The htjtax’s Podcast
[ HTJ Podcast ] Wealth Preservation, Newly Minted Millionaires, Flag Theory

[ HTJ Podcast ] Wealth Preservation, Newly Minted Millionaires, Flag Theory

April 14, 2021

[ HTJ Podcast ] Wealth Preservation, Newly Minted Millionaires, Flag Theory

 

VOICE OVER:

 

This podcast channel it's about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax

 

DERREN JOSEPH:

 

So, I guess, if I were to look at it, there's a continuum between wealth creation and wealth preservation. And, you know, there are people who, wherever they are in their personal financial journey, they're on the side of wealth creation and there those who are on this moving towards wealth preservation, you know, wherever you are in the continuum now within the last few months, I think I've spoken to more newly-minted millionaires than any other time in my professional history. 

Thanks obviously to crypto, but also, you know, people have invested in other things, particularly technology-related businesses and have done particularly well. And it seems counterintuitive given what we're going through right now with this pandemic, but there are people that have coming out on the right side. You know, I think it was last week. It felt almost like a joke. It's like every single day I'm jumping on zoom with somebody who's saying, you know what I've made, I'm sitting on one point, whatever 3, 5, 9, 18, $25 million of gains. And the one they're talking to people to try to get off, to explore options, how am I going to deal with this? 

You know, they're walking away from fantastic jobs, high six figure jobs because this momentum is really working in their favor and they're thinking, okay, how can I protect what I've earned? I mean, obviously take it off the table and, and diversify and whatever, but they're looking at different options geographically in terms of jurisdictions. Now, I think there's, there's the obvious stuff. Kind of like, you know, there's a lot of press coverage on Cal exit for example, people are leaving California to go to Texas or Tennessee or people leaving New York to go to Florida. 

But outside of the US context, even within the US context and outside of US context, people are looking at different jurisdictions in more meaningful way than before. And I'll perhaps explain later on. So let me share my screen. I just have a few slides that kind of capture some of the ideas that have been bouncing around in my head as I see things unfolding. All right. Yeah. So, you know, you have to quote the man, you kind of have this conversation without acknowledging, so right. To begin the conversation at diversification. But again, yes, we think about asset classes, but I want to promote the idea. 

I want to suggest, I want to plant a seed in your mind, even though this doesn't make sense today, the seed will be there. And at some point, in time, it may manifest in a more meaningful way for you. So, the idea is no single country's perfect. And we know that a country might be good for banking or may be good for certain types of businesses, but tax wise, it may not be the most tax efficient in terms of the quality of life that you're looking for for, you know, it may not be giving you what you're looking for, but you know, so no one country's perfect. So, the idea is to create a portfolio of residencies and citizenships that expose you to the, the qualities that you're looking for. 

So, this obviously is nothing new. There's a guy when you explore, not the literature, but the debates or the discussion around this, invariably, you get hit with something called flag theory. And now I know that for those of you who are based in Singapore or Malaysia, and in certain European countries, there are businesses that have borrowed that name and incorporated using that brand name. But as far as the law or legend has it that the term was developed in, I think in 1930s and 1940s or whatever by this guy called Harry Schultz. 

And he used it to describe he, he came up with three flags. So, the one on the left when you're looking at it on your left. So, he started off discussing three flags. But to me it isn't meant to be prescriptive. The principle is that you don't have all your eggs in one basket that you pick jurisdictions that work in your favor, depending on what you're trying to achieve. And you plant a flag in each of those. So, the most recent international incarnation of this has been what you see on the right where it has evolved from three to seven flags, but you know, it doesn't have to be that. 

So, but at the very least, when people are having this type of conversation, it will be, you know, wherever you're born. So that's your citizenship, but it may be where your resident, depending on again, this, I, you know, reminding you that this perhaps makes more sense for people who are on the wealth preservation side of their financial journey, as opposed to the wealth creation side. So, you, on the wealth preservation side, you may be able to run whatever business you have remotely, or you have investments in different jurisdictions. And that sends you want to be somewhere that offers residency taxation, residence-based taxation, were so like Singapore, Malaysia, Hong Kong, where you only tax the income arising from within those jurisdictions. 

Then that is a sharp contrast to you, US, Canada, Australia, New Zealand, most of the EU where ordinarily there are exceptions, I knew, but ordinarily once you are a tax resident and the average OECD nation, or the average wealthy nation, you will be subject to tax on your worldwide income, but there are jurisdictions that allow you to legally avoid that. And if, if you pick really well, you can legally avoid capital gains tax as you can in Singapore and Hong Kong Malaysia, in terms of offshore company formation. 

Again, this is a function of the nature of your business or whatever, but there's some jurisdictions that make it quite easy and they give you attractive options in terms of company formation, in terms of banking, for those of you who have done business in different countries, you know, it's not necessarily company formation, but banks can be a real headache and banking, especially if you are having to do business in jurisdictions with exchange, rate controls, such as Indonesia or in the Caribbean. I think I mentioned Barbados recently and so on and so forth. And of course, moving up to the seventh flag, I wouldn't bother to go through each of them because they're, self-explanatory, they're digital assets. 

And in terms of, for those who, especially into crypto, there are some jurisdictions that are more accommodating than others. I mean, you, you may think of, well, yeah, Singapore doesn't have capital gains tax, but depending on how it is, you manage your crypto. And I have clients that yes, they buy and hold, but I have clients that are active traders and the what, what is perhaps not well understood is that the law, the rules, the tax rules are different. So, if it is that you are deemed to be by the tax authority to be a trader, rather than an investor, that's a different conversation. 

So, there's no longer tax rate in Singapore or crypto Haven like Portugal, you know, a lot of people flock to Portugal would that promise, but yes, it's crypto friendly, but if you're a trader, you're going to be taxed, it's going to be subject to Portugal, corporate tax. Like most of Europe, corporate tax is not very low. So, moving on black Swan events for those, I mean, it's hard to imagine, but within the not so distant past the marginal tax rate in the United States was pretty high. It went up to 94%, you know, 75% was the average for quite a considerable period of time. Going great depression, going into the war period and so on. And of course, well, you know, the, the idea of gold confiscation that is I'm sure everyone is familiar with that because as people flight move to safety, move to the safety of crypto and precious metal levels, one of the sales pitches that you would hear commonly used as the reality that it is plausible for the government to pass it and rules to make ownership or control of certain types, certain asset classes difficult, if not illegal. 

And I think within the chat group, there was some recent discussion over what's going on in India, for example, crypto and other jurisdictions as well. And including China and as, as jurisdictions for whatever geopolitical or economic reasons they either are law crypto, or they would prefer that their citizens or their residents use their own crypto as in crypto that has been issued and authorized by the, by the, by their central banks. And yeah, you know, the, the pandemic, how many people were really caught out. I remember when it first had, it was hundreds of thousands of people were locked out of Australia when Australia closed the borders. Or for me personally, I was on a three-day trip to Indonesia for business, and then suddenly Singapore closed. And I could not get back in now that again, that has implications to access to wealth. Fortunately, Singapore understands that it's a wealth Haven. So even in the midst of the lockdown, those engage in financial services with deemed an essential service. So, you know, those who work in the, the big gold falls under shiny and the wealth management businesses and whatever they will allow to continue, which is a good thing. But every jurisdiction was as followed thinking and progressive as Singapore. 

So, some people were caught out, so I'll stop there because basically I think we, we get the idea again, for those who may be at the stage in their personal financial journey with this still on wealth acquisition or the growing their wealth, perhaps not quite yet, but still the seed has been planted, put it in the back of your mind and pick it up and run with it later on. Would it perhaps make sense, but for those who are at the stage where, you know what I'm sitting on a decent nest egg, and I want to try and figure out, okay, how can I manage this? 

How can I present? How can I defend this in a way that works for me and the way that works for my family? And I cannot think I'm sure you guys would agree with me. It's hard to think of any country right now that is not looking at increasing taxes as a way to plug the hole created by the recent economic and health challenges. That that's is very real. And for those in the U S of course, certain States are looking at a wealth tax as is the UK. I think the UK is looking at a one-off well tax and, you know, things like that. You know, if it is you're on a salary, that's one thing. 

But if you've retired, you've invested well, and you're sitting on a nest egg, the idea of your wealth being double taxed, or perhaps like in the case of those countries that do have a wealth tax going like Spain, it's your wealth is being continuously rooted by not just inflation, but by a wealth tax every year. And once upon a time that was farfetched. But now not so much because governments are really desperate, the holes in their balance sheets that need to be plugged. So that's where we are. Any thoughts? Any questions? 

 

GUEST:

 

Hey, Darren. I guess the biggest questions always relates to taxes, I guess, specifically, in regards to where you have your assets, where your, where your domicile and potentially what are the tax implications for having a wealth distributed in, in many different countries. So, you know, I'll let you comment on this, but I suspect it's based on where you're deemed, where your tax residency is defined as to how you would then have to declare potential gains realized unrealized in the various jurisdictions.  If you, if you could comment a little bit more. 

 

DERREN JOSEPH:

 

Yeah. So, it is a real Pandora's box and that different countries, different jurisdictions look at things differently. So, for example, if you are deemed to be domiciled and domiciled, again is a concept that's not normally defined by any tax code, but it's more or less better understood using case law. So, we've relied on the courts to help us understand what domiciled means, but just keeping it very top line and very, very simple. It it's more like a concept around intense. So where, where, where is it? Do you have your closer connections? Where's your center of life? Where, where do you intend to retire and pass away after even though you, you're working as an X-Box, you're traveling all over the world, but where is, where is it you truly considered to be your home? Where's your heart? You know, again, it, it is, it seems to be quite abstract with that. That's essentially what it is. And depending on the jurisdiction that you're exposed to, for example, the us, or you came, you have for the, I mean, to put it crudely, you have debt taxes, you have, you have inheritance taxes, you have a state taxes to consider, and that has implications as you try to accumulate wealth, because for many of us who have families, this is about the kids. This is about creating a springboard for the next generation. And even if you're not thinking that far ahead in, in the case of the US just as an example, or even again in the UK, because I guess being a former British colony, the laws are not too dissimilar. Even by giving a gift, it could be, it could have tax implications. So, and depending on how you hold, whatever your investments may be, you may be taxing unrealized gains, depending on which jurisdictions you may or may not be intentionally unintentionally connected with. 

So, I guess stepping back from the minutia of domiciles and the various taxes that may apply, I think more so than before, we have an opportunity in that, you know, these tools where the preserve of let's say the 1% or the elite, they always had the ability to pick the jurisdictions, work in their interest. And that's just the way it's always been. No, because of the various residency programs and citizenship by investment programs. 

Now it's open up to people of less say more modest means, you know, from high six to seven and eight figures, they, you know, anyone can basically assuming that you are at the stage where you're not really required to be in a specific location for your job. You can create a situation where you declare residents or even declared domiciles in a jurisdiction that, that works for you. And again, one size doesn't fit all. It really depends on you. So, what I would suggest anybody do is think about, well, what are your objectives, personal and business wise, what it is you're really trying to achieve. And, and again, I know this is for those who are at the stage where, okay, I, I'm a newly minted Melania. I am sitting on 10, 20, $30 million of investible assets. And yeah. Okay. So, I like where I am. I want to keep hold of it. And then you risk. Then you do some sort of risk assessment. Okay. Given my presence situation, I I'm a Canadian citizen and I'm sitting in Toronto. What are the implications of that? From a tax perspective? Obviously, Canada is one of those jurisdictions. That'll tax your new worldwide income taxes are pretty high. 

Am I comfortable with that is maybe I am, maybe that's okay? Or maybe I'm not. Maybe I want to explore my options. And if it is that you, you see that, okay. I want to explore options that allow me to more tax efficiently, invest in a certain asset class or to more easily pass wealth on to my children or whatever the case may be. Then you have a gap that you need to be filled, and you can sit with whomever. You can Google to be fair. Everything is freely available online. Nothing is a secret anymore. And you can identify jurisdictions that you are interested in, that you wouldn't mind spending time in. You wouldn't mind setting up, shop in and see whether they, they work in your favor and they give you what you intend to achieve. So, what, what people do with me is that they would have been doing that day. They're sitting on a certain number of a certain quantum of assets, and they're no longer tied to a job. You know, I'm seeing people right now walking out of some really well-paid jobs by choice, because they are doing so well with their investments. So that's, so they have achieved the freedom that they want. They have looked around the world, they spend time looking at YouTube videos or whatever, and they've narrowed it down to some jurisdictions that they enjoy, spending time in. So that's for them personally. So now they'll come to someone like me or whoever and ask the question, well, okay, this is my situation. This is who I am, how, and these are my objectives. I want to continue growing these different asset classes as they are right now. And I want to enjoy sunshine. Oh, I will. I enjoy skiing, winter sports, whatever the case may be. And these are, I've been traveling a bit, and these are the, or I've been looking at YouTube videos, and these are the jurisdictions that interests me now, given my interests and given my objectives, you know, what are your thoughts? Would they help me? Am I heading in the right direction? So, that’s it essentially. And then take action. 

 

GUEST:

 

Okay. I know one of the challenges about opening up a financial account in, in any global jurisdiction is I think it's somewhat defined by your residency at the time. You know, it's, it, it's very difficult for someone to come into Singapore and just naturally open up a bank account, you know, their specific requirements. And I'm pretty sure that's applicable to different countries around the world. What is some of the options that are available to make it easier for number one, to open up at minimum, a bank account, potentially, a brokerage account, a trading account, even though you're not considered a residence, a permanent residence in that jurisdiction. 

 

DERREN JOSEPH:

 

That's a good question. So, because as everyone is aware, you know, for the past decade or two, I think most people have lost track of the number of scandals, you know, the Panama papers and the paradise papers and the whatever. So, banks have been drawn in sometimes unfairly, to be honest with you and being accused of money laundering and facilitating tax evasion and stuff like that. So, the bands on the back foot and they've been thrown in the deep end, in terms of regulation was jurisdictions themselves have been more heavily regulating banks. And then on top of that, you have on the OACD level, at least at the international level, you have agreements like factor the financial contracts compliance act, or the automatic exchange of implementation, or the common reporting standard. 

And so, what all these do is conspire to just give banks a hard time so it's not. So, you know, everybody has problems and it's not personal. It's just the environment in which we now function. What do you do? And that's where having the portfolio comes in. So yes, landing in Singapore and asking to open a bank account, and the bank will be raising an eyebrow. Like why, why Singapore? I mean, they do it. I mean, don't get me wrong. They take, but the minimum balance is going to be on the higher side. And the onboarding process is going to be more rigorous as opposed to someone who's a legal resident of Singapore or the UK or whatever the case may be. 

And that's where having the portfolio comes in. So, because you don't expect, then those of us who believe that the cycle of lockdown and reopening, it's not going to stop anytime soon, if you look at, and let's say again, I want to put this in a slightly historical perspective. So, I have a client who is Italian American, and, you know, he's big into his family tree and his family history and stuff like that. So, him and his family, they traced back to that first relative that arrive at Ellis Island and to New York and the new U S so back in those days. So, this is the late 18 hundred. You just basically rock up to Belize Island. You don't even need an identity document. You identify yourself and you get some sort of basic medical test sentence, welcome to the United States. And you're in now fast forward a couple of decades. It was, well, we need to see some sort of identity document something I'd advise yourself. And then fast forward a few decades, you have the concept of a passport to facilitate in stash will travel. That was relatively new. And then fast forward a little bit, then you have visas. So, my point is that barriers to international travel have been getting increasingly difficult. Now we are at a stage where if you look at it right now globally, the whole visa system has been thrown out the window. 

You know, people who thought they had a powerful passport and that it allowed them to enter X number of countries, visa free. That's all gone. You know, some people have been joking that a us passport or a British passport is on par with certain African possible. In that you cannot really go to that many places because of the, the whole lockdown. Now jurisdictions are reopening, like to some extent, Singapore is reopened, but then not opening to the, the level of permission needed to enter and you know, the prequalification or whatever. So basically, non-essential travel like essential travel. It's unlikely that's going to return anytime soon. And for those who believe that economic nationalism is growing, you know, we have to try to, we have President Trump, we have Brexit. We have, you know, what's going on Australia and whatever, so that this is a trend and it's global. So, I'm creating all that to explain what I see happening with banking as well. So, you have regulation and then you have difficulty and movement. So, in order when lockdowns happened, as lockdowns are happening, right, the probability or the likelihood of you being allowed in a jurisdiction increases, if you are a lawful permanent resident of that jurisdiction of your citizen. 

So, my perspective is that you kind of divorce banking from residency. So, if it is that you have assessed, you know, you're looking at flat fee or whatever you want to diversify yourself, or you see, Oh, you may be in a jurisdiction where banking is not as stable. So, when you look at a list of the, the strongest banks in the world, or strongest financial institution, you had a jurisdiction that none of your financial institutions locally on that list, and you don't feel comfortable, you're doing well. And you don't feel comfortable putting all your eggs in that one basket, in that financial institution. So, you want to diversify a bit, you can do that if you become a resident, or if you have some sort of access to the jurisdiction in which you do want to bank. 

So, if it is, you want to enjoy banking in Singapore, consider getting residency in Singapore. If you want to do it in Europe as well, European bank consider getting a European residence. And it's not as hard as you think it is because there's so many programs available right now that, that make that possible. So, I'm sorry for being a bit long-winded, but I do see them inextricably linked. Yes. You want to bank in a certain jurisdiction. Yes. You want to incorporate in a jurisdiction, look and see whether getting residents would make that process easier. And if so, considered the implications tax wise and otherwise, and, you know, plan that flag, bring that into your portfolio. So, it's another, my point is it's another asset class. You know, people talk about what I have a little bit of crypto, a little bit of precious metals. I have cash treasuries of whatever. What about your residence and citizenship? You know, where, where are you? So, I think it's just part of that conversation. Sorry. Somebody has been writing questions in the chat, which is fine. If you don't want to talk, you can just type in the chat box below. How does being a us citizen affect my tax burden if I move abroad and attain a second passport, I think, you know, I don't know if you they're here for the beginning of the conversation, it's that momentum is already happening. 

You know, people, you know, the conversation around colleagues that its real people leaving California, not just Elon Musk, but regular people, regular business owners, regular investors, who, I mean, for whatever reason, including the looming potential wealth tax have decided to tax us. So, Tennessee's about our optional people leaving New York for Florida. So that's really happening. So, you leave Texas, you leave, California. And you may save because the highest state tax module tax rate is what dating presents. You save 18%, one, three, but if you leave the US, you just physically leave the US, there's a foreign earned income exclusion as a housing deduction. 

So potentially the first 150 K of your earned income, like that is sheltered from a federal tax. So, you know, for some people that is a lot of money that can be used, that money that's saved in tax can be used to invest. You can buy more crypto, you can buy more Tesla, you can invest in Singtel or, you know, or whatever, or else you, you have more investible assets. If you were to make those types of decisions. No, there are people who belong to countries or who are citizens of countries where that's not allowed. I mean, another residence has no problem, but having a second passport is, so I guess you just need to be conscious of that. 

 

For example, if you're Singapore and or if you're Indonesia and a few, most of the European of the Asian countries don't really allow second passports, but definitely residencies. So, you just need to be sensitive to that. But obviously most of my clients, not obviously, but most of my clients are us exposed. And that is, that is definitely part of their strategy by leaving, by living outside of the US they save a lot in taxes, which it can reinvest otherwise. Yes, you would pay some follow up question from that. Would I still need to pay tax on your income? Yes. The United States is famously that one jurisdiction where you will be taxed on your worldwide income, regardless of where you reside. 

So, in that way, the IRS sees no difference between Seattle and Singapore, but the tax code gives you tax breaks, US personnel outside of the US, that US persons inside the US can gets like the 9 11 foreign income exclusion that I mentioned now, not to ignore those with other passports that I mean, the US has been stymied with that reputation for worldwide tax, but other jurisdictions are catching up. So, for example, Canada, the CRA has the position that if you are traveling outside of Canada as a Canadian, that's okay. But essentially, if you are not properly tax resident in another jurisdiction for back rules might apply and you would be deemed to still be resident in Canada, even though you haven't been back in Canada for years, and you just moving around and investing and doing what I'm assuming the UK, and same with Australia, seven New Zealand, these fallback rules are becoming more and more aggressive, and some other European countries have taken a step further. So, for example, if you have Swedish or Spain or whatever, even though you're outside and you're a tax resident somewhere else for X number of years, it takes X number of years to, to stop being a tax resident without European country. 

And then some other jurisdictions like Italy, it's able to, you have an Italian passport you outside, even if you are a resident somewhere else, if you in a tax Haven. So, I have clients on under my Malaysia second home, they're living in Malaysia. And obviously if you're an MSH and you don't have Malaysia source income, which they don't, you know, investors, you have money from overseas. You're not paying taxes on it. Italy will say, well, hold on you in a tax-free situation, you are deemed to still be tax resident in Italy, even though you haven't been back for decades. So, the US may have started it as with many things in the tax space, but other countries are catching up. 

So, it is something to be conscious of and speak with whoever advisor you use before you make that kind of step. Right? Okay. Sorry. Somebody just commented on parts of Africa. So, yet Africa, you know, historically people have been looking at parts of Southeast Asia for that lifestyle. So being in Bali famously being in whatever in Malaysia or Singapore, whatever, and sitting back, and because they can create a situation, especially in Singapore and Malaysia, where your tax on its territorial tax. 

So, your investments outside of not subject to tax, so you can live well, but there are jurisdictions in Africa that would allow that. And I have clients that people that are actively I, and you can see it on YouTube. There are some popular YouTubers who are exploring Africa from an investment perspective, Rwanda, all the way up there in terms of the infrastructure and ease of doing business, non-corruption, clean, safe, but also Ghana, I’ve been to Mauritius myself, healthy, you know, offshore landscape for those one, invest into Africa where it's just as a great jumping off point as is the Arab Emirates. So, Africa, I agree. Africa is definitely up and coming. Any other comments or questions?

 

GUEST:

Hey Derren, is buying a property in another country? Will that allow you to open up an account at financial institutions? Something as if you know, potentially getting residency is more difficult. 

