Structuring for < $100,000

[JimBeam]

As Cyprus was mentioned in here, I would like to run down some numbers for you (all from my personal experience).

Let's say you make 100k/year of taxable income (after all expenses), you then need to pay 12.5% CIT tax (12.5k). BUT you need to calculate and pre-pay that in advance for the current year otherwise you'll pay additional 1% on 12.5% so that will cost you 13.75% (13.75k/year), social contributions 2.65% (2.65k), accounting (3.5k could be a bit less or a bit more), company renewal (let's say about 1k/year), banking costs (optimistically 1k/year). You might also need to rent an office as well.

The total is about 22k/year (or about 22%) + the initial setup in the first year.

IMO running a Cyprus company is quite expensive: accounting is expensive, banking fees are quite expensive.
Don't know much about living expenses... Don't know how familiar you are with living conditions there and you might go there for a vacation go get the know place better.

On the other hand having a company in Dubai would cost you about 5k/year, no tax for you or the company, no accounting (in some free-zones but even if you have to do it it will be about two times cheaper than in Cyprus) and a much cheaper banking (compared to Band of Cyprus).

Living expenses would be higher in Dubai but IMO you actually get something for that money while in Cyprus you just pay their lazy asses LOL

Also, worth mentioning is if your clients are paying you in Euros - you need to be careful in Dubai as exchange rates for EUR could be quite crappy (you can easily lose 3-5% exchanging EUR for AED or vice versa). USD is much better in general in UAE as the rate is fixed and you'll lose 0.5% making an exchange USD for AED or vice versa.

 

[RealDude]

In one year, Dubai will implement a CIT of 9%. From then on, the calculation looks different, doesn't it?

Then expenses also play a bigger role in Dubai to squeeze profits.

 

[KDX]

In one year, Dubai will implement a CIT of 9%. From then on, the calculation looks different, doesn't it?

Then expenses also play a bigger role in Dubai to squeeze profits.

That CIT is for mainland companies. It doesn't apply for the freezone

 

[RealDude]

That CIT is for mainland companies. It doesn't apply for the freezone

That makes sense

 

[name]

Even if no one is checking at the moment, it's not wise for the future.

Why? Is there something specific about this country?
If you no longer live there, what can they do?
They'll look up all the records for all the residents of the last 10 years above a certain globally defined net worth (I suppose all governments will know net worth of all individuals in CRS countries by then) and if someone didn't declare their income properly, they'll contact the other country and have them go to jail, unless he pays the penalty which they calculated with 10% yr interest?
Would they cancel your citizenship if you don't tell them you earned $200K over a few years? I'm just trying to form some understanding of how this works

 

[Sols]

Why? Is there something specific about this country?
If you no longer live there, what can they do?
They'll look up all the records for all the residents of the last 10 years above a certain globally defined net worth (I suppose all governments will know net worth of all individuals in CRS countries by then) and if someone didn't declare their income properly, they'll contact the other country and have them go to jail, unless he pays the penalty which they calculated with 10% yr interest?
Would they cancel your citizenship if you don't tell them you earned $200K over a few years? I'm just trying to form some understanding of how this works

I'm not sure how your questions relate to the context of my post, which was tax evasion while resident in Portugal. Portugal's current system is aimed primarily at passive income. Anyone moving there and conducting an active business without due declarations and tax filings (and tax payments) is engaged in tax evasion. It's no secret that Portugal currently isn't doing much if anything about people like that but relying on non-compliance is not a sound, future-proof structure.

The jump from there to revoking citizenship is one you made all by yourself.

 

[name]

I'm not sure how your questions relate to the context of my post, which was tax evasion while resident in Portugal. Portugal's current system is aimed primarily at passive income. Anyone moving there and conducting an active business without due declarations and tax filings (and tax payments) is engaged in tax evasion. It's no secret that Portugal currently isn't doing much if anything about people like that but relying on non-compliance is not a sound, future-proof structure.

The jump from there to revoking citizenship is one you made all by yourself.

Sorry if I sounded aggressive. I was just giving examples and asking if those things could happen so I can develop a little more solid idea

It's no secret that Portugal currently isn't doing much if anything about people like that but relying on non-compliance is not a sound, future-proof structure.

How does one would know it's not a secret?
What could happen if you rely on non-compliance? You might say it depends, so let me give an example. Say do consulting with offshore business making 100k/yr. You keep the money offshore and you keep a low profile. After several years, you become a non tax resident and citizen. After that, would you be able to sleep well at night? What could happen?

