you mention. This whole thread reads like "My friend was really sick. Then he took some penicillin for 10 days and every day, he drank a glass of orange juice. Now he is cured. Orange juice truly is magic. I will also start drinking orange juice now and never be sick again a day in my life."

 

[Houdini]

Long story short - yes, I believe such a setup could probably work, but not for the reasons you mention. This whole thread reads like "My friend was really sick. Then he took some penicillin for 10 days and every day, he drank a glass of orange juice. Now he is cured. Orange juice truly is magic. I will also start drinking orange juice now and never be sick again a day in my life."

Best comparasation I have seen so far. You could succeed with your setup, but read carefully what the gurus tell you here!

 

[scooterguy]

I don't understand where this myth comes from "They have a territorial tax system, so now I never have to pay tax again, as long as I don't use a bank account from that country."
Yes, it's possible it works that way in Thailand, but that is because of the specific rules that Thailand has and because Thailand is happy that Westerners settle there and improve the economy. I actually doubt you'd be able to get the same advantages as a Thai citizen, unless you really set up the correct structure.

Thai citizens enjoy the same advantages, although OP has some misunderstandings regarding the way Thai territoriality works, which I clarify below.

I am not sure how often he transfers money, but I know that he can live from his profits in low income countries. However he do not earn more then average people in Germany, so the profits are not that high, maybe 1-2k per month.


When trading profits are gained outside of Thailand or outside any other territorial tax system then it is possible to pay 0% tax on these profits. However it requires a bank account in this territorial tax system or any other country with 0% income tax. Does this sound better to you?

What I mean is that it requires a bank account in a territorial tax system or a country with 0% income tax to be able to don't pay tax on trading profits. If a bank in Germany is used to deposit these profits that can be an issue as @scooterguy said:

Thailand is a territorial tax system but only as long as the foreign income is not remitted into Thailand the year it is earned.

For example, profits from investments made during 2023 cannot be remitted tax-free into Thailand until 2024.

If you realize capital gains abroad during 2023, and remit that money into Thailand during 2023 as well, then you are liable for Thai PIT.

 

[JustAnotherNomad]

I am aware of those rules.

But the question is what constitutes foreign source income. People have all kinds of assumptions about this. You're a Chinese billionaire investor with a factory in China and you're not involved in the business? Should definitely be foreign source income.
You're a 20-year-old backpacker on a tourist visa making $1,000 a month from digital marketing for clients in Europe? They probably won't even care about you.
You're a Thai citizen running a web design agency with 20 employees in Bangkok, working exclusively for clients in the US, with all client payments made into a US bank account, money kept outside Thailand for a year. I highly doubt they would consider that foreign source income.
And then there's all kinds of stuff in between of course.

What people have to understand is that "territorial tax" is a category as broad as "food". "Shall we go that Chinese restaurant, they have great food!" - "Oh yeah, I love pizza!"
Under Portugal's NHR system for example, foreign source dividends are tax free in Portugal. But if you work in Portugal, it's not foreign source income, even if the client is outside of Portugal and the payment was made into a foreign bank account. Because where YOU are is what's relevant.

 

[scooterguy]

I am aware of those rules.

But the question is what constitutes foreign source income. People have all kinds of assumptions about this. You're a Chinese billionaire investor with a factory in China and you're not involved in the business? Should definitely be foreign source income.
You're a 20-year-old backpacker on a tourist visa making $1,000 a month from digital marketing for clients in Europe? They probably won't even care about you.
You're a Thai citizen running a web design agency with 20 employees in Bangkok, working exclusively for clients in the US, with all client payments made into a US bank account, money kept outside Thailand for a year. I highly doubt they would consider that foreign source income.
And then there's all kinds of stuff in between of course.

Of course that a web design agency in Bangkok is not foreign sourced income. But an agency in Singapore with US clients is foreign sourced income, even for Thai citizens.

Foreign investment income is always considered foreign source, including capital gains. The usual advice to wealthy Thais with investments abroad is to accumulate dividend and capital gains income and remit it the next year.

And speaking of which, here's a nice trick that Thai citizens with investments in USA usually take advantage of: they are withheld only 15% at source on their dividends, but never pay the other 15% in Thailand, because they can wait till the next year to remit the money to Thailand tax-free, or simply never remit it and reinvest it.

Under Portugal's NHR system for example, foreign source dividends are tax free in Portugal. But if you work in Portugal, it's not foreign source income, even if the client is outside of Portugal and the payment was made into a foreign bank account. Because where YOU are is what's relevant.

Can you please elaborate on that? Say, for example, that I'm under Portugal's NHR system and have a company in Singapore, and my company pays dividends in a Singaporean account, isn't that foreign source income for Portuguese tax authorities?

 

[johnwickert]

No, it is not legal to avoid declaring trading profits in any country where taxes are due, regardless of registration or residency status.