 

DERREN JOSEPH:

 

Well, yeah, I guess the, the varying degrees of difficulty, but every country on earth has an, has some, however, they phrase it, however they brand it some, some scheme or some program where you can hand over cash and you can get residency, at least every country, every country name the country. And I'll tell you that it has one, of course, I'm excluding North Korea, Cuba, you know, that kind of stuff, Iraq, Iran, but basically, it's, it's normal. So, depending on the jurisdiction, part of the residency by investment may involve or citizenship by investment may involve buying property. So, for example, the five Caribbean islands that offers citizenship by investment, which will be Antigua, St. Kitts, Dominique and St. Vincent Grenada, I think a double count. So, they're all, as far as I'm aware, they have a real estate portion to get that send ship. In terms of residency, you can get a residency by investing in real estate and in many European countries like Portugal, Greece, Cyprus, Eastern Europe in Montenegro and so on and so forth. 

So, my point is that the investment in real estate can also come with fringe benefits such as legal residency. But having said that, if you're not really interested is not part of your plan to get residency in a jurisdiction. You can just, depending on the laws, of course you can invest in real estate. And by having some connection to the jurisdiction, it makes it easier to have that conversation with the bank to open a bank account because they always ask, well, so why are you here? If you're not citizen or resident, why do you want to open an account with a bank? And if it is that you have investment property and therefore you have local source income, then it just, it makes sense to, to have a bank account. So that it makes a conversation easier. Of course, some jurisdictions are easier than others because like in Southeast Asia, the only country that I'm aware of that allows you to buy landed property would be Malaysia and everywhere else, you just get air rights. You really can't get into a landed property like you can in Malaysia, but it's easier of course, in Latin America, maybe Africa, Europe, and so on and so forth. 

 

GUEST:

 

Okay, thank you. Are there also breaks for if you want to start a small business somewhere? Is that another way of getting residency or no. 

 

DERREN JOSEPH:

 

Absolutely. So that's the basis for my residency in Singapore. So, I started a company and that company got me residents there. And, and you can use that same vehicle for, for many countries.  I think everyone is open for business. And that, that is a common way aside from just investment or opening a company. So, if it is that you already are a business owner then incorporating in the jurisdiction in which you want to plant a flag is definitely a way in, I'm thinking most countries, including Europe would of course, the thresholds would be in terms of the amount of capital that you need to provide can be pretty high. Like, I think in Indonesia, you need to type like half a million dollars depending on what you want to do. So, the capital injection required in opening that business would vary, but most countries do allow residents residency for business owners and people starting businesses, especially if they're going to bring jobs in definitely. Any other questions, comments?

 

GUEST:

 

I don't have any, but this is absolutely great information. Thanks. Thanks Derek. 

 

DERREN JOSEPH:

 

Yeah. And, I’m in the group, the WhatsApp group is quite diverse, but of course there are many people of color and many of us are either immigrants or the children of immigrants. So, I was born in London because my parents wanted a batch of life and they left Trinidad and they ended up, they thought the UK will give them that opportunity. And then later on, my dad moved to the US and that's how the US opened up as an opportunity for our family as well. So, in a way, it's in our DNA, the idea of moving from one jurisdiction to another to create and to preserve wealth, it's not unfamiliar to us. So, in that sense, this is just a natural continuation of that journey. So yes, we have done okay. In the UK or France or Canada or the US but when you look at those above us, so like the first slide I have was Warren Buffett. You know, he just made that investment. When was it last year in two or three of the largest trading houses in Japan, one of the co-founders of Google? He got his Cypress citizenship two years ago. You know, you know, New Zealand, there were so many, there've been so many articles online with how New Zealand has been doing well, attracting tech entrepreneurs and billing is who want a second residence from other than Silicon Valley, other than California. So, they have a nice Ron Shaw set up in New Zealand. So, this is something that, in terms of your personal financial journey, it's always been, the it's always been the next step. It's always been the next step. So, as we are at that stage where we are doing okay, you know, you know, six, seven figures, then it's natural to start thinking in that way as well. How can I hedge against what's happening? We know that history pizza itself, the government on hiding their process, then they need to plug their balance sheets. They need to deal with them deficits. They will raise taxes, president Biden. Hasn't had had that the chancellor of the Exchequer in the UK hasn't hit, you know, it's not a secret it's happening in the budget. These things are happening. This is real. So, you know, the, the tax code is, there's a reason why Warren buffet has always, you know, has famously said that his marginal tax rate is lower than his secretaries. That's because the tax code is deliberately written to favor investors over employees. And that's not just a domestic tax code, but those are the international tax rules. 

When you look, when you read a tax treaty, you actually sit and you read, and you go through the different paragraphs of a model strategy. It's written to give more tax benefits to people earning investment income than to people earning earned income. So, the exchanging time for money to exchanging services for money, it's just the way it is. It's not a conspiracy theory. It is the way the rules. So, I think it's really unfortunate. We were not to continue that natural step in our evolutionary process and not leverage the same tax rules that are written for everybody's benefit. And you leave money on the table because that's essentially what you're doing. If it is that you are at a stage, because I know some people are still at a stage where they are dependent, their location bound. They must go to this office every day and so on and so forth. But if you are at a stage where you're running your business, like my clients are all, you are a reliance on investments, then you are doing yourself and you're doing your family a disservice. If you want not leveraging the rules to you and your family's advantage. And that means legally considering other residencies and citizenships, and the easiest one would be where our parents came from at the very, for those who are immigrants, not just for those of the African diaspora, but you know, when I talk to my clients in the US and they want to leave the US so, oh your grandparents are from Italy or from Ireland. Where's your Irish passport, your Italian passport. All those European countries do have those rules. You can, legally, once you can prove that one of your grandparents was Irish, British, Italian, French, whatever. You will get a passport to my Jewish clients. Why don't you have an Israeli passport you're legally entitled to one to, or base on the, the rules. Because as, I don't know how much of history class he paid attention to around the time when Christopher Columbus got his first series air round from the King and queen of Spain to go on and on his startup venture to GD United States that coincided in 1490s with the ejection of Jews from Spain and Portugal. 

So, I have clients right now who were able, based on certain rules and laws in Spain and Portugal to reclaim the Portuguese and their Spanish citizenship, because their ancestors were kicked out 500 years ago. And it's all, it's all legal. The, you know, everybody's taking advantage of these and you're leaving money on the table, if you are not, and you're leaving yourself exposed, if you are not. So, any other questions or comments? Nope. Okay. That's all right. So again, depending on the stage of your journey, you're at, you may be in the wealth creation mode, but once you get to the stage where you're sitting on a nest egg, and, you know, you have, you, you, you begin to think with a different perspective and you think about preserving your wealth and making sure that you are able to not let it be eroded by not obviously not inflation, but you know, political risk, taxes, foreign exchange on unexpected, foreign exchange movements or whatever. So, you want to diversify yourself. You want to diversify your lifestyle. And that would mean, especially right now, where it's probable, that the lockdowns or the difficulties in movement will continue into the future, that you equip yourself with a portfolio of residences and passports. And that's all, again, there's a whole wealth of stuff online. So do check it out, YouTube, just a multitude of websites that will help you make whatever the choices are. But the obvious ones will be look within your family, where your parents, from where your grandparents from, and that’s where the journey begins. That's where the journey begins. There are fantastic jurisdictions out there before we came on, live with, Keishi and I were talking about the United Arab Emirates. It's one of the futurist sections in the world that right now is open to non-essential travel. So, you can come in without the hurdles that entering other jurisdictions now entail, and it is tax free. It's tax free. So, income is tax-free capital gains is tax-free, there's no inheritance tax, no gift taxes, 100% legit tax rate. So, you know, so most popularly of this seven Emirates would be Dubai, but if you're not into that hustle and bustle that city life like Singapore, Dubai, there are other Emirates, Abu Dhabi, Fujimura, Sharjah, which offer that more laid back. You can go hiking, you know, just beach or whatever it is, you're into it, more laid-back lifestyle. So, the Emirates or the up-and-coming jurisdictions, at least within my client portfolio, Barbados clients from South Africa, from the US from the UK heading to Barbados right now, they have a welcome visa, but not just by me and others. Barbados is really good marketing. So, but Dominika has something similar. I mean, this is residence, not citizenship. We spoke about citizenship. Bermuda has something as well. So basically, Barbados welcomes you. It's called a welcome visa. You're there for one year, and you're there tax-free for one year as well. And you can run your business, work remotely, whatever the case may be. Other popular jurisdictions would be Portugal. They're <inaudible> into Portugal, where you can go in and your investment income is subject to now, it's not tax free because it's Europe, right? So, Europe is pretty aggressive, but you have a modified and attractive tax regime and a non-habitual residence as you do in the UK. We can, where you can be resonant. And Dom Ireland has something as well. Spain has something as well in the Beckham law named after a soccer player, David Beckham. So, there are jurisdictions where you can enjoy that quality of life in a tax efficient tax efficient, relatively situation. And you can create site creating your portfolios as well. And now where healthcare is, of course, a concern you're looking at jurisdictions that do have advanced infrastructure in that space as well, and at a cost-effective price. 

So, yeah. Okay. Thank you very much.  I appreciate the conversation again. I know for some of you, this is maybe still early, but take the seed, plant it and as things go well for you, now have an extra tool, a skill set or tools that you can draw upon to help you achieve whatever your personal goals may be. Have a good night, have a good morning, and I'll see you back into WhatsApp group. 

 

GUEST:

Thank you very much, Derren. 

 

VOICE OVER:

 

Here are four ways we can help you. 

  1. Sign-up for a free webinar on US Expat Taxes and International Entrepreneur Taxes at www.HTJ.tax
  2. Stream premium education or videos at www.HTJ.tax
  3. Contact us for Tax optimization consult via zoom 
  4. High Net Worth. We can quote for doing your US International taxes returns.

 

Our books and upcoming events are available at HTJ.tax. Please subscribe like, share and comment down below or email us at help@htj.tax to engage us to advice on international tax or business matters.

[ HTJ Podcast ] U.S. Taxes, Crypto millionaires, 5figure freelancers, Offshore Companies and Banking

[ HTJ Podcast ] U.S. Taxes, Crypto millionaires, 5figure freelancers, Offshore Companies and Banking

April 8, 2021
Everything you Need to Know About U.S. Taxes for International Entrepreneurs and Expats

About this Event

When you and / or your company does business internationally, tax planning / filings is more complicated. The tax consequences of international activities are often misunderstood. Fortunately, there are experts to help demystify the constantly evolving tax landscape.

 

Join this discussion of the critical tax principles and learn how you can legally minimize your tax burden internationally.

 

Our Speaker:

 

Derren Joseph- International Tax for Private Clients, Global Mobility, & Cross-Border Investors (US, Europe, & SE Asia)

Derren is an EA (Enrolled Agent - license # 00100858-EA) who has been admitted to practice before the IRS and is an associate member of the American Institute of CPAs (#7920958). He is the author of "Taxes for International Entrepreneurs and Expats: Proven Principles for Legally Reducing Taxes” (https://www.amazon.com/author/derrenjoseph).

A Partner in Hayden T Joseph & Co. (DBA "Advanced American Tax") also a member of the International Tax Team at Moores Rowland Asia Pacific, with over 30 offices in 12 Asian countries.

He has 2 Masters degrees in Economics. A Certified Diploma from ACCA (Association of Chartered Certified Accountants in the UK), done Executive Education with Columbia Business School. He has completed Advanced Tax coursework at both New York University and the University of London.

Derren enjoys writing and giving seminars.

He had his views published in the Singapore Business Review, Forbes Asia, the American Chamber of Commerce in Indonesia, the International Business Structuring Association (in the UK), Offshore Alert.

He also has given seminars on tax issues in the U.S., the U.K., Singapore, Indonesia, Malaysia, Vietnam, The Philippines, Portugal, Hong Kong, and the Caribbean.

 

NOTES:

1. Link for this event: https://www.facebook.com/htj.tax/live/

 

2. Submit questions in advance - Hanna@AdvancedAmericanTax.com

 

3. Those WITHOUT Facebook?

Zoom link will be provided 24 hours in advance via an eventbrite message so ensure that you sign up via Eventbrite to get the message.  

If you don't get the Zoom link 24 hours before the event via eventbrite?  

Email:  Hanna@AdvancedAmericanTax.com

 

4. It is also helpful if you use the Eventbrite calendar function to ensure that the event is automatically saved to the calendar on your device in your local time.  Many times people miss the event because they misunderstood the time zones.  Allow eventbrite to make it easy for you. Leverage technology. Please don't contact us to confirm the time."

 

5.  For those joining us on Zoom?

"Pictures or videos will be taken during the event to be posted on social media. If you do not wish to have your image used.  Keep your camera off."

 
[ HTJ Podcast ] Digital Nomads, Crypto, Portugal, Singapore, Barbados, Estonia, and more.

[ HTJ Podcast ] Digital Nomads, Crypto, Portugal, Singapore, Barbados, Estonia, and more.

April 7, 2021
WHAT YOU NEED TO KNOW...

About this Event

As borders become more porous and online communication becomes more accessible by the hour, the number of digital nomads—individuals who work remotely from any location worldwide—is rapidly rising.

Given their nomadic lifestyle, handling their tax affairs can be problematic for the digital nomad.

What are the tax issues that they need to be aware of?

How do they report their income?

What provisions are there for full-time travelers, and what are the pitfalls?

While location-independent work is on the rise, tax regulations struggle to keep up with it, and there are still many grey areas in the matter.

Regulations also vary greatly from country to country, so it’s always recommended to do some research of your own or talk to a tax professional.

Join an hour conversation from a qualified professional from Moores Rowland Tax Consultants.

A group with over 30 offices in 11 Asian countries (including Bali). Get to know tax responsibilities as a digital nomad. Also, find out about tax responsibilities in your home country. We will separate facts from fiction.

Key Takeaway:

1. Flag theory and how to diversify your lifestyle from a tax perspective.

2. How to structure your personal vs. your corporate residency?

 

Our Speaker;

 

Derren JosephInternational Tax for Private Clients, Global Mobility, & Cross-Border Investors (US, Europe, & SE Asia)

Derren is an EA (Enrolled Agent - license # 00100858-EA) who has been admitted to practice before the IRS and is an associate member of the American Institute of CPAs (#7920958). He is the author of "Taxes for International Entrepreneurs and Expats: Proven Principles for Legally Reducing Taxes” (https://www.amazon.com/author/derrenjoseph).

A Partner in Hayden T Joseph & Co. (DBA "Advanced American Tax") also a member of the International Tax Team at Moores Rowland Asia Pacific, with over 30 offices in 12 Asian countries.

He has 2 Masters degrees in Economics. A Certified Diploma from ACCA (Association of Chartered Certified Accountants in the UK), done Executive Education with Columbia Business School. He has completed Advanced Tax coursework at both New York University and the University of London.

Derren enjoys writing and giving seminars.

He had his views published in the Singapore Business Review, Forbes Asia, the American Chamber of Commerce in Indonesia, the International Business Structuring Association (in the UK), Offshore Alert.

He also has given seminars on tax issues in the U.S., the U.K., Singapore, Indonesia, Malaysia, Vietnam, The Philippines, Portugal, Hong Kong, and the Caribbean.

 

 

NOTES:

1. Link for this event: https://www.facebook.com/htj.tax/live/

 

2. Submit questions in advance - Hanna@AdvancedAmericanTax.com

 

3. Those WITHOUT Facebook?

Zoom link will be provided 24 hours in advance via an eventbrite message so ensure that you sign up via Eventbrite to get the message.  

If you don't get the Zoom link 24 hours before the event via eventbrite?  

Email:  Hanna@AdvancedAmericanTax.com

 

4. It is also helpful if you use the Eventbrite calendar function to ensure that the event is automatically saved to the calendar on your device in your local time.  Many times people miss the event because they misunderstood the time zones.  Allow eventbrite to make it easy for you. Leverage technology. Please don't contact us to confirm the time."

 

5.  For those joining us on Zoom?

"Pictures or videos will be taken during the event to be posted on social media. If you do not wish to have your image used.  Keep your camera off."

 

 

VOICE OVER:

This podcast channel it's about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax

 

DERREN JOSEPH:

Okay. So now we are live. What I will do is I will just able the waiting room. Okay, we're in, so good evening, good day, good morning to everyone, depending on what part of the world you are, thank you. Thank you for joining us. And what I need to do aside from welcoming, you guys is apologizing. We had a massive, we dropped the ball, we really did. And that we, this event was meant obviously for now which will be 6:00 PM Eastern Standard time. But unfortunately, we incorrectly posted it in Eventbrite as 6:00 PM Singapore time, which would be 6:00 AM Eastern standard time. So, for those who did rearrange the schedule and whatever, I sincerely, I sincerely, I sincerely apologize. 

So just a bit of an admin notes, this is being strained. So, if it is that you, you don't want your, your image to be shown, please keep your cameras switched off and also please keep your mic muted until the end when we might do some, some Q and A please. So, what I thought I will do this time. So, we've been doing this, this live stream/ webinar for Location Independent Entrepreneurs, otherwise known as Digital Nomads for a while now. And typically, what we would do is I'll go through a few slides to kind of set the context and basically to answer some of this simpler question that people may ask. Now, because I think the audience is becoming more and more sophisticated. What I'm doing is I'm going to try it a bit differently this time. So, what I'm going to do is jump straight into the Q and A. So, thank you for those who did send questions in advance. They have been, well-received sorry. I'm just checking. Yep. Making sure that everyone else is on. Yeah. So yes, all your questions have been well received. Thank you for sending them in. So just an apology in advance. We may or may not be able to get through all the questions because we did get a few for which, you know, we're grateful. I'm glad that we have that level of engagement. So, without further ado, I'm going to jump in, but please bear in mind that normal protocols apply, which means that I have to remind you that I may be a tax professional, but I'm not your tax professional. So, nothing we say here should be construed as advice, consider it like an entertainment, not entertainment, but an educational piece. What we're going to do is talk about the general principles that may apply and perhaps the key points that you need to take on board as you speak with your own personal tax professional. So again, this is not advice and I'm not encouraging anyone to pay less than their fair share of taxes in any jurisdiction which you're exposed. 

So again, we need to put those disclaimers in place for just to kind of set the scene and to prevent any misunderstandings. So, I have to stop to a crypto. That is, I mean, without a doubt, perhaps in number one conversation piece right now as a one commentator, put it, it's rendering all the other asset classes, largely irrelevant. So, we've had, you know, I'm not kidding when I say almost every day, I've had someone reach out to me who has benefited from the bull run and crypto and you know, some peoples, someone today he was up 1.2 million, 3 million, somebody else, 9 million, somebody else, 18 million. So, people are sitting on top of a lot of gains and that is leading to the obvious question. Will you know? Okay, well let's think about the tax, the tax consequences. Yes, I've done well obviously, but there are tax implications and we need to think of that. Now two jurisdictions tend to come up, at least in the conversations that we've been having. And those two jurisdictions are Portugal and Singapore. So, I'll touch on both of those, but before I need to point out that a lot depends on where you are tax resident. And for those who may be US exposed, i.e., they have a us passport, a US green card, and they may have triggered what we call substantial presence by spending a lot of time in the US. 

You have special consideration and you should definitely speak to US qualified tax advisor. The US is taking crypto very, very, very seriously. And we get into the US side of things in a bit more detail in our next live stream, which is in about 24 hours’ time. So, I won't get into too much detail now because we take a deeper dive into the US side later on. But I just want to establish that yes, the IRS is severely backed up. I think in December, they're like 12 million items of unopened mail and things are really backed and that they're suffering a staff shortage. 

The deadline has been pushed back for mid-April to mid- May, but at the same time, while they are strapped for resource in so many other facets, the one space in which they have got permission to recruit as crypto. So, they are taking crypto extremely, extremely, extremely seriously. And if you look at the new redesigned Form 1040 at the very top, one of the first questions they ask you is, have you been dealing, have you had any, you know, deals, exposure to crypto for the past tax year? So, we do not advise anyone taking any shortcuts once you're US exposed. You need to take it pretty seriously. Now, what about those who may not be as exposed as I mentioned before, Portugal and Singapore have come up a lot. Now I did write an article, coincidentally, in the magazine, a new magazine called the Portugal living magazine in which I kind of dig. You know, I took a deeper dive into the crypto side of Portugal crypto nexus, but keep in mind that is please consider that as so much understanding when it comes to tax rules, tax rules are very, very nuanced. And I shouldn't have to say this, but it is extremely nuanced. So, where you see websites with people making sweeping statements. 

So, I can live in Singapore, I can live in Portugal and I enjoy my crypto and it's tax-free, not exactly. Now on our website, HTJ.tax we also do a webinar every once, every three months, I think on Portugal. So, I team up with my colleague Augusto, who is a Portugal qualified tax lawyer. And we also do webinars on Singapore as well and I team up with my colleague Boon Yip who is Singapore qualified. And so, we can, we can take a deeper dive into that. So, but just have that helicopter view. Yes, Capital gains maybe tax-free but trading, crypto trading is not tax-free in Portugal. And in Singapore, since Singapore follows English type common law. So, for those who may come from that legal accounting background, you may remember back in the days when you're studying something called the badges of trade. So, the tax authorities in those that derive from British law. So, this'll be like Canada, Australia, New Zealand, Hong Kong, Singapore, Malaysia, and so on. They look at what is, yes, capital gains may be tax-free, but there's a fine line is a great line of it's a blurry space in between holding an asset, selling it and having a game and actively treating in it. 

And so, we've had clients come on board who are active crypto traders, and they do hundreds of thousands of transactions per day, sometimes. So definitely that's an example of trading. So you're looking at the frequency of the transactions. You're looking at the holding period. You're looking at the source of your finance, the amount of time that you spend invested in the activity. So, we can get into that on the Singapore side and on the Portugal side, in those relevant webinars. But just to keep in mind that if you thinking I can live in Portugal, I can live in Singapore and my crypto will be tax-free. If you are a trader, that's not necessarily the case. And also keep in mind that Portugal, once you become a tax resident in Portugal, you may be subject to tax on your worldwide assets and you declare your worldwide income tax and you declare your assets worldwide as well your financial assets, bank accounts and so on. So, it is a worldwide tax jurisdiction. Yes, you have the Non-habitual Residence Program, but if you are not careful, you may have unexpected surprises. Singapore is a simpler tax jurisdiction because of territorial tax. But anyway, we can get into that at some future point in time at those relevant webinars. 