 

[Sols]

How does one would know it's not a secret?

By knowing people who live in Portugal doing this or something similar to it, without being caught or bothered.

What could happen if you rely on non-compliance?

The repercussions for tax crimes range from a slap on the wrist to fines and back taxes, all the way to money laundering.

Say do consulting with offshore business making 100k/yr. You keep the money offshore and you keep a low profile. After several years, you become a non tax resident and citizen. After that, would you be able to sleep well at night? What could happen?

To begin with, I doubt the validity of the premise. Your premise is that you get away with it. So in that case, you get away with it.

In reality, I would argue that you cannot learn from history when it comes to tax evasion and fighting financial crimes. History is often a great teacher, but not when it comes to this. Every new AML directive and tax enforcement initiative take us farther away from what was before, into a world of increasing sharing of data and erosion of privacy. This combined with increasingly sophisticated tools to simplify catching tax dodgers creates a future in "several years" that might look very different than today. So the premise of getting away with it is shaky at best.

So if you do get caught, you're first of all facing fines and back taxes for not having paid tax.

But it can — and often does — go further and you end up with charges for tax evasion and money laundering. It's a crime a to use illicit funds and untaxed funds very easily become illicit funds. I doubt you'd lose your citizenship over that (maybe a very aggressive and creative prosecutor could argue that case) but you could end up unable to find peace anywhere in the EU if an international arrest warrant is issued for you.

However, if you do get away with it, you face another potential problem: explaining your source of wealth to other countries and new banks. Where did you get 500,000 EUR from? You worked while living in Portugal? OK, show us your tax returns proving you've declared the funds.

I guess I just don't see the point in tax evasion when there are so many perfectly fine ways to live tax free or nearly tax free.

 

[name]

By knowing people who live in Portugal doing this or something similar to it, without being caught or bothered.

What do you think will happen to them?
Do you think they're avoiding to disclose offshore activity completely?
or they're disclosing like 20% of it?

To begin with, I doubt the validity of the premise. Your premise is that you get away with it. So in that case, you get away with it.

Oh I didn't realize I made that assumption. You mean you cannot become a non tax resident (or naturalize) without getting audited? I'm not sure audit is the right word

So if you do get caught, you're first of all facing fines and back taxes for not having paid tax.

Let's assume you owed them $150K but you didn't give them their cut. If you get caught, you'd pay that + fines? How are the fines calculated generally? Like 10% per year interest?
Can they seize your assets in other CRS countries for that amount?

I know any answer is speculation but I'm just trying to have an idea of how this works

But it can — and often does — go further and you end up with charges for tax evasion and money laundering. It's a crime a to use illicit funds and untaxed funds very easily become illicit funds. I doubt you'd lose your citizenship over that (maybe a very aggressive and creative prosecutor could argue that case) but you could end up unable to find peace anywhere in the EU if an international arrest warrant is issued for you.

Isn't this for high earners? One can be a money launderer for that amount?

However, if you do get away with it, you face another potential problem: explaining your source of wealth to other countries and new banks. Where did you get 500,000 EUR from? You worked while living in Portugal? OK, show us your tax returns proving you've declared the funds.

I guess I just don't see the point in tax evasion when there are so many perfectly fine ways to live tax free or nearly tax free.

1. Can banks want to see every single transaction going back to the source of funds? When they ask for tax return is it only for the last year or for many years? What if you had no activity in last few years, then they want to see even before a few years ago?
2. Why would other countries demand an explanation for your source of wealth? Unless you get into their tax net.
3. Maybe you had another taxable event. You declared that one and the amount is close to 500,000EUR. For example, you sold a property and paid taxes on it. Can this be enough? Do they check transactions in detail?
4. Maybe you had tax returns from years ago explaining your current source of wealth. Can that be enough to explain the 500,000EUR?

I guess I just don't see the point in tax evasion when there are so many perfectly fine ways to live tax free or nearly tax free.

One might be from an unstable country so she might need a stable passport and she might be too poor to buy one at the moment. So her option would be to live in a stable country long enough to naturalize. If she knew she was gonna make 500,000EUR in several years in the future, she'd probably buy a passport and live in a tax free country

I really appreciate your response and explanations btw. I agree with your main point. One should ideally think 10, 30 years in the future because nothing is stopping governments from doing whatever they want.