Next topic that came up that you guys asked for, you know, some sort of discussion around would-be non-US exposed persons using US LLCs to run your online business. And if you're based in a jurisdiction, for example, Portugal jurisdiction outside of the US. A jurisdiction with a treaty, a double tax treaty, like a European country. So, I know that there've been some actual cases that have gone to the, the tax court or the relevant body in Singapore and Portugal. 

And I'm using Portugal as an example, but similar principle can apply to Spain or France or Germany, wherever the case may be. Now, we need to consider that a US LLC is a hybrid entity. So, it's not exactly like associate name. It's not exactly a limited liability company in the way that it may be construed or understood in Europe. It is to some extent a pass through. So, it has some characteristics that make it similar to a partnership or sole proprietor and some characteristics that make it similar to a limited company so there's a hybrid entity. 

So again, just recognizing that is why we say yes, you know, you can go online and somebody who form an LLC for you for $99 but you need to sometimes depending on amounts of money, depending on the nature of your business, you may want to consider getting proper advice before jumping into a situation like that. Now, yes, there were some cases held where the distributions from an LLC in the US were treated as dividends in Portugal, Germany, and some of the jurisdictions. And, you know, therefore you can use a treaty and therefore you can use the non-habitual residence program and basically enjoy tax-free income. Now we've seen discussions around that and people have approached US based on that, but we are very careful. We don't paint with a broad brush. It depends on the fact pattern. It depends on the individual circumstances now that there are some cases where that may indeed be the case, and we would work with you on that. But if there's no substance in the US i.e., you have no roots on the ground in the US and you run that entity from Portugal, just using Portugal as an example, then, you know, from the view of the Portugal tax authority management control has been exercised from Portugal, even though that company is incorporated in another jurisdiction, management and control has been organized as being done, you know, minded management, management, and control, you know, that's permanent establishment. 

I'm just using all the jargon that you would hear among tax professionals, management and control is in Portugal. So therefore, the tax authority in Singapore and Portugal, sorry, reserves the right to attack that LLC, as if it were Portugal company, even though it is incorporated elsewhere. So again, that's why we always say tax rules and very, very nuanced. Yes, it can be an LLC distributions from an LLC can be treated in US LLC can be treated as dividends, but not if management and control has been exercised elsewhere, you must have substance to demonstrate that management and control has been exercised within the U S then it would stand up and, and, you know, then someone told me I'm being completely honest is, you know, that put the tax authorities in Portugal or Spain, aren't sophisticated enough to figure that out, to me, it really doesn't matter. 

You know, we follow the rules, we, and that works for not just for ourselves and protects our licensed, but works for other clients as well as you may or may not be aware. And I'm sure you've seen it on movies, that when someone is found running afoul of the law and especially with the tax laws, one of the first things that authority may ask is who advised you. And they've given the name of the firm that you call. The next step for that tax authorities to check, to see whether this is a habitual offender or habitual enabler. In other words, they start auditing all the other clients on the books of that company. So, if it is you go and you sign up with a tax professional that plays fast and loose with the tax rules. If a bear thousands of clients ever get caught, or their clients may be subject to increased scrutiny and including you, because you signed up with them, perhaps knowing that they play fast and loose. So that's why we do not play fast. And it's not just for ourselves, but to protect clients as well. 

Next point and it's kind of related to another, someone else came up to us, came, approached us and was asking about again, this person is US exposed and they are living in a Southern European country. And I need to see which one, and they were inquiring about, they have friends and they knew of other tax professionals that advise them if you have, like, you can use a relative's address back in the US even though you're living in the Southern European country, use a relative's address back in the US for you to file it for me to, you know, to, which is an application for US residency. And you get a US residency certification. So basically, even though you are in that other country, in Southern Europe, for example, and you made triggers tax residents in that other country by virtue spending a lot of time there, you can get a form mediator to you, file it. You get a resident certificate from the US and you use that you show that to the tax authority, not Southern European country, and you invoke the relevant article of the tax treaty, and you will be relieved from tax in that Southern European country. Now, that is part of our understanding of that as part of the tie breaker provisions of the tax treaty and what the tiebreaker looks for is, first and foremost the existence of a permanent home back in the US which is why they use a relative's address, but that your center of vital interest means in the US and if you spending most of the time in that Southern European country, your center vital interest is not in the US and your, your place of habitual aboard is not in the US. So, we believe that to represent yourself as if your center with back in the US and your place of habitual aboard is back in the US when it's plain to us, when we examine the facts of your case, that it is not, again, not as a dishonest, and we don't play fast and loose with the tax rules. We know that there are tax professionals who will be happy to take your money and do it, but in the long term, and the long run, that stuff comes back to bite you, and we don't play those games. So that's that point. 

Moving on, next question. Now, while we go moving to Asia, but, and someone living in Bali, which of course is a popular jurisdiction or a popular destination for those who are location independent, those who consider themselves as digital nomads, they're setting up a company in Bali and Indonesia and then, you know, they've got to run some sort of business, it doesn’t matter what it is and they want to bank in Singapore, which makes sense because the banking and for the financial infrastructure in general, in Singapore, is a lot more attractive and easy to deal with. So we get that, but some way in that is the assumption of understanding that because the money does not come into Indonesia, even though it's earned from providing a good own, you're selling something from Indonesia, and you are tax resident in Indonesia, you and your business partners, somehow this is the mistaken belief from what I can read in what you've written, that if the money does not come from Indonesia it won't be subject to tax, and that is not actually correct. Once you are based in Indonesia, you're based in Bali, even though you may be working online and the money remains in a bank account in Singapore, US, or Europe, or wherever Australia, wherever the case may be. The point is that the business is being operated from Indonesia. So that income is taxable in Indonesia, even though it may not be remitted into Indonesia. And we know that there's some jurisdictions that do have those rules, so it's easy to miss to mix them up. So, for example, Thailand, depending on your circumstances, you can be earning money online. And as long as it's not admitted into Thailand in the same year, then it's not technically taxable in Thailand. So, we know, but Indonesia is a different, you know, Indonesia is very different. It is one of the more aggressive jurisdictions in terms of tax, to be honest with you. So, you know, we don't, we don't try to mess around with Indonesia at all. So, you're running a business in Indonesia, regardless of where you bank, that income is taxable in Indonesia. 

Next question, someone else asked, aside from crypto, one of the most profitable businesses for many of our clients has been PPE. So personal protection equipment, so masks, gloves, and, you know, sanitizer, hand sanitizer and stuff like that. So again, some people have been lucky enough to get in really early. So, you can, you been selling on Amazon and Walmart and some of those platforms, but, you know, things have become quite controlled right now. And that's another conversation. But if it is you're selling online into the US, and you're selling your PPE, selling whatever physical product, be mindful that you may have to initiate some sort of what we call an access study, because people tend to think really quickly about your direct taxes. So, you have your individual tax and you have your corporate tax for your company, but they're also indirect taxes. So, what we call VAT in Europe or GST in Singapore is called sales and use taxes in the US and by virtue of selling stuff online, you made that, you create what is called an economic nexus with certain jurisdictions, and you may be subject to sales and use taxes. So, you need to speak to a professional. I know you do a quick Google and it says, well, you know, the threshold is 200 units. So, a hundred thousand dollars, not exactly the over 10,000 sales and use tax jurisdictions in the US you know, each state is witness substance further subdivided into sales and use tax jurisdictions. Some, I mean, that is a good rule of thumb. I'm not knocking it. You're 200 units, $100,000, but bear in mind that some jurisdictions have a lower threshold, a hundred units, $50,000. Some of them have a click through an access. If you're marketing to someone in their jurisdiction, even though the sales may be low, you may still be subject to taxes. So, you're better talking to professional rather than because, remember, all States are strapped for cash right now because of the extra expenses. So, they're not about to miss out on claiming money for online selling. So, at some point you may be found out and you're going to have a whole world of hurt. So, get advice upfront, registered necessarily, stay on the right side of the law. And furthermore, if you have more than one economic nexus, but you have a physical nexus in a state, for example, how's your product in a warehouse, in a given state that may lead to actual income tax, nexus income tax liabilities as well, and forget sales and use tax. Yeah, that's a given which you may actually be subject to income tax in that state income tax. So again, I know things have been going amazingly well, but don't forget the tax consequences, please seek advice. 

Next one is Barbados. For many of our clients, Barbados, for those who are more familiar with Barbados than others, it is a super popular jurisdiction for location independent entrepreneurs and digital nomads. The welcome visa, which was launched in Barbados, their welcome visa that was launched last year and has been enormously popular. I have not been back to Barbados since the pandemic, but it is a super popular jurisdiction for clients from, I mean, obviously from the US and the UK, but as far as Australia and even South Africa, we've heard, you know, we've had people reach out to us and they're in Barbados, really enjoying it right now. Taxes, now they did a quick Google. Some people wouldn't have done a quick Google, which is right thing to do. You're trying to educate yourself and you've seen, oh my gosh, just like many of the jurisdictions that you've come from Barbados does have the equivalent of substantial presence. If you spend more than a certain number of days in Barbados, you will be subject to taxes, according to the income tax act in Barbados, but specific, you'll be pleased to know that a specific carve out was created for the welcome visa. So at least for the first year of your residents under this welcome visa, you will not be, because you're still working online. We know that you are not subject to tax in Barbados based on a normal tax rules, this special combo it applies now as to whether this tax-free status rules into your second and third year, we need to talk about that. But at least for the first year, you're good. Now, if it is you’re US expose, that means you’re just going to be paying and filing and paying taxes back in the US alone. But what about if you are not US exposed and you're living in Barbados where you paying taxes, now, this is where you need to speak to your advisor. Because the last thing you want to do is create a situation where you're not tax resident anywhere. I know according to strict interpretation of the rules, you may be able to achieve that. You know, for some people that is the most desired status, we get that, but there are consequences, especially when it comes to banking, because when you speak to some advisors, they just keep their hat on and they remain blind. Or they're just not aware of the banking rules that are becoming more and more difficult to deal with. Everyone who has done business internationally is aware that banking is the real challenge right now. You know, even if, you know, your Stripe, your PayPal or whatever, just anything that the bank doesn't understand, their default position is we're going to lock you, we're going to lock you out, we’re going to block your account. And every once in a while, the bank properly reserves the right to check it on his client. Hey, we just reviewing your client list and making sure everyone is happy with our service. We want to ask you something, you know, we want to ask you about your account activity. How are you earning your money? And he may say, okay, that's cool. You know, that's all good, I'm doing stuff online. I'm doing online marketing, I'm a coach, you know, I'm a therapist, whatever the case may be, and everything is online, my clients remote. Okay, fine. But you understand that we have AML or anti-money laundering rules. Can you prove to us that the money has been legitimately earned? Well, you may think, well, I can show you my invoices, but give anyone five minutes in Microsoft Excel that can create invoices, right? So that doesn't really count. The one thing that I can tell you that banks feel very comfortable with is seeing a tax return. So that way  they know that they're not going to get in trouble for enabling tax evasion and that they are not going to get in trouble for needling money laundering. So, the important thing is to show them that the money has been legitimately earned. And the one document that creates the greatest measure of comfort with your banks, a tax return. 

 

So, if you try to live that tax-free life that you run the risk of being you finding yourself in a sticky situation, which we have with clients. We've had clients that have been locked out of the banking system, because they have been working for a period of time freelancing, and they have not been paying taxes anywhere. And they get to a stage where they can improve the big money that they have been accumulating in. Their bank account has been legitimately are. And that creates no end of problems. But so, I'm just giving you a heads up when it comes to that. So, moving on from Barbados and tax residents, next question that was posed was right. Someone is, they are remote worker and they are working right now, somewhere in Southeast Asia, which is fine. Don't need to say where it is, but somewhere in Southeast Asia, now the company wants them to come and do some training in the US they're not a US person. The company's HQ is in New York and the company wants them to come and spend a few months with the head office. Okay, fine. No, they are going to enter the U on a J visa. So, the question is, would they, the entire situation, the entire worldwide income be subject to US taxes? And the answer is yes. So, looking at strict interpretation, reading Section 7701 of the US tax Code is yes. 

If you spend more than 183 days, the 183-day rule, you will be subject to US taxes on your worldwide income. The 183 days have calculated a bit differently. Like it would be in Canada or Australia or Portugal. So, it's calculated a bit differently. And that is a look back period of a few of two years or whatever, but just to keep it simple, there's a 183-day sort of rural. Now, this is where it's helpful to get advice. You really need to seek advice. And in this case, you're going to be talking to both an immigration attorney, as well as a US qualified tax professional. 

Why in the US there are at least 130 visa categories, and each of them have their own nuanced rules. Now, if you're in the US on a J visa or Q visa, even though you trigger a substantial presence as per Section 7701, you can be seeking classification as an exempt individual and therefore not be subject to tax on the income that you earn while you in the US. But the rules are very, very precise because it's, again, it's a carve out. So, you need to seek advice. So, you're doing the right thing, but you just need to seek advice to make sure you have no unexpected consequences of spending time in the US.

So, moving on right now, we come to Estonia. We're going to talk about is Estonia. I know Estonia is super popular. Estonia has its promoters as there's Belize or Panama. You know, everyone, every jurisdiction has its fan. So, Estonia has no shortage of fans. Can you talk a bit about Estonia and similar companies with deferred corporate tax regimes and how this fit into other countries, tax regimes, blah, blah, blah, blah, blah? Okay. So, for those who are not familiar, Estonia is super popular for a number of reasons. And one of the reasons is that corporate taxes, you are allowed to defer corporate taxes until you take a distribution, you take a dividend payment until you take money out of the company in the form of dividends, you don't have to pay taxes. So, you just let it roll over year after year, which is amazing. And that's a great opportunity if it is that you're building a business and you really want to reinvest every penny that you make and build that company. So, you know, it's, so those who are fans of Estonia that is absolutely justifiable, given that huge benefit, that huge opportunity, but again, one size doesn't fit all. It works for some people, it may not work for others, and you should really seek advice to make sure that it's the right fit for your situation. So, if it is that you are digital nomad, if you are location independent professional, remember what we mentioned, we kind of touched on earlier, the idea of permanent establishment, which is a technical term, but basically where's minded management being exercised, whereas management and control. If you are a one-person company, or your business partner, if you've you guys, and you're starting a company, where are you, where are you based, where are you located? Because even though it's an Estonian company and its base, it's incorporated in Estonia, if you guys decide to live in Portugal, or if you guys decided to live in the US or Bali or whatever the case may be, and you run that company from that jurisdiction, the tax authority in Bali or Portugal, or wherever, reserve the right to attack that is stolen company as if it were a local company. Why? Because mind and management are being exercised from within their borders. So yes, those rules that does amazing benefits can be enjoyed with a Portugal company, but there's always fine print when it comes to taxation, there's always fine print. So, in order to do that, you need to have substance and what we call substance in Estonia. So, you need to have key decision-makers sitting in Estonia. So, one of you, you need to sit in Estonia. You ideally, or you hire a CEO, you know, whatever, speak to, whoever's advice you to set up a store there and make sure that the way your situation is structured allows you to enjoy the benefits that you're looking for. So, you know, my little feedback from, for non- US persons. 

And, you know, with these questions have to answer US persons separately. From non -US persons, again, you know, for those who may be, again, they’re in jurisdictions with a double tax agreement, double tax treaty with Estonia, and remember that all the most tax treaties, they follow a template, right? And they therefore have a standard, what we call a limitation of benefit clause. So, in other words, it is intended to discourage what we call treaty shopping. So, people setting up companies in jurisdictions just to enjoy the benefit of whatever the treaty might give them, if it is you are not, if you're not physically, if that company is not an Estonian company, as in the company is being run from Estonia, it is being managed as being controlled for Estonia. There will be a limit, there's the potential that you may not even be able to enjoy tax treaty benefits because from the tax treaties point of view, it may not actually be an Estonian company, even though it's incorporated there, right? Because you're running it from somewhere else. Now, those are the non-Americans. Now let's talk about those who are US exposed by virtue of having a US passport or a green card, or what we call substantial presence under Section 7701, you have an Estonian company. Now it depends the way it's treated again, depends on where you are. You know, we've established on whether you are, would have an impact, but the added layer of complexity is the fact that you may be US exposed. So, we need to determine whether it's what we call a CFC, a controlled foreign Corp, or not if a controlled foreign corp, by virtue of the Estonian shareholders, those shareholders in this Estonian entity being more than 50% US exposed, then certain rules that apply. And this is where we talk about stuff like GILTY, this is where we talk about stuff like Subpart F, we talk about stuff like PFIC, and it's perhaps beyond the scope of what we're doing here to take a deeper dive into as I mentioned earlier, we ended about 24 hours’ time, we do a specific livestream on US issues only. So, we'll take a deeper dive into that then, but just the point I want to leave you with, as you speak to your advisors, always get advice from someone who understands your situation inside out is that even though Estonia may allow you to defer paying taxes until there's a dividend payment, those anti-deferral rules are just that they're anti-deferral rules. So even though Estonia may have one rule, the US may see differently for some control foreign Corp, or even if it is not even a CFC, but if it's minority health and it's involved in, if it's what is called a PFIC or passive foreign investment company, because a certain, it passes the asset tests and the earning test, so it's deemed to be a passive or a company that is built or created for investment income as opposed to being an actively a trading company, then special rules that apply for that. 

So, my point is that you can't assume that the benefits that you saw on the website would apply to your circumstances. You really should take advice just to make sure that the actual consequences aligned with what you expect them to be. And I think people well familiar with guilty right now, which is the global intangible low tax income tax, which came in in 2017 and president Trump. So that creates a deemed dividend payment. But then I think there's right now, there's a high tack, a high tax exemption. So, any jurisdiction with a headline tax rate of more than 18.5%, and it's still is 20%. So, it should not for, for under guilty, but you have to be careful with Subpart F and P facts, and then bear in mind that the other jurisdictions as well, when you eventually take that money out is going to be taxed at 20%. Plus, there may be some withholding on the dividend side, but they headline tax rate is 20% when you pull it out. I think Bulgaria is 10%. Ireland is 12% Singapore, 17 Hong Kong, 16 and a half. Dubai is tax-free. And the IBC in Dubai or certain Caribbean islands actually tax free, or you can elect to pay a tap as low as two or 3%, because, you know, because of what we said before with banking, and you want to file a tax return, like a St Vincent IBC, you can elect to pay a two- or 3%-income corporate tax. 

So, if it is that you're looking at tax efficiency, there are lower tax jurisdictions, but also bear in mind that unless that once you spend time somewhere else running that company, it becomes taxable in that jurisdiction. So, if you're going to be in Bali running that Estonian or that Caribbean company is going to be taxable in Bali or taxable in Malaysia as the case may be. So again, please seek advice. Next question. Can you talk about being self-employed and filing and paying self-employment tax in the US while resident abroad? How can the fact that you do this be treated by the countries that you resident in and as a US have any problems with you doing this while you're okay? 

Right. And this is a US specific question, which of course we get into a lot more detail in 24 hours when we do the live stream on US only, but just helicopter view, if it is that you very few people, when they do proper tax planning, please pay self-employment tax because there's regular income tax and then there's self-employment tax that 15.3%. Very few people want to do that if you're abroad, because one of the advantages of moving abroad is you get to enjoy the foreign earned income exclusion, which excludes the first, it moves it inflation. But right now, it's around $176,600. Yeah. You get to exclude that you get to enjoy that benefit. You get to enjoy the housing deduction and you get to legally avoid self-employment tax. So, you know, for whatever reason you may want to pay it, if it is that you are making, if you probably in five figure burning region, quite are into six figures so it may be prohibitive to form a company and create a legal structure that allows you to legally avoid self-employment tax. So, we get that. If you are a low-income earner, you maybe start paying self-employment tax. Now, if you’re in Europe, for example, and you are in a country with a double tax agreement with the US, chances are you may also have, and you need to check with your tax professional, that there's a totalization agreement as well. Once there's a totalization agreement, which again, this fall, none of that, the IRS per se, but under the social security administration, it allows what the social security administration does. And even though that your tax return does say, Hey, you need to pay self-employment tax. It would recognize if you are registered and paying the equivalent of self-employment tax. So, some sort of social security payment in the jurisdiction in which you not reside in Europe or whatever, the case, typically, Europe, that this topic comes up. So, you can invoke a totalization agreement to legally avoid paying self-employment tax. So, there's a mutual recognition between let's say Portugal and the U S or the, you can be in the U S Ireland in the U S and so on. So, you can legally avoid paying self-employment tax. And they would recognize that the contribution that you've made to the jurisdiction in which you now reside. So, you're not going to be taxed twice kind of thing. But for the most part, we, as I mentioned at the beginning, we kind of, we sit with our clients and we assuming that they can afford it, of course, because not everyone can we really coach them and we understand their situation and try to see whether creating an offshore company as in a company that's offshore to the US may not work best for them if they're not able to invoke a totalization agreement. So, they're not in a European country, for example. So, we work with them to create an offshore structure that tends to be a lot more tax efficient. And of course, you can create your own savings vehicle, investment vehicles as you plan for your pensions. Hope that answers that question.

 Moving on, offshore banking. Right. So, I mean, offshore banking, it is sometimes treated pejoratively as sometimes viewed in a negative when I guess, because of the media has become synonymous to being bad things, but it is a legitimate tool that you have access to. It is a legitimate tool. So, if it is that, you know, remember no one country is perfect, no one jurisdiction is perfect. And that's where for those of you familiar with flag theory, that's where Flag Theory comes in. It's an acknowledgement and a recognition that is no perfect jurisdiction. 