 

[Sols]

What do you think will happen to them?
Do you think they're avoiding to disclose offshore activity completely?
or they're disclosing like 20% of it?

Some will be caught, some will not. What mainly determines whether they get caught is how easy they become for the local tax authority to go after. But a tax authority in a country like Portugal also needs to be mindful of not scaring away other wealthy foreigners.

Tax evasion isn't a high priority in some countries because the tax evaders might be providing jobs or otherwise contributing to the local economy.

I can only speak about the ones I know or know of that do this (which isn't most; most of them are 100% compliant). Most of them declare some form of passive income to explain and cover their daily expenses and some extra, and keep their not-so-passive income abroad, sometimes in convoluted structures or in crypto. — Note that this is different from living in Portugal, actively run a business as your sole income, and try to get around taxation by claiming the income is passive.

Oh I didn't realize I made that assumption. You mean you cannot become a non tax resident (or naturalize) without getting audited? I'm not sure audit is the right word

Sorry if I was unclear there. The way your question was worded presumed something that I think is risky to presume: that you would not be caught during those years and what would happen then. Your question presumed A and B to be true (A = taxes evaded, B = not caught), whereas my view of the future is that B in this case is increasingly unlikely.

Let's assume you owed them $150K but you didn't give them their cut. If you get caught, you'd pay that + fines? How are the fines calculated generally? Like 10% per year interest?

It varies a lot but back taxes are usually calculated on an interest basis. Fines (if any applicable) can be calculated differently.

Can they seize your assets in other CRS countries for that amount?

CRS is an exchange of information system. It by itself does not have anything to do with asset seizure. Whether your assets abroad can be seized depends on where you live and what type of international agreements are in place between Portugal and your new abode.

Isn't this for high earners? One can be a money launderer for that amount?

Generally speaking and going by the letter of the law, there is no minimum for money laundering. You can steal 0.50 EUR and be charged with money laundering if you try use it or put in a bank. It's just not worth the effort going after petty money launderers.

The amounts we're discussing here would not be a high priority but it's also nothing. Especially if you've taken up citizenship and/or if you're still easy to catch.

I don't know exactly how income like this should have been taxed because there are so many moving pieces, but suppose it's 25% total. Income tax on 500,000 EUR over five years comes to probably 125,000 EUR. It's not a huge sum but it's worth going after if they think their chances of success are reasonably high.

In most cases, it's easier to get a citizen extradited back home (to Portugal) than a foreigner. Would they do that for 125,000 EUR? Very hard to say. Would they do it for 10x and 100x that amount? Yes.

1. Can banks want to see every single transaction going back to the source of funds? When they ask for tax return is it only for the last year or for many years? What if you had no activity in last few years, then they want to see even before a few years ago?

If they ask (which they don't always do), banks usually want to see tax returns that cover at least three years. If you show three years of unemployment but still a wealth of 500,000 EUR they will want to see tax returns far enough back to explain where the funds came from.

2. Why would other countries demand an explanation for your source of wealth? Unless you get into their tax net.

They don't want to harbor tax dodgers and money launderers. Not all countries do this. It's not very common (yet), but I have seen a few examples of it and I don't see any reason why it wouldn't become more common.

3. Maybe you had another taxable event. You declared that one and the amount is close to 500,000EUR. For example, you sold a property and paid taxes on it. Can this be enough? Do they check transactions in detail?

There is practically nothing a bank can't ask. Maybe medical history is the only limit (unless they're also making you get a life insurance policy!).

To the bank, it's a matter of gathering information about yourself and your wealth so that if you are arrested for being a drug-smuggling, gun-running, tax-dodging criminal master mind, they will not get hit with massive fines and penalties for failing to do due diligence.

4. Maybe you had tax returns from years ago explaining your current source of wealth. Can that be enough to explain the 500,000EUR?

Maybe but my answer to #3 applies.

One might be from an unstable country so she might need a stable passport and she might be too poor to buy one at the moment. So her option would be to live in a stable country long enough to naturalize. If she knew she was gonna make 500,000EUR in several years in the future, she'd probably buy a passport and live in a tax free country

Yes, that's a perfectly valid motivation. My point is that you can do it without committing tax evasion by picking another location. Totally zero tax might not be viable but paying a little bit of tax and in some number of years get a better passport sounds like a better plan than to earn citizenship while resident and continuously breaking the law.