So, for example, people love, I think like they, I know people like they're hyping up Portugal right now, but honestly, I think Dubai or the United Arab Emirates is one of the best jurisdictions out there right now for what you get is income tax-free, it is corporate tax free. And, you know, while many like Europe, North America, most of Asia, Australia, New Zealand, they're all close and nonessential travel the United Arab Emirates for the most part wide open. And they are open for business. So, if it is you're running your business, you're doing things. I mean, that's a hard jurisdiction to be in right now. I honestly believe so well, it's hot, but it's good. But and this is what everybody tells the banking isn't so good. When you look at a list of the strongest banks, you probably not going to see a bank from the United Arab Emirates, and you know that they had some financial trouble and the not so in the recent history, they have had some challenges with their financial system. So, it's, if it is that you're looking for a place to store your wealth, it's a great jurisdiction to maybe form your IBC to get residency, but to bank maybe I don't think many people would argue if you see, you know what, Singapore's a great banking jurisdiction. Because when you look at the strongest banks in the world, the most robust and most well-capitalized banks in the world, you will see Singapore span there. 

So again, you know, one size cannot fit, everybody, right? So, bank in Singapore. So, depending on your situation or some jurisdictions, it's just really hard to open a bank account, even if you live there. So, depending on your situation, you may end up having an offshore bank at a bank in a jurisdiction other than where you are resident and that's okay, what's this a legitimate business and reason commercial reason for so doing that's okay. Now, where I think there is perhaps a misunderstanding is thinking that this is somehow going to help tax wise. Not necessarily depending, you know, it depends in your situation. Of course, no one person, two people on the same. Right? But you, if it is that you are working in, you're earning money, let's say in Portugal or you are based in Costa Rica or Colombia, and you are running your business from there. The fact that you don't bring the money in a new bank, you bank the cash in another jurisdiction does not necessarily relieve you of the obligation to file and pay taxes based on the money that you are earning from within their borders. Now there's some exceptions to that. So, for example, some jurisdictions have special carve-outs. So, we spoke about Barbados earlier. So neighboring Island Dominica has also followed one, one of the islands that not only allows you to have citizenship by investment, but you can also have residency just like Barbados, just like Bermuda, just like Portugal as a remote worker, as a location, independent professional, as a digital nomad, you can set up and you can get a visa to reside in Dominika. But when you trigger tax residence in Dominica, you need to speak to a tax professional. But generally speaking, if that money is brought into Dominica, it may be taxed. Same, like if you are in the UK and you register as resident, so you're not a Brit, but you have legal residence in the UK. You can register with a special tax regime that is commonly known as Resident Dom. So, resident not domicile. So, once you don't bring that money in, it's not tax, and you're not, you're going to get, like, if it's investment income, it's fine. Or if you're in Thailand, we mentioned Thailand earlier so there are jurisdictions like that where once money stays outside and can have a tax benefit. But generally speaking, if you're earning money from within a jurisdiction, it becomes taxable. Even if it does not come in, generally speaking. So please bear that in mind when you conceptualize offshore banking.

Next question. Could you talk about tax efficient vehicles for retirement savings? Obviously, retirement accounts are difficult from an international tax perspective and lots of countries won't respect the tax benefits, blah, blah, blah. Yep. You're absolutely correct. So just because something is a tax preferred vehicle in one jurisdiction, like a CPF in Singapore, MPF in Hong Kong, you know, certainly in the UK, it's not mutual recognition. So, it's a tax benefit in one jurisdiction, but not in the other. And if you are a digital nomad, location independent chances are, you will always be planning with more than one jurisdiction in mind. So, you need to be conscious of that. But what may be tax preferred in one jurisdiction is not in another. Now then what do you do again, as would be the answer to all, everything that I say you need to get proper advice, to be honest with you. So, you need to understand the jurisdictions in which you're exposed, and you need tax professionals who are familiar with all the jurisdictions in which you're exposed, and that will help you. We are not, we, I mean, we, my company is based in Singapore. So, the monetary authority of Singapore is pretty strict. So, they, we can give tax advice, but we have to be very careful when we step on to financial advice, but we can recommend if you are us exposures and you are working internationally, I know it's really hard because the normal platforms tend to kick you out. Like, you know, Schwab, you know, we've heard that once they see a foreign address, or even if you use like a relative's address, but you log in from an overseas IP, they will pick that up and they'll lock you up. But we can recommend find that US qualified, qualified financial advisors who can advise you from a US perspective, other jurisdictions, not so much, but the best bet is to understand the jurisdictions in which you're exposed and speak to someone who's qualified in those jurisdictions. But the, the honest truth is that you will feel pain somewhere when you are toxic suppose in multiple jurisdictions. What is a tax break in one jurisdiction is not necessarily in the other, so you will be paying tax on it there? So that's, that's an uncomfortable truth. That one would just need to accept, unfortunately. So, I'm scrolling any more questions. Okay. If you have any questions and you are on zoom, you can right there, you can just type the questions in the box below. I'm just going to check some of the other platforms now to see with any other comments and okay. 

Please just feel free to type your comments down below. So, we have nine more minutes, so hopefully it's not, I see somebody typing. So hopefully it's an easy question. So, someone is asking doesn't sound like it makes too much sense to claim any travel places as a US digital nomad. It depends on what you mean by claim, any travel places. What does that mean? Sorry. I don't understand. Tax advantages? Yes, there are. I mean, the number one advantage is so, okay. So, like in the US you know, there's a lot of publicity right now about colleagues and people are leaving California to go to Texas, Tennessee, Florida, whatever people are leaving New York to go to Florida. And by so doing, you automatically save on your state taxes, which is pretty high in New York and California, by moving outside of the US you take that additional step. Not only would you potentially save on your state tax, but on your federal taxes as well. Remember, there's a foreign earned income exclusion, which one could qualify under the bonafide residence or physical presence. That's basically the first $107,000 of your income is protected from US taxes. And if you add the housing deduction, now there's a table that comes out every year. That gives a housing deduction, depending on where you are so simple, it's pretty expensive. So, I'd only Singapore housing deduction just being random. It could mean $140,000, $50,000 of your income being completely protected from US tax. So definitely there's a huge advantage to being physically of the US as a location independent professional. 

Now, when you are doing well, like the crypto guys that I spoke about earlier, and your gains come into the millions, then, you know, protecting a couple hundred thousand dollars, isn't feel like much, but for those who are on the five to low six figures, that can be a huge advantage to being US exposed and being outside of the US. So, asking doesn't matter if you're an employee or a business owner. Yes, it does because typically as a business owner, you have more opportunities for tax planning, because if you're an employee, you can only, in terms of tax planning opportunities, would you prefer to advisor? You can really just have a conversation around your salary, right? Or whatever your 1099 type income is but if you're a business owner as well, then you get to plan not just your personal income tax, but also your corporate income tax. So huge advantage if you are in control of your own business, and most of the clients, we deal with business owners as opposed to employers, as opposed to employees. Another question, and it'll be the final question as we wrap up, would you mind talking about an example of a past case where you've helped digital nomads improve the tax structure, five figure earners.

Okay. So being completely honest, we really touch five figure earners. Most of our clients earn at least $200,000. And many, as we mentioned at the beginning, especially those crypto or whatever, and to the seven or eight figures. So, in terms of someone on five figures, I guess we would make sure that they using the foreign earned income exclusion, as we mentioned, because that is, that has the potential to protect. If you're on five forgets, that's all your income. So, there's, in other words, there's nothing else to be done, you know, might drop, walk away. It's done. You can get a lower tax bill in zero. And that's what the foreign earned income exclusion gives you. So, it's easy but as I mentioned, we don't really work unless it's someone who has a wider business structure, where they may be taking five figures out of their business, but their business is chaining six, seven or eight figures, but they have chosen to enjoy only five figures as they reinvest their profits and, and whatever the chosen asset class, maybe. So, so yeah, on that notes, we're going to call it a day, morning and evening on where you are. 

Thank you for joining us. This video will be available on a website, HTJ.tax, on our YouTube channel, on our Facebook page, and my LinkedIn page on our LinkedIn pages, Twitter, basically most social networks. And we also convert the audio into a podcast and it will be available where you would find your favorite podcasts. So, we basically put it everywhere. iTunes, SoundCloud, SoundCloud, Spotify, Spotify, everywhere. So, thank you for joining us. Visit HTJ.tax, we do have webinars coming up all the time. We have something on US tax in general in 24 hours, we have on Friday nights, Saturday morning, depending on where you are, we have something on Flag theory. We are constantly doing webinars; we are constantly doing live streams. So, feel free to join us, submit your questions in advance or on the day. It's not a problem. Thank you very much. See you guys next time. Bye. 

 

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[ HTJ Podcast ] Taxes For Digital Nomads in Bali 25th March 2021

[ HTJ Podcast ] Taxes For Digital Nomads in Bali 25th March 2021

March 26, 2021
WHAT YOU NEED TO KNOW...

About this Event

As borders become more porous and online communication becomes more accessible by the hour, the number of digital nomads—individuals who work remotely from any location worldwide—is rapidly rising.

Given their nomadic lifestyle, handling their tax affairs can be problematic for the digital nomad.

What are the tax issues that they need to be aware of?

How do they report their income?

What provisions are there for full-time travelers, and what are the pitfalls?

While location-independent work is on the rise, tax regulations struggle to keep up with it, and there are still many grey areas in the matter.

Regulations also vary greatly from country to country, so it’s always recommended to do some research of your own or talk to a tax professional.

Join an hour conversation from a qualified professional from Moores Rowland Tax Consultants.

A group with over 30 offices in 11 Asian countries (including Bali). Get to know tax responsibilities as a digital nomad. Also, find out about tax responsibilities in your home country. We will separate facts from fiction.

Key Takeaway:

1. Flag theory and how to diversify your lifestyle from a tax perspective.

2. How to structure your personal vs. your corporate residency?

 

Our Speaker;

 

Dicky Darmawi, CFA - Head of Tax Moores Rowland Indonesia.

 

As a CFA Charterholder, Registered Tax Consultant C, and Registered Tax Attorney, Dicky Darmawi has extensive experience in the Tax and Customs Areas with a proven record of managing the full range of Indonesian and International tax issues, including corporate income tax, value-added tax (VAT), withholding taxes, cross border transactions, tax and customs disputes, objections, appeals, and judicial reviews.

With a bachelor's degree in accountancy and a master's degree in management finance, he also has experience in day-to-day finance covering financial statement reporting and analysis and financial modeling, which provides vital support to his deep knowledge of corporate tax regulation.

 

Derren JosephInternational Tax for Private Clients, Global Mobility, & Cross-Border Investors (US, Europe, & SE Asia)

Derren is an EA (Enrolled Agent - license # 00100858-EA) who has been admitted to practice before the IRS and is an associate member of the American Institute of CPAs (#7920958). He is the author of "Taxes for International Entrepreneurs and Expats: Proven Principles for Legally Reducing Taxes” (https://www.amazon.com/author/derrenjoseph).

A Partner in Hayden T Joseph & Co. (DBA "Advanced American Tax") also a member of the International Tax Team at Moores Rowland Asia Pacific, with over 30 offices in 12 Asian countries.

He has 2 Masters degrees in Economics. A Certified Diploma from ACCA (Association of Chartered Certified Accountants in the UK), done Executive Education with Columbia Business School. He has completed Advanced Tax coursework at both New York University and the University of London.

Derren enjoys writing and giving seminars.

He had his views published in the Singapore Business Review, Forbes Asia, the American Chamber of Commerce in Indonesia, the International Business Structuring Association (in the UK), Offshore Alert.

He also has given seminars on tax issues in the U.S., the U.K., Singapore, Indonesia, Malaysia, Vietnam, The Philippines, Portugal, Hong Kong, and the Caribbean.

 

 

NOTES:

1. Link for this event: https://www.facebook.com/htj.tax/live/

 

2. Submit questions in advance - Hanna@AdvancedAmericanTax.com

 

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VOICE OVER:

This podcast channel it's about you, successful international entrepreneurs, successful expats, successful investors. Sponsored by HTJ.tax

DERREN JOSEPH:

Good evening, Bali and good day. Good morning to anyone who may be joining us from another time zone. My name is Derren Joseph and with me is my colleague Dicky Darmawi. And we are going to talk about Taxes for Location Independent Entrepreneurs, otherwise known as Digital Nomads. So here's how we're going to do it. I'm going to go through a quick PowerPoint deck. 

It's not going to take me more than like 15 minutes just to share certain key principles. And afterwards we'll jump into the Q and A, which I know is super important for you guys, because you came with questions and we are looking forward to engaging you on the topics that you have brought to the table. So without further ado, do, I'm going to share my screen. All right. So I call this one six things that you guys should know about taxes. 

 

Okay. All right. Great. So just to kind of create a background, give you a context as to who we are. HTJ is a part of a regional practice called Moores Rowland in Asia Pacific. I sit in Singapore, Dickie sits in Indonesia, and I think Dickie from Moores Rowland in Indonesia is pretty, pretty important within the Indonesia landscape. They are the fifth largest are coming from in Indonesia. We have a satellite office in Bali.  Because of my license I'm legally required to say that nothing that I say here this evening should be construed as advice, consider it an education piece. We're going to talk about certain topics in general, general principles that I hope would assist you guys in engaging with the right tax team to help you tax team that knows your situation inside out. 

 

So I'm a tax professional. We are tax professionals, but we're not your tax professionals. So that's why we can only consider this education. Nothing we say here should be construed as advice. And I think we say, here should be construed as encouraging you to pay more than your pair share of taxes in any jurisdiction in which you are exposed, right? So takeaway, six takeaways, let's start with the first one FLAG  theory. I know there are companies that call themselves like theory, but flag theory, as I understand it is a principle that speaks to, let's say lifestyle diversification, just it's about not having all your eggs in one basket. So where you are a citizen or, or where you, where your passport is from or where you're a citizen of may not necessarily be where you legally reside may not necessarily be where your company's incorporated. So it's about diversifying your lifestyle. And we can talk about that in a bit more detail if that's of interest later, later on, but I just think it's a great principle and it works well, especially for location independent or digital nomads. So I think it's pretty helpful. 

 

The next thing I just want to let you guys know about is hashtag fake news. What do I mean by fake news, unfortunately, and it's, you know, I'm not pointing fingers. It's just the way it is. Information is hard to come by and that's partly our fault as tax professionals. If you are a fully qualified tax professional with a decent sized practice, basically, I mean, I'm just going to be completely honest. The rules kind of prevent you from going online and contributing and sharing information freely. Why? Because, you have a license in, at risk, and if someone gives you less than complete information on themselves and you make a recommendation and it is erroneous, then the recourse is you, you know, your license can be at risk. Actually just earlier this week, I got my professional liability insurance premium reminder. So, you know, we pay, I pay a healthy sum every year for professional liability. You know, we have an insurance policy in the, I think six or seven figures. So it is a real risk. So what, what that means is that in the normal forums, you have less, let's say less qualified, less busy or smaller practitioners who may not have behind them, the range of expertise. So they just speak to what they know, which would be what they know, nobody knows everything. So what you find, and sometimes my members of my marketing team, they come back and say, Hey, to have a look at this, this is what people are saying. And it is scary. It is scary that you know, that people are making life changing decisions for themselves, their and their businesses based on what's being peddled. And, and that's, that's no fault. It's just the way the system is. So what I'm basically telling you guys to do is be careful, be careful because no one can give advice unless they know your situation inside out, and they're qualified to do so. There's a license on the line. Otherwise you have someone just giving an opinion. Now there are certain points that I've raised here that we see pretty often in online forums, effective management is Tonia, immigration and stuff like that. Now, a few of them I will get into later. Otherwise I'll just leave them for the Q and A.

 

The point  I want to leave with you guys is direct versus indirect taxes. So I think most people are pretty up to speed on the fact that, Hey, I run a business. I probably need to be considering direct taxes. I E my corporate income tax for my company and my personal income tax from me personally, that that's something somewhere in the back of your mind, you know, that it, it needs to be handled right, but indirect taxes flies completely under the radar, you know, and, and for many jurisdictions right now that is getting special attention. 

 

So what is VAT or GST, In Singapore or sales and use taxes in the US that indirect taxes, where you as a business owner are responsible for collecting taxes, from whoever you're selling your service to whoever it is you're selling your products to. And you collect taxes from them and you remitted to the relevant authority. So it's different from direct taxes, which you paid directly to the authority. There's indirect, where someone acts on behalf of the government and collects taxes and then remits them. So it's something to pay attention to. And if it's of interest, we can have a conversation about any Q and A as well, Place of effective management. So there's this so commonly misunderstood. The idea to walk away with is that just by incorporating a company in a given jurisdiction, doesn't mean that the company's only taxable in that other jurisdiction. Why? Because most jurisdictions, most common jurisdictions that you would be familiar with. 

 

So you're in Indonesia now, Indonesia, Singapore, Hong Kong, Australia, New Zealand, Malaysia, Philippines, you know, most jurisdictions in your neighborhood operate on that principle. The principle is we don't care where you incorporate your business. I repeat, they don't care where you incorporate your business. What matters to them is read to you, operate your business, whereas management and controlled, whereas mind and management exercise. And if you incorporate your company in BVI or Dubai or whatever, but you run that company from Bali, you have an Indonesian company. I repeat if you incorporate your company in another jurisdiction, but you run that company from Indonesia, you have an Indonesian company, the Indonesia tax authority reserves the right to tax it. Similarly in Australia, the ATU and Australia do not care where you incorporate your company. All that matters to them is where do you run it? If you operate that company from Australia, it is an Australian company. That's the way it works. It's where your place of effective management is. And that is, you know, that, that stems from a concept known as nexus or where you have a physical, where you have a connection where you have a business presence, right? And we can talk about that in more detail later on, especially when it comes to indirect taxes. 

 

It's a really hot topic right now for those who are online sellers. Next, I just want to talk about the USA. And the idea that when I look at entrepreneurs, I put you in one of three buckets and people have different ways of categorizing. I'm talking about personal income tax now, right? There are the U S exposed persons, which will be the U S passport holders, as well as the U S green card holders. Then secondly, I have other OACD countries, other advanced economies. So Europeans, Anzac, so Canadians or Kansas, or where they call them, right? Canadians, Brits, Australians, New Zealanders, Japanese as well as Europeans, and then the rest of the world has. And the reason why is because generally speaking, I know you shouldn't paint with a broad brush, but generally speaking, that tax rules operate differently. So that's solved with the U S which is the exception to most rules, the U S practices, citizenship based taxation. Now others do as well. But the principle here is that you cannot escape the us tax net by staying outside of the US no matter how long you remain outside of the U S you're still subject to us tax and reporting requirements, no matter how long you stay out of the U S you're still subject to us reporting requirements and the threshold, to be honest with you, the threshold for filing a tax return is really, really low. If you file separately, the threshold is $5. So there's a misunderstanding, or it depends on whether you had to file an income exclusion, exclusion or not. No, it does not. If you earn one in $5, you need to think, Hey, maybe I should be filing a tax return, right? We can speak about the control of foreign companies. Now, the international tax from Americans is counter-intuitive. And that you would think that the emphasis is on collecting taxes. Actually, it isn't. When you look at the tax code and specifically the penalties for non-compliance the penalties for not reporting the I E the penalties for not providing the relevant information, tend to be more aggressive than penalties for not paying taxes. It's kind of intuitive, but I know it's, it's in the wake of the pitch back nine 11. There seems to be an implicit assumption that if you're not reporting your foreign bank accounts, if you're not reporting your foreign companies, you're up to something nefarious and the IRS will come at you pretty aggressively. So there's this thing that I can use a nominee, like, you know, like how some people do in Bali, the U S tax code stays right through that. And you can, and you do get in trouble for trying to hide behind a nominee. It does not work. The points are, you need to pay attention to your banking report. Those foreign bank accounts, remember estimated taxes. Some people, again, depending on what state you were connected with before you left the U S even though you've been living outside of the U S for many years, you may also have a state reporting requirement. And we can talk about that in detail later on, if you have any questions, but Americans remember no matter how long you stay outside of the US, you still need to file and pay. And the penalties for not reporting what you're doing, tend to be higher than the penalties. So not actually paying taxes. So these jurisdictions have developed some pretty interesting what we call fallback rules, which in a way are increasingly resembling the Americans. So what do I mean by it means that if you're an Ozzie and you, you have not lived in Australia for years, and you've been traveling under certain circumstances, even though you have not been living in Australia for many years, you may still be deemed to be Australian tax resident, and same with Canada and same in New Zealand, same of the UK. 

 

So there are really interesting fallback rules, many of which are based on case law. So they may not be obvious when you look at the actual written tax rules. But when you look at the cases that have been litigated and take cases that have gone before the tax court, you see what the tax authority has been thinking. So the EU under again, under certain circumstances, don't think it's a clear cut. You need to deliberately register us tax non-resident. And even, so there are fallback rules. And again, there are different European jurisdictions. So yeah, its rules would vary. But the takeaway is, even though you have moved from your European country of origin, please understand the rules because you may still be, you may still have a taxable presence. You may still be a tax resident of your European country of origin. 

 

Moving on to the rest of, well, the rest of the world, I think can ride. I'm good, I'm free. I don't have a Kansas passport. I'm not American. I'm not European. I have nothing to worry about. I can be perpetual, no matter and pay zero taxes. Well, you know, we know that there are many websites pedaling that, and they will sell you all sorts of stuff. But what I notice is that many of them, many of these influencers, they, many of them have no license and the pedal of that information. So again, if, if in the unlikely event that they are wrong, nothing, they have no consequences. There are no consequences to their actions. And they give advice from unregulated jurisdictions. They won't go to Singapore and say that they won't go. They won't be based in Singapore. And talk about paying taxes. Nowhere. They may go to Malaysia. They won't go to Western Europe and say that they go to Eastern Europe. They won't go to North American, say that they're staying in Mexico, Panama, you know, central America, South America. So basically less regulated jurisdictions. Maybe that's just a coincidence, or maybe it's a reflection of the fact that it is technically, that could be a dangerous position to take. And you can have varying degrees of problems if you were to try and basically be perpetual, no matter I'm paying taxes. Now what I like to call out is the fact that he asked people to speak about tax rules, but they do not speak about the bank rules and banks right now, as anybody who's doing business internationally, I shouldn't have to tell you this. You know, even with your Stripe PayPal, it's so easy to get suspended. And you know, the freezer account, basically international banking is becoming pretty procurious. And the reason why it's not, that they're being mean, but the, the banks are under increasing pressure and not just the traditional banks, but the challenger banks as well. And, the responsibility that they have is preventing money laundering. 

 

How do you prevent money laundering? You need to know where funds come from and how funds are being earned. And, you know, they don't trust invoices, give anybody two minutes on Microsoft Excel or produce an invoice, right? They don't trust financials because those can be faked as well. What they do feel a measure of comfort with would be tax returns. And they like to see that funds have been taxed somewhere else. So, yes, you may, you may have a passport from somewhere else in the world, and you're not legally required to pay taxes. But if you earning money at some point in time, even if you remit that money back home to your country of origin, at some point in time, that bank will reserve the right to ask, hey prove to me that you're paying taxes on the show me a tax return, prove to me that this money is clean. And if you cannot do it to their satisfaction, you're going to have a problem. 

 

So, well, that's, I think it's pretty clever with the complexity of cross border taxes. Anybody who claims to be a one person show, and they know everything is probably misleading because nobody knows everything. You need to be a part of a team. And with that, I am going to stop sharing, and we're going to go to some Q and a. So please, if you have any questions, don't be shy. There's a chat box below. Just type your questions in the box below, please. 

 

And we will answer it to the best of our abilities. Again, not giving advice, but we can have a Prince general discussion around the principles. Now I want to reserve the right to ask the first question. So Dickey, what is crypto? Because I've been talking to quite a number of entrepreneurs and investors in Bali recently, including this morning who are big into crypto. I mean, who a lot of people are crypto and NFTs and stuff like that. What is Indonesia's position on crypto transactions? 

DICKY DARMAWI:

They essentially are allowing the crypto transactions. Yeah. But, but the tax office was unable to track it down.Registering companies in Asia. Sorry. 

DERREN JOSEPH:

Sorry.Can you guys please stay muted unless you have to ask a question. So please mute yourself. Sorry to keep, please continue. 

 

DICKY DARMAWI:

Yeah. So that's obviously in Asia is going to say that, okay, you do the self assessment. If you have the capital gain from selling crypto, then report it and pay the tax. But the tax office until now cannot assess how much, how much, how much the cryptocurrency transaction in Indonesia. So what they can assess is only based on the fund comes to the taxpayer bank account. That's how they are going to assess them. 

 

DERREN JOSEPH:

Okay. So it's basically self-reporting and Indonesia treats it as an asset rather than a currency. Okay. All right. We have a question, Chris, over to you. You have a question. 

 

QUESTION:

Yes. Can you hear me okay? Yeah. So say if someone, this is, this is kind of a, this must be a really difficult question, but anyway, say if someone has both a Canadian and UK passport, but has spent most of the last, most of the most of his adult life in New York city, he currently lives in Bali, but also travels throughout Southeast Asia. He gets paid currently on a contract by a US company, into a US bank account. Where would he declare tax residency? Where would he pay tax on that, on that income? 

 

DERREN JOSEPH:

Hmm. Wow. You know, that's, that's an interesting question. But rest assured that that case is not unique. I think many of us, you know, I have more than one situation as well, and many other people do. So it does become tricky at times. Now with Canada, the, if it is, you were at any point in time, resident in Canada, upon leaving, you need to register with the CRA Canada Revenue Agency that you are no longer tax resident in Canada with the UK. 

 

You need this. If you go to HMRC website, Her Majesty's revenue and customs, there's a statutory residence test. So you want to make sure that you are not tax resident in the UK by going through that test. And it's basically, they ask you a series of questions, because I know you, you know that in this scenario, that one is traveling around a bit. So to make sure that you are not resident in the UK and that your center of life is not in the UK and your center of life is not in Canada. So then you can strike those off the list. And you'll only be taxing Canada on Canadian source income. You only tax in the UK and UK source income. Now, if you were resident in the U S then maybe you have a green card, or maybe you're on a special visa, 

 

QUESTION:

It was just a temporary, a work visa. So there's no green card. No citizenship is not a resident in the US because of the rules around days. 

DERREN JOSEPH:

So then by virtue of, so let's assume that you can, first of all, you can be tax resident in more than one jurisdiction. I filed three or four tax, for myself every year in different places. So that is possible. So people who see it as not there, they're misunderstood. So, you know, you need to send sense, check. You need to check HMRC. And my UK taskers, and you need to check the CRA, am I a Canada tax resident? When you look at recent cases that have gone before the courts in Canada, Canada's position has become increasingly more aggressive than this thing. That if you cannot prove that you are a resident, you are a tax resident somewhere else, then we will tax you. So Canada is one to be, and it sounds from what you've said briefly, that maybe you, you have more connections to Canada than elsewhere. So Canada is one up, pay attention to if you have no visa, no, you know, if you're not physically in the US then the US it would not be one to worry about, but last but not least, and the most obvious one, given that whole thing about effective management is Indonesia. Dicky, you want comment in Indonesia?

 

DICKY DARMAWI:

Yeah. They had the important statement from their end: you have to prove that you are paying tax somewhere. Otherwise the tax office where you reside will catch you, right. Same in Indonesia, how you enter Indonesia, tourist visa, or working visa or investment visa, you are entering Indonesia on a working visa automatically. You will get a tax ID, right. And pay with pay. Then you have to report your income tax return. Okay. And yeah, the rest is almost the same now because it is worldwide, Indonesia will tax her worldwide income. 

 

DERREN JOSEPH:

 Yeah. And if it is that in your case that you've been in Indonesia for more than 183 days, and, you know, visa runs don't reset the clock. So chances are, you should be consulting with an Indonesian task professional because you may actually be tax resident in among other jurisdictions. We're saying probably not be US, not too sure about the UK. So I would kind of like shine a light on Canada and definitely, definitely Indonesia regarding Canada. If I haven't lived in Canada for more than 20 years, is it still like, I don't know if I've ever filed any kind of non-resident thing, but haven't lived there for 20 years. It's still possible that I could be exposed there. It's unlikely. It's unlikely if you've never, if you've never worked in Canada and 20 years is indeed a long time, but you know, you, you know, I, who knows your personal situation, you know, where's your family where your best friends will use social ties, even though you have not been in touch in, you know, inside of Canada, it's unlikely, but it's worth, you know, just, just checking it out. But to Dicky’s point, you must be residents somewhere. And I think the most obvious candidate so far is Indonesia assuming that you spend more than 183 days or, and, or entered on an investor visa, et cetera. So that's, that's helpful. Thanks. And any other questions? 

 

QUESTION 2:

Yeah. Go on. So basically it's a little more general probably for people that, you know, based on people, the digital nomads living in Bali. So is there any kind of more favorable kinds of structures than just being a tax resident here whereby we would be paying tax in Indonesia, but it is just structured in a way that's more favorable, so only income outside of Indonesia, but yeah, I'm no longer wanting to be taxed in Australia. So I'm just trying to figure out our best structure in Indonesia, essentially 

 

DERREN JOSEPH:

The key, this may be one for you. And I believe that in the run-up to the passing of the recent omnibus tax law, there was some belief that when the law passes that expats in Indonesia will be taxed on the local income only, is that a misunderstanding? What, what are your thoughts? And in relation to the question posed. 

 

DICKY DARMAWI:

Yeah. So, actually it's not totally 100% like that. Yeah. The message that all the batteries only pay income received source income from Indonesia. So it's not actually 100% correct. So there's a limitation, several limitations and several limitations include on the, I may say on occupation. So there are only 25 professions that can be used  for the benefits of the omnibus law, only 25. And the time test is only four years since you are entering Indonesia for years, since you are entering, if you enter an issue for the first time in 2006, then this is not applicable because 2006, then the four years will only do two until 2009, right. Six, seven, eight, nine. So it's not applicable. So if you have stayed long in Indonesia, or you have entered Indonesia before 2020. Yeah. So of the 25 professions, the majority is engineering, chemical, chemical. Yeah. So it's a very specific profession that the government thinks we'll make, we'll make a transfer of knowledge  to locals. Yeah. Other than that, then, like I say, Indonesia. So anything you get from overseas and you stay more than 183 days in Indonesia, then you have to pay tax in Indonesia on your worldwide income. 

 

DERREN JOSEPH:

So, and so in terms of your situation with the ATL, it's either one or the other, generally speaking, both Australia and Indonesia, obviously tax on your worldwide income. Right? So in terms of something being more tax efficient, given the way the tax laws work, honestly, I don't see it the, the way out of it really is to be not tax resident in Australia and not tax resident in Indonesia, but Indonesia, you know, tax efficiency, typically don't go hand in hand, not in the same. You don't get that in the same sentence. Like you do Singapore and taxes, Malaysian  taxes, Hong Kong taxes. Indonesia is just one of those jurisdictions that the tax office is pretty aggressive like Australia. Sorry about that. Does that answer your question, Josh? 

Yeah. More or less. Sounds like I'm just screwed. So I guess one other thing, where can I find this list of professions? Is it public? 

 

Yeah, it's public, but currently only in Bahasa, I can show you the screen and the screen. I made a translation. That's a quick one. Okay. 

 

Okay. Can you let me just screenshot this.

 

DERREN JOSEPH:

Yeah. The recording will be available on Facebook, you know, YouTube so don't worry. You can always find it. And on HTJ.tax I think Hannah typed down in the box below where I'll be available as well. So everything we say has been recorded so you can access it afterwards. That's not a problem. 

 

Okay. Thank you. No problem. Yeah. Okay. So back to the questions, let's see, Aaron? 

QUESTION 3:

Hi. I have a question. And my friend here has a question as well. You had mentioned earlier with no exceptions with the US. And from what I remember from quite a few years ago, I had some friends when they were outside of the U S for over 11 months, and they were filing that completely legally and then being exempt from the federal tax within the us. And so if I have a company here in Indonesia and I'm filing taxes, here are both of those going to Selfoss for being outside of that within the U S could you speak into that more? 

 

DERREN JOSEPH:

That's a good question. So on my slide, the first bullet point was FEIE. That stands for the foreign earned income exclusion. So for you, you're correct. If you are a lower income earner, then it is possible that all of your earned income can be sheltered from U S income taxes. Now it still needs to be reported, but it may not be taxable to the U S so at the moment, so for 2020, the foreign earned income exclusion threshold is $107,600. It moves every year with inflation, but that's where it is right now. So basically it means that if you qualify for the foreign earned income exclusion, and you earn 107 or less, then it will be reported, but no taxes will be due to the U S so, yes, you're correct. Now, as to the second part of view of your question, if you run a company or you have interest in a company outside, that's a whole different situation. To the extent that I remember, I mentioned that the US, the IRS, I mean, the US government in general, they're big on information. Like them, they pay more attention to information than they do to money. It seems weird. And I say that because of the penalties involved, if you have an interest in companies outside of the U S and you're not reporting that the penalties are pretty aggressive. So, there are certain rules, which we categorize as anti-deferral rules. So if the, if the company in Indonesia, for example, is controlled by us shareholders, then the certain rules around deemed distributions, actually Indonesia has those same rules as well. So if you have, so I know it's a common thing. People think, Hey, everybody sets up a company in Singapore and Indonesia went wrong, absolutely wrong, absolutely wrong. If you control a company in Singapore, from Indonesia, even though you don't take a distribution from it, you're deemed to have done so by Indonesia. And they want to tax it the same from the US, the US created that game. If you have a company, you control a company outside of the U S even though you don't take a distribution from it, and you're just letting money accumulate inside of it, the, the anti-deferral rules and a quite a few there's a bit of P-Funk rules. We have to sign a file 8621, the Subpart F rules. And most recently the GILTY rules that President Trump's tax cut and jobs act. All of those rules look for every imaginable loophole, where it says, I don't care whether you took a distribution or not, you're deemed to have done so, and you will pay taxes on it. So, just answer your question in two parts yesterday, there's a foreign earned income exclusion for those who will earn at the lowest side of the scale. So 107 and less, that'll be sheltered. Everything above is fair game, as far as U S taxes go. So there's that, that does protect you. It's probably the best benefit available to us exposed persons working outside of the U S but secondly, and perhaps more importantly is when you run a company that's incorporated outside of the U S that are really special rules that apply, and they are ruthlessly enforced by the IRS. So pay attention. Does that answer your question, sir?

 

Yes. Sure. 

QUESTION 4:

Hey, Derren, era's friend sitting next to him. So I have two questions. I am an EU citizen, and I have a key company here in Bali, a wonder, but I'm not really paying taxes here in Bali. I wonder if I can receive my money in a foreign account in Europe. So not in Indonesia and taxes here. 

 

DICKY DARMAWI:

Can you repeat the question please? 

 

Yes. So for example, I am receiving money into my European account but I am simply sending invoices to my clients and declaring my income and tax here in Indonesia. Is it possible? 

 

DICKY DARMAWI:

Very possible? 

 

Yeah. So I don't need to have an Indonesian bank account:

 

DICKY DARMAWI:

No, no. When you are filing the income tax return, you have to declare your asset, your worldwide asset. So you will be cleared of that bank account in Europe. Right. Okay. 

 

Speaker 7 (39m 38s): I guess so. Yeah. Yeah. Okay. Okay. 

 

DERREN JOSEPH:

Yeah, that, that's, that's an important point to raise as well. That, you know, when Dickie said that we know that for the U S for example, those who are U S exposed, the emphasis is on reporting what you do overseas. You need to report those foreign bank accounts. You need to report those foreign companies that you've invested in. You need to report those foreign gifts you have given or received. Indonesia is similar in that there's an asset declaration that forms part of the Indonesia tax return, where you are required to declare all the assets you have overseas as an Indonesian tax resident. So both in the US and Indonesia side people, or even in Europe, you know, people, Australia, people are gonna ask me, well, you know, how are they going to find out who is going to know the answer to that question is the exchange of information rules. So quietly in the background, again, like people very myopia me think about taxes. There are other international agreements that have been coming into force coming into play. If it is your US exposes something called FATCA, which is a foreign account tax compliance act. It started being phased in, in around 2011. So as a result of that, Indonesia is legally obligated to report activities of us exposed persons back to the U S so if you open an account with an Indonesian bank, and even if you do like, like me, I have more than one passport. So you go in and you show the other, the non US passport. If that bank officer has indicia, in their internal rules and in the law, that Indonesia is signed with the US even though that person's self identifies non-American if the bank officers suspect, if the bank officer suspects that  person is US exposed, they need to report them. 

 

And there'll be fine as a recalcitrant shareholder, or we're consultants, accountable, or sorry. So even if you self identify, otherwise you may still be reported. So that's on the side with the US, if it is that you are maybe exposed to another jurisdiction, you in Singaporean or European or whatever, the rules that apply come under the automatic exchange of information, otherwise known as CRS or the common reporting standard. So they are legally, Oh, okay. British Australian Kiwi. Okay. Right. They may not tell you, but they are legally required to report your account activity back to, to those jurisdictions. So with those exchanges of information, they create checks and balances in the system. So where's you think, you know, how is Indonesia going to know about my account in Singapore? That's easy, simple. Tell them, you know, pretty easy. I, they probably get the reports now as in, in the Indonesia tax office as to whether they act on it or not. That's another question, because sometimes they're on the fastest, but chances are they got it. Right. So again, with tax authorities, I believe that it's always best to approach them before they approach you. 

 

So my assets would be the amount of money I hauled in my European accounts, because I have multiple accounts. 

 

DICKY DARMAWI:

Yeah. 

 

Speaker 7:

Okay. And up until now, I have been paying taxes in my home country, but I'm going to leave my tax residents in my home country today. So Indonesia texts me also for the last few months where I've been paying taxes back home, but also have a key this year. 

 

DICKY DARMAWI:

What is the question? Sorry. Yeah. 

 

Speaker 7:

So up until now, I have been paying taxes in my home country, in Europe, and today I'm going to quit the tax residents in my home country. And I wonder if Indonesia would tax me for the last few months, because I already had the ketosis here in Texas somewhere else. 

DICKY DARMAWI:

You entered Indonesia?

 

Speaker 7I entered Indonesia last year in March. Over a year ago. 

DICKY DARMAWI:

Okay. Then, an Indonesian tax office can tax you. They found out any income is not reported. 

 

Speaker 7:

Huh? Okay. So let me have to pay double taxes then Indonesia and my home country. 

DICKY DARMAWI:

Yeah. Unless you can prove that you have paid taxes in your home country. 

 

Speaker 7:

Okay. Okay. No problem. I will have that. Okay. And I just had one short question about trust for advice. What's Indonesian Indonesia's relationship to transferwise? I heard that people are not allowed to transfer the money out from the Indonesian bank accounts to transfer vice-versa. Is this true? 

 

DICKY DARMAWI:

Yeah. Sorry. I didn't get it. You want to transfer to who?

 

DERREN JOSEPH:

Transferwise? It's like one of those, depending on how you look at it, it's a challenger bank or a FinTech online bank or some people see it as a money transfer agency, but some people see it as a bank, but it doesn't have a physical presence as an online bank. So I believe she's asking, is there like any regulation around Indonesian tax residents using Indonesian bank accounts or using TransferWise from Indonesia? Are you familiar with

 

DICKY DARMAWI:

 And there's no tax regulations. There's no tax regulation that regulates that idea. Yeah. 

 

DERREN JOSEPH:

Right. But they are relatively speaking in terms of banking. Indonesia is a strict banking jurisdiction. So typically, and correct me if I'm wrong Dicky. Typically if you're Indonesian tax resident and you're doing whatever you're doing here to win, to remit money from Indonesia outside, you need permission. Oh, am I correct in saying this Dicky?

 

DICKY DARMAWI:

Not actually a permission, but you still, you have to fill in a form. What is the purpose of the time for the invoice? You're just filling the form. And then if their careers are about this is money laundering, or anything else, then the worst thing is they will block your account. That's as long as you can provide the supporting documents and there's no way they cannot, they restrict you to send money. It's your money. Right? 

 

DERREN JOSEPH:

Right. So again, I guess the question may become, maybe we don't know the answer here, but the thing is that we know that Indonesia's ruse around foreign exchange and money leaving the country a pretty strict Ashley when he comes into the country is strict as well. But we know the rules are strict in terms of there's a lot of disclosure. And we say that vis-a-vis, let's say Singapore, where it's pretty much a, you can come and go. They don't seem to be bothered too much, but, and when you have these FinTech companies that may circumvent the reporting requirements, the, the authorities may have a problem with that. Sowe can't. So we don't know the answer here, but what we do know is that Indonesia is big into disclosure around movements in and out of the country. And the extent to which TransferWise or anyone else circumvents these rules around full disclosure, then the extent to which the authorities may become uncomfortable. So, 

 

Speaker 7: Okay. So it's best not to receive money directly in Indonesia basically. And just pay the taxes here. Okay. Thank you so much. 

 

DERREN JOSEPH:

All right. And we have a question in the chat box, sorry. From someone who's asking, I'm new to Indonesia, I'm not an expert. I'm reading it for those who are not looking at this on zoom so they can't see the question. I'm living in Bali, and I'm a non-resident in my home country, wherever that may be still submit a tax return, I guess, your home country, also submit a tax return each year to Indonesia. 

 

So a really good person, right. Fall in trying to follow the rules. Okay. That's good. How does my Indonesian employer pay tax without me getting an additional personal tax bill each year from Indonesia, not show why I'm paying the additional each year. Could the estimate be adjusted? I'm not sure what, what that, what you're saying. So you're not a resident in your home country, a tax resident in Indonesia, you're, you're submitting a return to both jurisdictions. You should get, you're not going to be taxed twice on the same income. Why? Because as the key mentioned earlier, Indonesia recognizes tax credits. So you get a tax credit. To the extent you can prove that you've paid taxes elsewhere on that money. So you get an offset. So you're not going to be taxed twice. So I'm not clear as to why you're why the Indonesian employer pays tax an additional personal tax bill each year from Indonesia. I'm not sure where that maybe you can clarify, if you would want to impute, you can speak and clarify. 

 

Otherwise you can just type it below whichever you feel comfortable with. Okay. In the meantime, let me check on the other platforms to see whether there are any questions. 

Speaker 8: I've got one more follow up if that's okay. So just on those 25 professions, I'm wondering if Vicki or yourself have any information on how you would actually need to provide proof of these professions. Like how, what kind of information will they ask for? And, and then as a secondary question, would they then say any with the territorial tax law? Would that then mean that even if the income earned outside of Indonesia was unrelated to that profession, would you then still not have to pay tax on that? So say if you've got investments elsewhere, but you are a chemical engineer, would you then have to pay tax on your investments outside of Indonesia? 

DICKY DARMAWI:Yeah. So that you are, so if you are entitled and you get approval from the tax office, then you only pay income tax in Indonesia source, you get from Indonesia. For four years, only for four years, only since you entered Indonesia for the first time. 

Speaker 8 :

And to Indonesia for the first time or from your first tax return, 

DICKY DARMAWI:

 When you enter Indonesia for the first time 

 

Speaker : As a child, that would, that would count. 

DICKY DARMAWI:

Yeah. Yeah. Obviously. So the first question, how they are going to assess this is the answer to your question And they're in nature for the first time. I'm getting the feedback sound here, Derren. 

 

DERREN JOSEPH:

Yeah. I'm checking. Some people were un-muted. So I just muted them just in case. So try again to speak. It should be okay now. 

 

DICKY DARMAWI:

 Yeah. Hello? Yeah. Yeah. So how to assess the occupations. So there is a requirement that the expat has to provide. The certifications that they are the professional,  certification of the profession and the manpower department we'll run through the certification, they will review it. And I think that's how they're going. 

 

DERREN JOSEPH:

So, yeah, I would imagine, I mean, Indonesia is known for being very, let's say bureaucratic in a sense that I don't expect it to be a quick process. You know, they're, you need to get the certificates validated and probably they need to be legalized back in the country of origin. And maybe with the, I, you know, just be an extreme, would they Indonesian embassy maybe, but back in the country of origin where they were issued. So if it's Australia, maybe because we've seen it for other documents that need to be recognized in Indonesia, they need, because everyone has a printer at home. Right. So they can print anything. They like it so  they want it to be legalized by the issuing jurisdiction, Australia, whatever. And then I'm just throwing in that. It could also include the ministry of foreign affairs or the Indonesian embassy in the, in the country of origin as well. So it basically be prepared for a long process and it's brand new. So, you know, everyone in Australia is out for the first time, so don't expect it to be smooth. But, you know, if, if you want to reach out to, if, if it is that you have a specific case, then feel free to reach out to Dickey. And maybe you guys could take that journey together and, and go through the bureaucracy. He can help you pilot yourself through the bureaucracy and figure it out, but it's brand new. So it's, unfortunately it probably won't be smooth until they figure it out. 

 

Speaker 8 :

Gotcha. Okay. Good to know. But that would then, yeah, you wouldn't have to pay tax on any investment income earned outside the country, from what I understand. Okay. And then, and then, yeah, just to clarify. So if you've ever been in Indonesia before 2020, you are not eligible, 

 

DICKY DARMAWI:

You eligible, but only for four years, since you first arrived in Indonesia. So you arrive on January 29,then four years, 2019 and then 2021 and 22. 

 

Speaker 8:

Okay.Cool. Thank you. 

DERREN JOSEPH:

Okay. So we have some more questions in the box below. So as an expat in Indonesia with an investor but without a PWP, the Indonesian tax number one has to declare the worldwide income in Indonesia. As soon as the state goes over 183 days, even if there's no business inside Indonesia, that will be correct. Once you become as DQ saying, you crossed the one in at one 83 day, there's a one 83 day rule in most countries in that area anyway, in Southeast Asia. 

So regardless of the visa that brought you into that country, one 83 days, you become tax rate. Now the question is the key. If you cross one 83 days, you become a tax resident, you want to do the right thing. Do you need to get a tax number? 

 

Okay. Easy. Yeah. You want to get a tax number? And I know from talking to your co-workers, Dicky and in the office in Bali, it becomes confusing, right? Because it's not a smooth process to get the tax number, because then they're thinking, well, you're not working here. You know, is it, is it easy or is it tricky? 

DICKY DARMAWI:

It's going to be easy if you want to pay tax. They were very welcome. One day process.

 

DERREN JOSEPH:

Good. Right. Scrolling down. Now, next question. If I qualify for the foreign exemption, but I have untaxed money from taking out investments in the US, do I not have to pay anything if I'm still okay? So this is a US tax question. So you qualify for the exemption, but the foreign income exclusion, but I have untaxed money, investment income. Do I still have to pay something? Okay. So the foreign earned income exclusion means just that it's for earned income. It's money. That's earned while you're outside of the us. So generally speaking, I know there are many ways of slicing and dicing income, but for the purposes of this discussion, let's assume that too, there's earned income. So you provided a good service for which you're being compensated. So there's that earned. You earn that income. And then let's say the rest is unearned income or passive income or investment income. They foreign earned income. Exclusion applies to earn income, not investment income. So if it is, you have invested in stocks, bonds, whatever it may be crypto, and you get a return on that investment. That is not that returned typically is not protected by the umbrella defined in income exclusion. It will be taxed as an earned income. So, that's that next question. If I qualify? Okay. It's the same question. Next question. Under that, following on from the prior question, my employer didn't pay enough. Oh, this is the one that we were confused about. Okay. So somebody who is filing a tax return outside of Indonesia and inside Indonesia. So my employer didn't pay enough PPH 21. I didn't Dick. Yeah. I guess you know where that is? I think they should have adjusted last year. So there was no tax bill leftover the Kea comment on that. 

DICKY DARMAWI:

Yeah. Just a wonder how, okay. The employer will withhold the income tax article 21 on your salary, on your salary in Indonesia. So they only make calculations that will hold the income tax based on your salary. So at the end of the year, if you have other income other than your salary and maybe your income in Indonesia or coming from overseas, then you should then pay an additional tax for sure. Unless if you're only receiving income from the salary of Indonesian companies, then it's, it should be, there is no additional payment of tax at the end of the year. If there is then something wrong with the employer. 

 

DERREN JOSEPH:

 Okay. Hopefully that answered the question. We're now at the top of the hour, he says, yes, it does. Thank you key. So thank you for joining us. You've been a great audience. If you want to reach out to us, Hannah taped our contact details in the chat box below. For those who are watching it on Facebook, you can reach out to us via our Facebook page. Just just message the page and someone on the backend will pick it up and get back to you. 

 

So thank you for joining us. The video has been recorded and it will be available on, Facebook, on YouTube, whatever our social media may be. Or you can just check htj.tax, have a good evening, and we'll see you next time. Bye-bye 

 

VOICE OVER:

 

Here are four ways we can help you. 

 

Number 1. Sign-up for a free webinar on US Expat Taxes and International Entrepreneur Taxes at  www.HTJ.tax

Number 2.  Stream premium education or videos at www.HTJ.tax

Number 3. Contact us for Tax optimization consult via zoom 

Number 4.  High Net Worth. We can quote for doing your US International taxes returns.

 

Our books and upcoming events are available at HTJ.tax. Please subscribe like, share and comment down below or email us at help@htj.tax to engage us to advice on international tax or business matters.

 

[ HTJ Podcast ] (WEBINAR) U.S./France Taxes for International Entrepreneurs & Expats - MARCH 16 2021

[ HTJ Podcast ] (WEBINAR) U.S./France Taxes for International Entrepreneurs & Expats - MARCH 16 2021

March 18, 2021
Everything You Need to Know About U.S. / France Taxes for International Entrepreneurs & Expats.

About this Event

France is a very popular spot for tourists, retirees, as well as expatriates.

Americans who choose to live within France are subject to French taxation in addition to their U.S. expat tax filing obligations.

It is clearly important for U.S. expats to understand French taxes so they can effectively plan.

In this webinar, we will understand the following:

- Taxes Treaty Between the U.S. and France.

- FATCA Agreement with France.

- Interest income or dividends to report from France.

- Treatment of companies in both France and the U.S.

Taxes can be intimidating and confusing. Fortunately, there are experts to help demystify the constantly evolving tax landscape.

Join this discussion of the U.S. and France's critical tax rules and learn how you can legally minimize your tax burden internationally.

 

Our Speakers:

 

Herve Beloeuvre

CEO, Chartered Accountant of FIDUCIAIRE BELOEUVRE et ASSOCIES

 

Hervé Beloeuvre is the chartered accountant of Fiduciaire Beloeuvre et Associés.

 

He graduated from HEC and holds a University Diploma in Tax Management from the University of Burgundy.

 

He first worked as an organizational consultant. He has helped large companies, mostly industrial, to structure their teams and their applications in the fields of general accounting, cost accounting and management control.

 

Hervé Beloeuvre then joined the Havas Voyages American Express group as Organization Director, then as Financial Director of the subsidiary in charge of event travel.

 

He then pursued a career as financial director, notably at the Parc du Futuroscope.

 

He has been registered with the Order of Chartered Accountants since 2010.

 

In addition, Hervé Beloeuvre has chosen to invest in conflict resolution in the professional world, by practicing mediation. Mediation is an efficient and inexpensive way to resolve conflicts within and between companies, based on the identification of the needs of each party. After training at the Paris Mediation and Arbitration Center , Hervé Beloeuvre worked as a mediator and arbitrator at the Poitiers Mediation Center and in the Conciliation / Arbitration Commission of the Order of Chartered Accountants.

An important part of Fiduciaire Beloeuvre et Associés practice are English-speaking customers which he handles, whatever their country of origin (Australia, Ireland, New Zealand, France etc.), and whatever their location in France.

 

Derren Joseph

International Tax for Private Clients, Global Mobility, & Cross-Border Investors (US, Europe, & SE Asia)

Derren is an EA (Enrolled Agent - license # 00100858-EA) who has been admitted to practice before the IRS and is an associate member of the American Institute of CPAs (#7920958). He is the author of "Taxes for International Entrepreneurs and Expats: Proven Principles for Legally Reducing Taxes” (https://www.amazon.com/author/derrenjoseph).

A Partner in Hayden T Joseph & Co. (DBA "Advanced American Tax") also a member of the International Tax Team at Moores Rowland Asia Pacific, with over 30 offices in 12 Asian countries.

He has 2 Masters degrees in Economics. A Certified Diploma from ACCA (Association of Chartered Certified Accountants in the UK), done Executive Education with Columbia Business School. He has completed Advanced Tax coursework at both New York University and the University of London.

Derren enjoys writing and giving seminars.

He had his views published in the Singapore Business Review, Forbes Asia, the American Chamber of Commerce in Indonesia, the International Business Structuring Association (in the UK), Offshore Alert.

He also has given seminars on tax issues in the U.S., the U.K., Singapore, Indonesia, Malaysia, Vietnam, The Philippines, Portugal, Hong Kong, and the Caribbean.

NOTES:

1. Link for this event: https://www.facebook.com/htj.tax/live/

 

2. Submit questions in advance - Hanna@AdvancedAmericanTax.com

 

3. Those WITHOUT Facebook?

Zoom link will be provided 24 hours in advance via an eventbrite message so ensure that you sign up via Eventbrite to get the message.  

If you don't get the Zoom link 24 hours before the event via eventbrite?  

Email:  Hanna@AdvancedAmericanTax.com

 

4. It is also helpful if you use the Eventbrite calendar function to ensure that the event is automatically saved to the calendar on your device in your local time.  Many times people miss the event because they misunderstood the time zones.  Allow eventbrite to make it easy for you. Leverage technology. Please don't contact us to confirm the time."

 

5.  For those joining us on Zoom?

"Pictures or videos will be taken during the event to be posted on social media. If you do not wish to have your image used.  Keep your camera off."

 
 

VOICE OVER:

This podcast channel it's about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax

DERREN JOSEPH:

Thank you for joining us this evening. We appreciate it. My name is Derren Joseph. I'm here with my colleague Herve and Hannah. And we're going to talk about the US/France tax. So how we'll approach it is pretty simple because I know you guys have lots of questions. You emailed us a lot, a lot of questions. So, I'll talk for just like really quickly 15 minutes on US tax principles. Herve going to talk for 15, 20 minutes as well. And then we jumped straight into the Q and A. We will go through the questions that were pre-submitted first and then time allowing for the rest of the hour. Then we'll take questions from you guys. 

If you have questions in the chat box, if you're looking at us from zoom, the chat box below, you can type your questions there. If you're on Facebook or LinkedIn, you can take your questions under the live stream. And without further ado, I will share my screen. All right, great. So, as I mentioned, my name is Derren and I run a semi-autonomous team doing in US international tax within a larger practice called Moores Roland. Moores Rowland. We have 30 offices in 15 countries. I’m actually based in Singapore; I've been based in Singapore for coming on eight years. 

This is who I am. And because I am US quantified; I am required to say that nothing we share here today should be construed as advice. Please treat it as an education piece. What we hope to do is equip you with the general principles that you would need to engage with your own chosen tax professional. But for those who thinking, I'm going to come here with pen and paper, and I'm going to figure out how to do everything on my own. I'm going to be an expert at the end of one hour, impossible, impossible. And as per the terms of my license, nothing I say here, say here today should be construed as encouraging you to pay less than your fair share of tax in any jurisdiction in which you are exposed. And please bear in mind that we are recording this and it'll be available on our website afterwards. So, if you do not want your image to be captured, please switch off your camera. 

Disclaimer. So, for those who don't think that the long arms of the IRS reach outside of the US, I always use these two guys as a case study. One of them used to be my not friend, but one of my connections on Facebook, he no longer is because after he was detained by the US government and did some time in jail, he never came back onto Facebook, but we can talk about it if it's of interest. 

But the point is that the IRS is not afraid to reach out outside of the continental US, if there are tax issues. And I was just jumping straight into it, as we all know, the United States practices, citizenship-based taxation. Now most OACD countries, including France taxes on your worldwide income, but what makes the US, I think unique is that even though you are no longer in the US, then you're still required to file and pay taxes. No matter how long you stay out of the US you're still required to file taxes. And we drill down into that later on as well. 

So, no matter how long, and there's so many misunderstandings around this, like if I earn less than a foreign earned income, exclusion of 107,000, it is this year, then I don't need to file and pay taxes. That's all wrong. We will take a deeper dive into later on. People ask me the question all the time. While you know, I'm on the side of the US I'm living outside of the US, how is the IRS going to know what I'm doing? Come on. How are they going to figure it out? This is the answer, FATCA. So, FATCA which is contrary to some popular misconceptions online. It is a framework for information exchange. So, what it does, it has empowered the US government to sign a treaty with France and France has now obligated all its domestic financial institutions to go through their account holders and identify anyone that they deem or their suspect of being US and report them accordingly. 

Now, this is important and important point because I'm sure many of you just like me. You have more than one passport. So, you went up into financial institution, brokerage house, whatever they ask you, what is your nationality? You show them the other passport, whatever that is by law, they're required to still look for certain indicators that you may be US exposed. And if you deny it, then by law supposed to highlight you as a recalcitrant account holder, that's a special designation. They don't have to tell you that, just flag you and they send your details to the IRS. Anyway, because from their point of view is better to report someone who is not than to miss someone because then they get, if they miss anyone who may have been us exposed, no one wants a repeat of what happened in Switzerland. 

So, their default is if in doubt, report them. So please bear that in mind. That's how they find out in terms of a US person. I think everybody gets that if you're a us citizen or a green card holder, but what some people miss is under section 7701, there's a category for substantial presence, which really was a big deal. In 2020, there are many people who are friends, citizens. They have, they're not US citizens. They're not green card holders, but because of the travel disruptions, they were unable to return. They weren't able to leave the US and they spend way more time than they intended to stay 

Yeah. And not just French nationals. People from all over the world were unable to leave the US and they may have inadvertently triggered substantial presence. So, something to keep in mind, accidental Americans. Again, this is something that we, you know, I think it was a thing ever since they, after the aftermath of the second world war, where you've had us service men and, and Europe for the first time. So, if you have one us parent and one lesser French parent, and you have a child from that union and this certain circumstance, that that child is a us citizen that is, regardless of whether you registered the birth with the US embassy, you didn't get a socially, didn't get a passport. It doesn't matter. That is a us person who will be subject to taxes later on. And then we can talk about the section 6013G election. If it's of interest under certain circumstances, you may want to elect that your friend's spouse, your non-US spouse be treated as American on your tax returns. It's a strategic move. And some people use it to their advantage, not just from tax planning, it could work for you. But if you intend at some point to get a green card, it's something to consider. So, we can talk about that later on, if there is an interest. So, responsibilities of US persons, now that we have defined who they are. 

Well, I think it goes without saying, found pay taxes, but what people don't get is that when it comes to international tax, the IRS is apparently less concerned with getting money in the door and more concerned with data. Data is what they really want to get. So, they want to know, you know, where's your money, where's your money being stored? Who are you receiving money from, who you gifting money to? And the reason why I say that is their real focus is clever given the penalties. So, the civil and criminal penalties that are levied for not disclosing information, we are the proportion would, you know, the low interest rates that you get, you have to deal with. 

If you didn't pay your taxes on time, it is way out of proportion. So that it's clear what the IRS is focuses on information. And we'll get into a bit further on probably in the next slide, this slide. So, this is an acronym that I've created for those who are US exposed and live outside of the US. Just a really cool way. I think of remembering what your responsibilities are. So do your BEST. You must do your best. B- bank accounts. And when I say bank accounts, I don't just mean regular bank accounts, but all financial accounts, some of which may be an insurance policy, some of which may be infringed pensions. It may be brokerage accounts. You may have shares in French companies, any sort of financial asset. The IRS wants to know about that. That is way important. Remember I said information, right? E- estimated taxes will obviously, if you were in the US and you got paid on a W2, then there's withholding, right? So, the IRS is getting them money along the way. If you outside of the US that's not going to happen, right? So, the IRS does not like to wait until the following year to then get like April 15th of 2021 to get taxes due from earnings in 2020. They want to get it along the way. So, you need to work with your tax team or with your software or whatever, to figure out what your estimated tax liability would be to the U S in advance and make them an at least four quarterly installments failure to do that would lead to fill out a form 2210, which is where you calculate your underpayment penalties and the penalties, depending on how much you earn so, it really depends.

 State tax issues. Do your best status was state 50 different States, 50 different rules understand that most States are domiciles States. What does that mean? It means that even though you learn, you've been living in France for a considerable period of time, you must still be taxable back in your home state, depending on what the situation is. So, it's worth having a conversation with someone to make sure that, you know, you're not incurring or accruing any liabilities there. And, and some people say, well, I live in France. I don't care. We've had many cases where people, at some point in time, you go back home and then you don't know that they've stayed franchise tax boards. 

They talk to the federal government in there, so they know exactly what's going on with you. And when you do come back, they have a nice tall bill waiting for you. And we've had to deal with that for many clients. So please make sure that you're properly severed connections with States. And it's been going to become an even bigger issue for those who were connected to California or any of the other States that may be planning a wealth tax. So again, just keep that in mind, T stands for transfer taxes. Again, this an area that's often not well understood because all the other taxes you can kind of look at the inland revenue tax code. 

You can look at the code and see, you know, what is what, but when it comes to transfer taxes, that is relying on the concept of domicile. And it, we rely more on case law and looking at the way the courts interpret it as opposed to tax code. So there, the point is that you're living outside of the US, you get in relationships or whatever, and you receive gifts and you give gifts understand to non- US spouses, girlfriends, boyfriends, whatever the case may be. There may be tax implications to that in terms of reporting. Remember we said, the IRS has all about data. Data's new gold, right? 

They want data. They want to know what you're doing with the funds coming and going and failure to report that may lead to a penalty that could be as much as 80% of the unreported gift. And then of course that, sorry, I don't need to be morbid, but you know, it's a thing we need to think about, which is your state taxes. And I say that because a part of our practice is dealing with non us widows, non us widowers, who have to untangle a web of unfinished business with their former, you know, the recently departed US spouses. So, sometimes planning can go a long way to taking care of your family and the unfortunate, sad event that you do part on. So, it's morbid, but we have to mention it anyway. 

I'm going to touch on stimulus payments because of course it's a thing right now. So, I think most people would be familiar with this slide and who qualifies for a stimulus payment. There've been two rounds. Well, there were two rounds last year, one around summertime and the other one late December. And there's a third round as of last weekend, I think last weekend was signed. So, the most recent round is there. The third round is the most generous, but for those who did not get anything and the first two rounds, it's, you know, there's still hope there's something called a recovery rebate credit. 

What does that mean? It's a refundable credit. So, if it is when you're doing your taxes for 2020, and you have a tax liability, it will be reduced by the amount of the best rebate credit. And if you are owed a refund, it will be increased by the amount of, of the credit. Most of, many of our clients are higher income earners. So, they like the email. Then WhatsApp me anytime there's something to do with a stimulus payment, like where's my money when they're the most common reasons for not getting any of the payments is, you're a victim of your own success. You earn too much. So please pay attention to the phase outs. When you earn above a certain income level, the amount you get gradually decreases until it completely disappears. 

The third one is we mentioned it is quite generous, and it does include partners with potentially and things like that. For those who are married to, to non- US nationals, please bear in mind that the IRS is in a complete mess right now. And I mean, it was always a difficult agency to deal with, but with COVID-19 and the shutdowns last year, and when they had to reopen it was with social distancing, whatever in the offices. The bottom line is that if have people filing returns, there is a backlog, things got lost. 

Things are not being processed. We've had no end of complaints from our clients. So, if you've had issues with 2019, you're not alone, a lot of people have. So, the key takeaway I want you guys to, you know, to walk away with is <inaudible>. You want to try to e-file as much as possible that's when you know, it's going to get processed. Chances are very low, that it gets lost or miss or misplaced, or whatever happens in the IRS. So please eat out, make sure your, your chosen tax team County file your returns. And if they are not Americans themselves by law, they cannot, the IRS won't give them a license. So, you're looking for someone who is a US person as well. Then the IRS will give them permission to e-file returns for clients and ask, if you do have a spouse that is not American check to see whether their software can still file a joint returns or married filing separately returns, where a spouse does not have an item. So that, that just helps you To, you know, to their credit. Let's give credit where credit is due. The IRS's website is pretty comprehensive. So please, if you have any questions about, about the similar payments, you know, well thought out and it explains everything. If you want to change your details, you can also do that to some extent online. 

I mentioned early in one of the earliest slides of there've been so much misunderstanding about filing thresholds. This it changes regularly. So, it's always worth paying attention. If you have a look at this, you see the, the threshold for filing a tax return. If you file married, filing separately is $5. So, if you made more than $5 in 2020, I'll return this to you. So, there's so much misunderstanding that we see, and we hear in some of the online Forums, of course, within the last 40 to 72 hours, they've been so much, you know, media storm around president Biden's tax plan, but this is all news. While the campaign was going on last year, his campaign team did release a comprehensive tax plan. It's probably one of the more comprehensive, you know, our tax professionals, not just me, but many of us have ever seen. So, nothing has come as a surprise because we knew this since last year. But remember, this is just his proposal. Once it gets to Congress, there'll be negotiations in both the Senate and the house. So, this is just like the starting position. 

I think in terms of, as I mentioned, it's pretty comprehensive. It'll take hours to go through it, but just to call out some of the key things for those who reside outside of the US like we do the cap on social security is proposed to be removed, which means if you make more than 400K, you're going to be facing some extra taxes. So, these are designed to target whom they believe to be the higher income earners. For those who have corporate structures, entrepreneurs, business owners, who may be listening, maybe watching this, the corporate tax rate is proposed to jump from 21 to 28. So that will just not only affect those with a US structure, but for those who may be impacted by GILTY, which is a global intangible, low tax income tax on your foreign structures, GILTY is calculated as a percentage of the US corporate income tax. So, you may, if it happens, you may see some movement on that side as well. The capital gains rate is proposed to be increased for those making more than a million. And as the step-up in basis, for those who engage in more advanced tax planning, it's going to be revised as well. So, these are just some of the things that sort of look at, or I also want to call out the last one where the estate and gift tax exemption under president Trump, it was pushed up to 11 million president Biden proposes to bring it all the way back down to three, really, really expensive than that. So, with that in mind, I will hit the pause button and I turn it over to my colleague who will talk about things from the France point of view over to you. 

HERVE BELOEUVRE:

So, yeah, I'm Herve Beloeuvre. I am a chartered accountant in the Paris area. They have a practice in which we're accustomed to dealing with English speaking clients who serve clients from Australia, the US, New Zealand and various countries around the world. These countries are clients can be residents in France or non-residents, and we serve them for their interest in France. So, first I wanted to tell you about starting a business in France. There are a world bank issues, a study every year, it is called doing business. I am contributed to this topic. It studies in which countries, it is easier to do some business, and it compares one and 90 countries for the items starting in business funds is considered as a, as a, as a rank of 37, which is not so good to my sense. And the quotation is 93. So, we have done a lot of efforts to, to make it easier, to set up a, an activity in France in usually to get an activity to you, to declare an activity you get in France, what we call a number, which is the directorial fall, fall economic activities in France. And in fact, when you declare your company or activity you all to entrepreneur, it takes less than a week to, to get this number, which will be useful for a lot of things. And in fact, those all activities opened to US citizens. We don't make any difference. And as a US citizen, you can have a company, you can manage it, you can do whatever you want. If you want to set up a company, you will have a, the activity you use, the main questions you will have to face is do I wish to be independent? Do I want to set up a company? Will I be taxed under corporate tax or the personal income tax will by my activity be professional? Would it be non-professional and what would you be? My social status? Who lie be self-employed or employed? I would be on my pays lip. Who's an employer? It will change a lot of, quite a lot of things. First, I wanted to tell you about is a cooperate income tax. So, in this corporate tax, the taxpayer in the is a company. It is based on the knelt with net result. So, in fact, in all companies, you need accounting books and you can, then there are some tax credits. The main tax credits are given. When you have innovated, an innovative activity, if you do research or whatever is then you can have really huge tax credits to go forward. And, and, and yes, any innovating activity in France, there are some other tax credits, but which would be difficult to use is when you set up productivity in some poor, poor cities of the country, the new you could get some advantages, the basic rate for corporate tax, it is a 15% up to a natural result of 38,120 euros a year. 

So, for 12 months, and then if you are over this net result, the taxation will be on 26 dot five. That is the rate for 20 2021. There is a, there has been a move, a visitor who's the last years to decrease this rate. The trend is announced to the objective is to go to 25%. This objective is announced for 2022. I'm not sure that I can assure you that in 2022, this Z, this rate won't move. Never forget if you set up a company which is tax standard, corporate income tax is that after taxation, the money stays into the company. So, to give it to give the cash to shareholders, you must distribute dividends. And those dividends will be taxed at a level of 30% for the shareholders. The it's quite a difference with when you set up a company and the personal income tax, because then there's a personal income tax. You, you may be taxed a bit more wildly different rates, but you get the money directly without a distributing dividend. Okay? 

The is the main tax in France that concerns most people is a personal income tax. The habit in fancy too says that our taxes always change. People just forget that these taxes there's a rule for this tax were established in 1917. It is in fact, quite an old tax and the basic rules for personal income tax are in fact, very stable. So, it is paid by physical persons. Only. It is imposed on people who have their tax residents in France. 

There is no relation with nationality. There is no mention of national, the old people. I think the tax rate in France must declare their must produce a tax return for corporate, for a personal income tax non-resident can be submitted to this tax in check, especially if they have some real estate revenues in France. And so, yes, I've said there was no consideration of nationality. The stakes could be considered a very extensive, but in fact, only 40% of the population will pay for it. It is declared by everyone, but only 40% of people paid. It is a progressive tax. The rate to go from zero to 45%, there are some steps that 11%, 30%, 41%. But in fact, it is a yes, a progressive tax as a first, the first part of your revenues is tax to zeros. And the upper is an, an upper part will be taxed at 11 and then 30, et cetera. For high revenues, there is a temporary contribution of a three or 4% over this personal income tax. It is temporary. So, we don't know when it will, when it will end. It is temporary range, the French way. It can last very, very long till they can still, the tax office doesn't need any money. More. It is about 10 years old. I think it was, it was established after the crisis of 2008. What is very different, important for personal return cash? It is, it is determined by household. It is not determined by person. So, what is a household? It is two, let's say adults, max, who have a legal link to be in the same household, you must be married, or you must be a United with a PAX, which is a, a civil contract between adults. 

Next is a marriage. Of course, it's two adults can be of the same gender in the household. You will add a dependent child. So, they need to be dependent of need to be children of one parent. In fact, only the, the children and they're 18 automatically members of this household. If your children are between 18 and 25 years old, they must say, I want to be in the household with my parents. And when they are between 21 and 25 years old, they must be students. In fact, the children don't need to have the same address as their parents. So, for example, you can be a resident in France and have a youth child being students in the USA and will be member of your household. What is important about it also is that all the revenues inside the household will be fertilized. So, I would say the revenues of the parents and the revenues of the children ISER. So, and there was no deduction inside. If I take the example of someone having a child, being a student in the U S issue, send him some money, some pension, it is not deductible because it is inside the household. And so, I have made a chart on the bottom, right? That choose a different for the same revenue on the, on the orange line. It is a tax paid by a single person and for the same revenue on the blue line, it is the tax paid by. Let's say a family with two parents enter children. So, it has really, really an impact on a and the tax is paid. And it is important. For example, to make simulations, if you have children 18 to choose whether they are to be included or not in the household and the decision to include them or not can be changed every year. 

The basic rule, you know, in all taxes in fast to define what is a taxable revenue is to say it is a difference between the gross revenues, less expenses to get it or keep it. So, the problem here is to say, if depending on the different sources, possible sources of revenues, where does information come from? If you have wages of pension, the sources of information will be given by the employer as a social, as a pay in pension. If you have investment coming, if your capital gains, in most cases, the bank will give the information. If you have income from real property, you will need a simplified accounting. If you have business profits, in fact, commercial profits, if you have non-commercial profits, that is for example, for, for doctors, for architects or whatever's that's, non-commercial profit. If you have agriculture profits in all these cases, you need accounting books. So, accounting books, you may need a chartered accountant. It's a, it's a cost. So, if you have only a low activity, you have a simple, some ways to declare Aziz revenues in a simpler way than maintaining a can take books. That's what we call the micro systems. So, you can be a micro entrepreneur. You can have some Michael from CA revenues for Merlin income, et cetera, is there exists. The basic rule for these micro systems is you will leak. Claire only is a, the gross revenue is your, your net income and your turnover. And with that will be a percentage of expenses will be automatically applied. The percentage depends on the activity can rise from 30% to 71%. It is simpler, but I must warn you that administrative simplification doesn't mean that it is a tax optimization, because for example, it doesn't mean that you will pay less taxes. In fact, with those micro systems, you will never have, for example, a deficit, as soon as you cashing one, a Euro, then you will pay some taxes. Even those arrays, a discount rate, maybe with the canting books, depending on your situation, maybe you can declare a deficit or a very limited revenue. So, simplification is not always a tax optimization. Okay. On what about the tax credits about? So, this personal income tax is quite a lot tax credits. Most of them are related to real estate, but one which is very accessible to everyone is in fact, employing someone at home, the most common tax credit. In fact, you can get a tax credit of 50% of the, of the cost, and you can employ someone a, a term by directly employing is a person, or you can, I would say by hours by services to a licensed company, and this will be declared as a service at home. There is quite a very variety of the services that are available for this tax credit. The most common are escaping or guarding the children. But the assistance who file a tax return from a charter, they can't be considered as a service at home. And so, you can get as a tax rate, it was this kind of service, Just a global view of the taxation of a US revenue. 

So firstly, there is a tax treaty that will say for each type of revenue, if the revenues are to be taxed in the U S or in France, depending whereas arise, the most common rule is that for real estate, it is always taxed in the country. Whereas a real estate is real estate is very practical for a tax office because it doesn't move. So, all, all tax office in the world wants to tax wants to take the real estate of that country for some cases. Your revenues, even in the US are to be declared in France and is that will be a, a calculated tax credit to avoid taxation. The tax rate will represent as a French or the American taxation. And so, in fact, you can't do without a computer quite complicated. I wanted to give you drills to worry about, I would say a hidden tax, which is contribution. So, generally it is infected tax to find them the social security system. It is quite heat. And you don't see if you get salaries. You, don't say it because it is in the concessional contributions. If you get some dividends, communication is made around the rate with a rate of 30%. And, but in this rate of 30%, more than the AF 17 5%, 20% 17, that 20% are in fact, a CSG to finance a social security system. And if you get, for example, some real estate driven using false, you will have your tax notice for personal income tax plus a tax notice for, for CAG. 

And when do I have spoken for example of rates for the, for the personal income tax going from zero to 45%, this was before CJ. So even though you pay zero for personal and income tax, you may pay 17 dot 5% of taxes just for your real estate revenues, if you have some, okay, so it is not to be ignored. We have a wealth tax in France, so it is good <inaudible> which meant. So, tax on really state wealth. So formerly it was a tax on, on the complete wealth of a person from 2017. It has turned into a tax only on real estate. It is based on the market value of your real estate. And you must include the values of companies where real estate is more than 50% of the assets. Okay. For the, for the value of the real estate to sets the tax begins, it is applicable only if your real estate is worth more than one, that 3 million years, what the extent of the real estate considered for the residents in fonts. It is a real estate worldwide. Okay. And for non-residents, it is a real estate in France. You’re in fact, your sets will be this managed by the loans you can have on these assets. It is the, as I said before, the world is that a, you make the difference between the gross revenue and the gross capital and the expenses you need to get it. So, the loans will diminish your, your, your assets. The rates are from a zero dot 5% to 1.5 person, but that's every year, 1.5% is a, is when your wealth, your real estate wealth is a greater than 10 million euros. So, what we say usually is we say the usual rate is a 1%. And so, if you have a wealth tax paid in the USA, it can come, it can be considered as a tax credit. The rule is always to avoid double taxation between France and the U S What, what nice came out. 

I wanted to tell you about is the impact rate scheme for if you have a company and you want to recruit a manager coming from abroad, there is a special scheme for that. So the condition is that there is a person you, you target is as not add his residency in France for the last, for the last five years, but in your employment, contractually identified, I would say, as a salary corresponding to the competence of the people and the usual rate paid for this type of competence and work, and you can identify the, an impact creation, price premium, something that you will pay to the work so that he comes to France and is this premium will not be taxed for ages and as a personal income tax rules. And for five years, I saying, yes, we got so far years considering there was a wealth well tax and real estate. So, we use for non-residents will apply. So only the real estate in France will be considered for this, for this tax. I finished on this point, about French taxes. I wanted only to point the most important items. And now I think give back the microphone for the Q and A

DERREN JOSEPH:

Thank you very, very much for that overview. So now we get to the fun part, right? So, Q and A, again, apologies, but I'm going to start, we had like over 200 RSVPs and we had at least a hundred questions. So, we couldn't do everyone. I apologize in advance. The first one we got is and ask your own suite is good estate planning tool in France. However, it is unclear how, and <inaudible> in euros is you are treated by the IRS. You'll use, please. We had a long conversation, Herve and I about this one, the thing is that <inaudible> is not a standard product, so you can't make any sweeping statements around it. Although we have seen people do it in online forums, but you know, these people aren't qualified. They can say what they like. So, for us as qualified professionals, we need to see the contract. We need to understand what the product, how its product is constructed. And that is to see whether I know where people have a problem. This is where some of these investment or pension or insurance products are treated as PFIC from a US perspective. So, for those who are not familiar, just quickly touch on what a PFIC is, a passive foreign investment company. And it is a regime that was created in the 1980s because US domestic financial institutions were complaining that Americans who invested abroad got a tax advantage, and some of the products that they were investing in an unfair advantage. So, to try not just to equalize the playing field, but basically to penalize you, and I'm going to be honest, right? It is to penalize us exposed persons who invest in certain financial products outside of the U S so yes, the, the Pacific regime does apply in some circumstances to the us, your own city. So again, you need to speak with your consulting team and they will interpret it, and they'll be able to defend the interpretation. Each one is, could be slightly nuanced and different. Next question for you, the U S stimulus payments. We talk, we spoke about three rounds of payments. How are they viewed from a French tax perspective? 

HERVE BELOEUVRE:

This stimulus payment? In fact, I didn't know this came. So, I, I don't know so much. Yeah. 

DERREN JOSEPH:

When we discussed it early on, and we went into the mechanics of it, you mentioned that all income will be reportable and therefore it will be taxable potentially.

HERVE BELOEUVRE:

Yes. But in fact, it is a stimulus payment is what you got in the last year. You took et cetera. And I'm not. 

DERREN JOSEPH:

So, there were two stimulus payments in 2020, and they're so far, there's been one in 2021 

HERVE BELOEUVRE:

And are accessible to people not being resident in the US absolutely. 

DERREN JOSEPH:

Wherever they reside. Yeah. 

HERVE BELOEUVRE:

We will cut the bike reference. Don't declare am I, I don't see how the tax office in France <inaudible> I don’t know how the tax office in France, but in fact is a new what controlling cost. So, the one comfort is a one come for you to you for 5,000 euros. I don't think, I don't think so. Or the penalty would be 10%, just like 500 years I'm at work and serve your clients. 

DERREN JOSEPH:

Understood. So, it depends on your risk, your risk tolerance. Okay. Gotcha. So next question. As us, ex-pats retired living in living in France. So therefore, French tax residents, my spouse and I are subject to French gift tax for any cash gifts provided to non-family members. We have no kids, blah, blah, blah. So basically, gifts to non-French residents as they await that in a tax efficient way 

HERVE BELOEUVRE:

In a French system one considers a nationality. If you give a, some money to someone who is not of your family, it will be taxed under 60%. There are some small allowances, but in fact, they are linked to with the habit. If you a lot, you can give a lot. If you earn very small, you must send in fact, put your pattern money in danger. So, do what you wish be reasonable. I would say only under that, in this question, there was a second part of the question was, was very interesting because it's a bar. 

Remember as a, as a person was saying, I want to give to some us charities I live in, but I, what I want to give to us charities, what is important to know is that you can give freely to a charity, but this charity must be declared in fast. So, my, I have had the case with some, an Australian case. They, the Australian as the Australian week in France at given to the salvation army in Australia, salvation army is in Australia, is not a charity. And there's a French low, so gifts to the salvation army international. And that is then it can be a French charity or an international charity. And so there will be no tax, but if you give to the US salvation armies, and it is a 60% tax, 

DERREN JOSEPH:

Right, which again, it was similar to the U S in the S for it to be deductible in the US it needs to be US qualified charity, even though it's recognized in another jurisdiction, it must be in the US. So, I guess it's pretty consistent.

Next one, blah, blah, blah. Do you all, both American and French nationality. And I'm a 50% owner of a French company in SAS since 2018. Okay. So, they're providing a service and they're doing it online. So, there's no tangible, there's no physical product. So, what they're asking about, and we discussed this earlier, the VAT, if it is that they, the, the com they using an entity that's outside of France, do they have to use, do they have to add VAT to that? 

Yeah. 

HERVE BELOEUVRE:

In fact, under the us French tax convention, you, if you have, you must define where you have a stable establishment. And then in this country where you have established establishment, you must make accounting books for this activity in this country. So, the, the problem is to determine whether you have a fixed, fixed activity, affects the establishment in France or not. If you have a fixed establishment in France and you sell a service to the USA, then you will have to put server. You have to protect each and the VAT 20%, because in fact, the service is produced in France. 

DERREN JOSEPH:

Okay. And that covers quite a number of people ask that whether there's any tax advantage to using a company outside of, outside of France to do business, but to reinforce your point in this answer like 20 questions that were asked, if it is sorry… 

HERVE BELOEUVRE:

Remember, just to remember two things, first VAT taxes, operations, not structures. So, if you are an independent or company, doesn't matter at all, there's a problem with what are the permissions you make. Secondly, on all our towns or in France, it is rich inequality. So, the taxes don't depend so much on whether you do your activity as an individual or as a company or whatsoever you do it as is the objective is that people are quite taxed the same way for as the activities average, they have the same revenues. They will be Texas. Same way. Bye-bye 

DERREN JOSEPH:

Perfect. Okay. Next, next question. I reside in France, pay personal income tax in France, up-to-date in the US. Okay. So, they have a company, and I guess this is for a US perspective. They have a company in France, they company's bank account will be included and they have bars, but the company also has to file. Has you need to report the existence of the company on a form 54 71, which forms part of your tax return. So even though it's a company, so it's separate and law from you, once you have a share in that company above a certain threshold, it it's, the lowest threshold rule is 10%. You need to report the activities like the financials of that company as part of your personal us tax returns. And if you have signing authority over the bank accounts for that company, it must also be reported on your personal app bars as well. Moving on quickly, someone is asking the same question again, they have a company outside of France. It offers no advantage once everything is being done in France. Next question, stimulus checks that was answered as well. Next question, as a dual citizen, what is the best way to work as an independent consultant? 

Do I set up an LLC in the US and bill clients via that entity or create a friend associate team like a Sue or, or to entrepreneur? We, that we discussed that from the French point of view, he's he or she has arts. What are the tax implications from a US perspective as well? So, both sides we've discussed the French side as mentioned for the US side. You need to report the existence. If it's an incorporated entity, it will be on the 5471. If it is an auto entrepreneurial, just be on your schedule C they're asking about CFC and guilty. 

So, for those who are not familiar with it, CFC or control foreign co-op rules. So, if you have an entity outside of the US and it's more than 50% owned and or controlled by U S exposed persons, it's considered a controlled foreign Corp. And there's certain CFC rules that kick in. And one of them is the guilty rule, which is the global intangible, low tax income tax. Now, the, the guilty as of last year, there's a high tax-exempt exemption. So GILTY and CFC rules basically work to prevent you from deferring paying taxes. So even though you don't take all the profits from the company out in terms of a bonus, or in terms of, you know, some sort of yeah. 

Distribution to yourself, you are from a us point of view, you're deemed to have done. So. So in other words, you're paying tax on Phantom earnings. So that creates some sort of cashflow issues because you need to pay tax on that company's earnings, even though you didn't constructively receive them. Now, the guilty rule in particular, as the name suggests it's for low tax. So, if it is you have the French corporate structure, which Herve mentioned is taxed at 15%, one five, then yes, guilty may kick in. But if you have one of the other structures, which is tax at above that the threshold is around 19%, then no, you do not need to worry about guilty. 

So just to cut to the chase, if it is that you don't understand the nuances of it, it's worth having a conversation with someone who understands both to make sure that you pick something that works for you, right? Next question, who or what is subject to guilty tax and filing form 5471 mentioned that already guilty would be if you have a corporate structure where the, the tax rate is considered to be low by us standards, the guilty tax will kick in to make sure that you don't enjoy a tax benefit by having a company outside of the US from 5471, we already mentioned any interest. This could be value of voice. So, this includes those who use nominees’ value of voice. That's more than a that's 10% or more. Next question. This one is for you as an auto entrepreneur, hire and pay sub-contractors for work. Can I have services in the US? Can I have clients in the US outside of France? 

HERVE BELOEUVRE:

As I said, as an entrepreneur, you will use a simplified way of taxation. You will declare near your net income. So, if you can do what you wish, or you can take subcontractors, et cetera, but you will not be able to, to diminish your, your tax due to your expenses. So, it's really not a nonsense. Sorry to say that, that if you are the true entrepreneur, it is, it is for beginning a small activity, just to K state, et cetera. At the beginning, you thought propranolol was only a temporary status, so have made at all to make expenses 

DERREN JOSEPH:

Understood. So, someone else is asking about declaring their bank accounts. Basically, if you have bank accounts outside of the U S that exceed a certain threshold, then it triggers the foreign bank account report, otherwise known as FBARS or FinCEN, if it is that you have been negligent and you did not file them. As in the case, in this question, you should disclose them under what is called the benign compliance procedure, which is an amnesty and all but name. It allows you to go back and retroactively, make certain disclosures and file certain tax returns. And in return for voluntarily coming forward, the IRS would agree, typically not to pursue civil and criminal penalties. So, this is for those whose noncompliance is deemed to be non willful. So, they did not intentionally set about to evade taxes. So, it's something to consider and you can, and you can speak to your advisors about that. There's a follow-up question from this person. What are the chances that the situation will get better in the future? I know there are people who peddle what I believed. I'm being honest, false hope, and you know, it just is not on the legislative agenda for Congress to consider us persons outside of the US. 

So those people who peddle the idea that at some point in time, FATCA be repealed or we'll go to territorial tasks or whatever the case may be. It's not going to happen. You know, you can just look at the behavior of Congress. And then when you look internationally, the opposite is happening where you seeing certain countries around the world, including especially European countries who seem to be leaning in the direction of the us, where they're seeking to tax citizens. They own citizens who no longer reside domestically. And it is definitely the case with Canada, the UK, Australia, New Zealand already, and certain European countries. So, the US is not going to backpedal. In fact, other countries are going to catch up. And when it comes, when you deal with the history of tax, you'd see that the US is actually the leader when it comes to certain policies like transfer pricing and taxes and digital services and stuff like that.

So, moving on, blah, blah, blah. Okay. Okay. So, this, we've got quite a few questions on the French social security system. So, people who paint French social security in order to avoid legally avoid having to paint a us social security as well, they need to get some sort of document from your staff. Can you comment on that Herve? 

HERVE BELOEUVRE:

It shows that you will have international rules. You will have only two to pay for one social security system, because you will be were only knew hospital at a time. So, send me an email and I will answer you by email to challenge you on which website to go to an answer. 

DERREN JOSEPH:

Okay. That's great. And are these, so those who are watching on the live stream, just leave a comment and we'll come back to you for those on, on zoom. If you look in the box at the bottom, you will see surveys, email address that you can reach out to him directly. Someone else asks about other French investment products, and you know, again about the fee per call. So basically, from a US perspective to answer all of those, any US tax professional would need to see the contracts and to understand how it's structured, to see whether from a US perspective it's self-directed and therefore tax transparent. And it could be whether it is not transparent and whether the rapper would hold. So, we, a us person and a us tax professional would need to see it. So, it's on a case-by-case basis. The last question, because we are already at the top of the hour for Herve, can I be the beneficiary of a trust in the US, even though I'm a tax resident of France and what are the implications of that Herve? 

HERVE BELOEUVRE:

So, the French rule needs to know what a trust is. So, you can be the beneficiary. You can be an administrator doesn't matter at all. There will be no diversity tax on it, but first likes, you know, owns real estate in France. So first, if you are a member, whatever your position, if you are a member of a trust in track, the administrator of the trust, if there is a French tax resident must be class, a trust is a French of sororities. And then every year is an administrator. Must declare what else? Our revenues on really step unreleased, state owned by the trust in for some real estate in France. So, it's really not much. I have not sent a lot of examples, but just remember you as a French tax resident use administer mass declared as a must, declare the trust to the French authorities and the addicts you get. Sorry, if you get some revenues from the trust, then they ought to be put in your tax return in the places where they need to be. If it is capital gains on, on real estate, it is to be placed at the time, or if he's interested to try to be in their interest, for that. Okay, great. I apologize. 

DERREN JOSEPH:

We have not even touched on half the questions the response has been overwhelming, which means clearly there's a demand for proper advice. So over, and I will, we will speak to each other and we will run this again. And for those who did not get their questions answered or discuss, we will endeavor to do so at the next occasion, Merci beau cop. 

VOICE OVER:

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[ HTJ Podcast ] U.S./Singapore Taxes for Expats and International Entrepreneurs - 16th March 2021

[ HTJ Podcast ] U.S./Singapore Taxes for Expats and International Entrepreneurs - 16th March 2021

March 17, 2021

Everything You Need to Know About U.S. / Singapore Taxes for International Entrepreneurs & Expats.

About this Event

Boon Yip Yee:

1. Overview of personal SG taxes for expats in SG

2. Overview of SG Corp taxes for SMEs in SG

3. Overview of the SG Budget 2021

Derren Joseph:

1. Overview of personal US taxes for expats in SG

2. Overview of US Corp taxes for SMEs in SG

3. Overview of the tax changes expected from the Biden Presidency

Join this discussion

Our Speakers:

Boon Yip Yee - Singapore Chartered Accountant with International Reach

Partner in charge of assurance and financial risk management services in Moores Rowland Singapore.

He has over 15 year of audit experience in which 5 years are in internal audit and risk management services.

He is also an independent director and sits in the audit, remuneration and nomination committee of a company listed on the Hong Kong Stock Exchange.

His area of practice include manufacturing, gaming, investment holding, services, constructions, property development.

He also has exposure in SOX compliance services in his past involvement as auditor of a company listed in AMEX.

Derren Joseph- International Tax for Private Clients, Global Mobility, & Cross-Border Investors (US, Europe, & SE Asia)

Derren is an EA (Enrolled Agent - license # 00100858-EA) who has been admitted to practice before the IRS and is an associate member of the American Institute of CPAs (#7920958).

He is the author of "Taxes for International Entrepreneurs and Expats: Proven Principles for Legally Reducing Taxes” (https://www.amazon.com/author/derrenjoseph).

A Partner in Hayden T Joseph & Co. (DBA "Advanced American Tax") also a member of the International Tax Team at Moores Rowland Asia Pacific, with over 30 offices in 12 Asian countries.

He has 2 Masters degrees in Economics. A Certified Diploma from ACCA (Association of Chartered Certified Accountants in the UK), done Executive Education with Columbia Business School.

He has completed Advanced Tax coursework at both New York University and the University of London.

Derren enjoys writing and giving seminars.

He had his views published in the Singapore Business Review, Forbes Asia, the American Chamber of Commerce in Indonesia, the International Business Structuring Association (in the UK), Offshore Alert. He also has given seminars on tax issues in the U.S., the U.K., Singapore, Indonesia, Malaysia, Vietnam, The Philippines, Portugal, Hong Kong, and the Caribbean.

NOTES:

1. Link for this event: https://www.facebook.com/htj.tax/live/

2. Submit questions in advance - Hanna@AdvancedAmericanTax.com

3. Those WITHOUT Facebook? Zoom link will be provided 24 hours in advance via an eventbrite message so ensure that you sign up via Eventbrite to get the message. If you don't get the Zoom link 24 hours before the event via eventbrite? Email: Hanna@AdvancedAmericanTax.com

4. It is also helpful if you use the Eventbrite calendar function to ensure that the event is automatically saved to the calendar on your device in your local time. Many times people miss the event because they misunderstood the time zones. Allow eventbrite to make it easy for you. Leverage technology. Please don't contact us to confirm the time."

5. For those joining us on Zoom?

"Pictures or videos will be taken during the event to be posted on social media. If you do not wish to have your image used. Keep your camera off."

 

VOICE OVER:

 

This podcast channel it's about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax

DERREN JOSEPH:

And it's five o'clock so, we're ready to begin. Thank you for coming or logging in this afternoon here in our short webinar about US/ Singapore tax. My name is Derren Joseph and joining me, my colleagues, Boon Yip and Eddie down below, anyway. Just a reminder that we are recording and we are live streaming this. So, what that means is that if you do not want your image to be recorded, then you will switch off your cameras. And that's where it is. So, it's it is being live stream right now on Facebook and on LinkedIn and on YouTube, if you have any questions., so the way we're going to do this is the way we do all our webinars. So, for those who have joined us before, you'd be familiar with the format, I'm going to speak for 15 to 20 minutes on US taxes, Boon Yip and Eddie are going to talk for 15 to 20 minutes on Singapore taxes, which leaves us with 15 to 20 minutes for Q and A. So, you don't need to wait until the end. If you have questions, there's a chat box down below you just type in whatever questions you may have. Bear in mind. If you have to leave or you get kicked out, or, you know, you've experienced some sort of disruption, it will be available on our website, HTJ.tax once everything is finished and it's edited and whatever. 

 

So, without further ado, I am going to share my screen and we're good. All right, great. So, as I mentioned before, my name is Derren Joseph. I run a semi-autonomous tax team within a larger practice call called Moore's Roland. Moores Rowland Asia Pacific, we have just over 30 offices and I think it's 13 countries now. So, it's far North Beijing all the way down to Australia. I actually sit in Singapore and based in Singapore for the past eight years, well, October will be eight years, so I'm kind of cheating a bit. This is me. This is my bio. So, it's important that, you know, why I feel as if I'm confident and competent to speak about this topic, now because of us rules and legally required to say that, treat this as an education piece. I know we got some questions in advance. I know some of are self-filers, and I just want to correct any misconceptions. This is not a webinar that you can come with pen and paper. And at the end, youre competent enough to go away and do your returns. But the take away from this should be here would be, these are the key points that you need to keep in mind. As you engage a qualified advisor to help you in both the Singapore and the US side. So again, this is not advice. This is not advice. This is not advice. This is an education piece, and you will have takeaways to engage with a competent advisor. I say here, nothing that we say here should be construed as, okay, encouraging you to pay less than your fair share of taxes in any jurisdiction in which you're exposed. And that's how we stay out of jail. 

 

So, for those who doubt the, the long reach of the IRS, there are two case studies that we can circle back to, if its comes up in a Q and a one of them actually used to be my friend, well, my friend, but one of my connections on Facebook and he's no longer Facebook, why? Because of the law reach of the IRS, he had some legal problems and you have to spend some time in jail. So, my point is this. There are some people that think, you know, outside of the US nobody's going to bother me. That is so far from the truth. The IRS does pay special attention to those us taxpayers outside of the US no, just so quickly jumped into everything. Citizenship based taxation. I don't think I should need to see. I think everyone would be already familiar with the reality that as a US citizen, as a US green card holder, you are subject to taxes on your worldwide income. 

Now other jurisdictions do tax in your worldwide income. It's pretty common with advanced economies. So, OACD nations. So, Canada, Australia, New Zealand, UK, Europe, Japan. But I think what makes the US unique is that even though you spend many years in Singapore, and even though you spend many years outside of the US you are still tax resident in the US, you're still required to file and pay taxes. It just doesn't go away. It just doesn't go away. There are many misunderstandings about this but it just doesn't go away. Then people ask, well, how do they know what I do outside of the US? 

 

And this is what FATCA comes in, the financial account tax compliance act. Now, when you're in the US, you get paid on a W2. If you have investments, you get a 1099, a copy comes to you and a copy goes to the IRS. So, theres checks and balances so if you say something different from what the IRS has already received, they're going to know. When you're outside of the US you ask yourself the question, well, how are they going to know then FATCA is the answer. So, what that piece of legislation has done is empowered financial institutions around the world to basically act as a tax agent. So, OCBC, you will be the, all the banks that you would find in Singapore are required because of FATCA rules to identify who among their account holders, maybe US exposed and report their bank activity to the IRS. 

 

Now like me, I'm sure you have more than one passport. And so, you may think, you know what, I'm smart, right? So, I'm going to use my other passport to open that bank account at OCBC or whatever. And then you think, okay, so who's going to know, well, there are certain rules that are enshrined in the legislation here in Singapore, and are also reflected in the bank policy. So even though an account, the account holder represents him or herself as being another citizen. If that bank officer had any reason or certain indicia or signs, if they have any reason to expect, to suspect a us connection, they are legally required to report you still, without your knowledge to the IRS. And you will be highlighted potentially as a recalcitrant account holder. There's a special designation for those people who are in denial. So, in other words, it comes back to bite you and that creates the checks and balances. So, if it is that you said that you made a hundred dollars this year, yet your bank balance goes up many times that then it creates an exception in the reporting bank of the IRS and treasury, and they can come and ask a few questions. 

 

What do I mean by US person? So of course, us passports, now for those, and this has been a big deal for those who were affected by COVID and the travel disruptions. We had in cases of many Singaporeans, who, because of travel disruptions, no fault of their own, they were stranded in the US. And they took them what we call substantial presence. So, by spending a certain amount of time in the US under section 7701, you will be considered a US person as if you were a citizen or a green card holder. So substantial presence is one way in which you trigger that US tax explorer. 

 

And in other ways, accidental Americans. And it happens all the time. An American citizen comes out to Singapore and Malaysia, Indonesia, and they get married or have a relationship with someone who is not American. And the child that unions sometimes may be an accidental American. So even though you did not register that birth at the embassy, even though there's no social impacts that Singaporean childhood is also a US citizen, unless until it's announced officially. And at some point, in time, they may be required to file and pay taxes when they work. 

 

Another way, which you may become a us person is intentionally under section 613G. And we can get into that in the Q and A, if there's any questions around that, but basically you can elect to have your non-American spouse, your Singaporean spouse, to be treated as a US person, theres certain taxes advantages, or it may be of strategic importance. If it is, you intend to move to the US at some point of time. So, the responsibilities of us persons are pretty straightforward. I think, what strikes some people as somewhat counter intuitive is the idea that, okay, if I'm in the US so if I don't file and pay my taxes, then you know, it's interested in a zero-rate interest in zero interest rate environment. Anyways, it's not going to be that much, depending on what your liability may be, but when it comes to international tax counter- intuitively, the IRS spends more time focused on reporting than they do actually pain. What do I mean by that? So again, if you don't pay interest, but if it is that you don't report that bank account, you will be, the penalty could be up to 50% of the unreported balance. If it is the, you don't report your investment in a company in Singapore, just, and it's not necessarily a tax liability, it's just that you did not report your holding in that company, above whatever the threshold may be, your penalty could be $10,000 per year. So, and we have had cases where the IRS has, you know, enthusiastically levy, those, those penalties for US persons in Singapore and Malaysia who have not being compliant. 

 

So, remember, it's not also, you know, we tend to think we tend to be focused on, yeah, we need to pay our taxes, but it's reporting all transactions. And these reports may not necessarily trigger a tax liability, but post, I think post 9/11, starting with a pit, there's been a certain aggressiveness when it comes to pursuing people who are not reporting their activities outside, and that can include gifts as well. You know, you having a relationship, you're married to a Singaporean, and there may be gifts going back and forth. Those gifts are reportable above a certain threshold and again, failure to report maybe up to 30% of the gift. So again, it's not necessarily a tax liability being triggered, but it's a reporting requirement to be taken seriously. 

 

So, what we devise or whatever devices, you know, what I think is a nice acronym for remembering what your responsibilities are as an expat, as a US exposed person in Singapore. And that is I ask you to do your BEST. What do I mean by do your best? B stands for bank accounts and by banking also some mean or financial accounts, whether you, some people invest in, Ifast, some people have a CPR because their PR whatever the case may be, or maybe Singapore, and with a green card, every financial account, Unitrust, every financial account that you have brokerage accounts, they need to be reported. Again, it may not trigger a tax liability where the IRS wants to know where your money goes. 

 

Next, estimated taxes. Obviously when you're in the US you get paid on a W2. And there's withholding every two weeks, every month as the case may be. When you're outside of well, you know, there's no withholding typically. So that means that the responsibility falls on your shoulders. You need to work out what your, so were in 2021 right now, what is your estimated tax liability for 2021, and make sure that you pay in at least four installments, so quarterly payments. Failure to do that, you know, there's a form 2210, and a penalty may be levied. I have a client yesterday saying, Hey, what's going on? Why am I facing this penalty? What's this about? Unfortunately, you did not make your estimated tax payments in 2020. I know a lot was going on, but the IRS wants its money and they don't want to wait until April 15th of 2021 to get taxes paid on what you earn in 2020, you should have been paying it in quarterly installments. 

 

Thirdly, your state taxes do your best. B E S stands for state. You have 50 states, 50 different rules, but most States are domicile States. What do I mean, unless you were a proactive and you re domicile to one of those nine States without an income tax, there are cases where you have lived in Singapore and you're still subject to state taxes back in the US? And he thinks, well I'm in Singapore where they're going to do? come find me, maybe not, but at some point, in time, you may return to the US and you get faced with a, you got, you know, you're greeted with a big fat tax bill, and we've seen it so often so often. I can't tell you often we see it. So, you need to work with your advisors to ensure that you properly severed your tax resident with your state of origin before, you know, the state that you were last domicile at before moving to Singapore.

 

Last, but not least would be transfer taxes. And these are a bit tricky because the rest of the rules you can Google, you can see them in the US in the tax code in the inland revenue code, Internal Revenue Code, but when it comes to transfer taxes, we have to rely on case law. So, it's kind of trickier to track down and to understand and grasp, especially when it comes to the concept of domicile, again, it is defined in codes. We rely on precedent, but anyway, the bottom line is? that if you were gifting back and forth to friends, to people with whom you have some sort of relationship, any transfer taxes, please bear in mind that they may be a tax responsibility or reporting requirement. Im not talking about like a tax bill to be paid, but at least a report to be filed as part of your tax return. So, transfer taxes, pay attention to that. 

 

And of course, we live in unprecedented times, so, estate planning is also something that we strongly advise. So again, you know, seek out a qualified estate planner to help you with that. Because again, unfortunately, we have a part of our practice, which is dealing with Singaporean spouses who've lost the US spouse, and they've left the Singaporean widow, widower with a lot of unfinished business. When it comes to the tax side, there was no proper planning and then there's the stress in the family. You know, I'm sorry I dont want speak on such a morbid topic, but it creates distress in the family when there's a cashflow interruption, because sometimes you cannot access, especially US Situs assets like us bridge accounts and stuff like that until certain paperwork has done, but that inconvenience, we can preclude it by proper tax planning. So, I'll leave it there. 

 

I'm going to talk a bit about stimulus payments because you know, some people have questions around that. So, we are actually now in our third round of stimulus payments as of last week, I guess. Now the first two rounds were around last summer. And then the second round was in December. These are the criteria, so everyone, even green card holders could qualify for those stimulus payments. 

 

Let's see, right. If it is, you didn't get it because I know a lot of you have reached out and said, hey, I did not get my check. It was not deposited to my bank account, what do I do? It's not too late, it's okay. When you're working with your tax team to file your 2020 returns, there's something called a Recovery Rebate, which means that if it is, the you have a tax liability, it can be reduced by the amount of the stimulus payments, even though you didn't get it. So, you got a credit, or if you do a refund, the refund will be increased by the amount of the, rebate credit. So, it's still available. Speak to your tax advisers on that. 

 

Many of our clients are high income net earner and of course they see they're following the news. They know, hey, checks had been issued where's my money. So, I get emails and WhatsApps, Derren, wheres my money. I'm not getting my money. Unfortunately, it's targeted at lower income earners. So many of our Singapore and clients, they phase out. So, when you make beyond a certain amount, unfortunately it's reduced until it's nothing. So, if it is you didn't get it, one of the possibilities is that, you know, it's a price of your success. You earn more than, you know, the allowed limit. 

And then of course, right now, when, you know, phase of stimulus payment, round three, those we've, you know, some clients have already got it. So, we always encourage people to e-file. E-file especially right now, you have no clue how much of a mess the IRS is in right now. How many people, paper filed returns to 2019 and they have not yet been processed. It's I know it's crazy, but when COVID hit last year, the IRS shut down its offices, and then when they did reopen the reopen social distancing. So, it wasn't at full capacity. And then the mails, so the mail system has been a complete disaster. So, returns have been lost. You know, things just have not been processed. You spending hours on the phone trying to get through. So please e-file, even if you have a Singaporean spouse, you can get an ITIN, which is the equivalent of a fin foreign identification tax ID for someone who's not a US person. And our software actually allows us to file returns even if your Singaporeans policy does not have an ITIN. So, the point is that when you e-file, you get these payments, first of all, your returns get processed on time. And if you do a stimulus payment, it comes like that. So, people got them because they have been e-filing. So, they've got even number three already. So again, remember this is going to be higher than the other two, but it does phase out so bad news again, to be fair, more again most of our clients won't get a stimulus payment under round three because of the phase of rules. The IRS has to their credit, even though, you know, I've come down hard on them for what's going on in their processing side, the website is up to date. So, you can check out IRS.GOV and you can track your payments. There's a comprehensive FAQ. So please check it out. Everything is there. I also, you know, this is my final slide. I think in terms of filing requirements theres a lot of misconception. You know, sometimes people think, you know, if I earn less than the foreign earned income exclusion, hey, I don't need to file a return. Not exactly, the threshold changes that filing threshold changes year and year. And this year it's actually for 2020, it could be as low as $5. So, if you file married, filing separately, if you earn more than $5 the return is due. So again, don't assume because you didn't earn a certain amount that a return is not due. In fact, assume the opposite exercise, you know, do care, exercise, diligence, and try to figure out, speak with an advisor, make sure that you're filing whatever it is you're required to file because the thresholds are pretty low. 

 

Sorry, there's one more slide Biden and President Biden oppressed over his proposed tax plan. We can probably jump into that later, but it's just a plan. And I know the media has been hyping it up over the past 48 hours, but it's simply, or what he would, his campaign had published, his campaign published last year, a comprehensive, it was pretty detailed, but just to call out the highlights that may be relevant to ex-pats in Singapore for those earning over 400K the cap on social security may be removed. 

 

So, it's going to be an extra 12.4% potentially. And again, these are just proposals. Everything has to be debated, of course, in Congress. Corporate income tax especially for those who work in which structures, especially those who this is here in Singapore, know what the GILTY tax is. Sorry about that. But they, corporate tax is going to go up from proposed to go from 21 to 28, which has implications for both your US structure and your Singapore structure, child tax credits, great stuff. They, this, this step up in basis that you get for, for those who are planning for succession and estate planning, you get a step up in basis in your asset especially, if you have a grant or trust, that's going to be removed. The exemption for gift and estate taxes, President Trump had it just about 11 million. It's going to come back down to around 3 million. So that's going to bring a lot more people into the tax net. So those are just some of the highlights, but of course, everything is just tentative and subject to further discussion. And with that, I will stop here and I will turn you over to Boon Yip and to Eddie who will walk you through the Singapore side of things. Boon Yip over to you. 

 

Boon Yip are you okay? You should be able to unmute yourself? Yeah. 

 

Boon Yip Yee

My name is Bonnie. So, I'm a director of SME client service and with me is Eddie. And he's our tax director specializes in Singapore taxes. So, let me share my screen. So today we will be covering Singapore budgets, just a highlight and a summary of the changes in tax. So, as you can see the Singapore budgets, 2021, basically talk about emerging stronger together. So, the supports are mostly channeled to the families and households, and those are lower income families. And there are some of course to the business. Okay. 

 

Before I go further, so Eddie would actually take on the Singapore budgets updates, and I'll tell you more, just that's a brief about Singapore. So, I believe most of your, some of your, maybe already in Singapore, so you would have to know, and Singapore actually is unique by all this diagram. If you can see a competitive global economy, ease of doing business to name a few. So, we actually ranked quite high and being a popular place for businesses and also individuals. Okay. So, the incorporation, so when you come to Singapore is quite easy to get things started. So basically, these are the process and it would take just a week and everything is up and going. Okay. Briefly taxes in Singapore. So corporate tax, if you can see is quite attractive, one of the lowest tax regimes in the region. So, you're talking about my 3% effective tax rate. It is Wyatt 2020, but I don't think Wyatt 2021 that will be much changes. So, there are basically two tax blenders for companies taxable. So, if you look at all these points, these are all taxable, the gains and profits from trade and business income from investment interests, of course, royalties and gains in revenue in nature. So other than this, they all non-taxable. So, individuals, individual rates, we are on a progressive system. So individual tax is the 15th of April every year. So, it's about time to follow a personal tax. So, it's very about one month from, sorry, two months. Yeah. 

So again, taxes for individuals. So, whatever is taxable, they are quite similar to those of corporations. So, we talk about employment income, trade, and business for sole proprietors and partnerships of course, property or investments and other sorts of incomes. So, whatever is non-taxable can see. Okay. If we talk about interest is actually not taxable under individuals for companies is taxable. So, I can see this is the only major difference between the individuals and the corporate, right. 

Okay. Just to brief you, Singapore is one of the highly incentivized countries. So, these are the selective incentive in Singapore, more popular. So, we talk about international HQ, which is the more popular one, the merger and acquisition and the global trader program, and also double tax deduction for internationalization. This is also quite popular gaining popularity, and there are changes for this in the budgets 2021. Eddie will bring you through a more about this later on. 

 

Okay. So, the next is I can see fund management incentives is, are gaining popularity. So, this is a family office whereby the high net worth comes to Singapore and they start the investments of fund management activities here in Singapore, and they get a very attractive tax. Okay. So, I think I'm done so I'm a person to Eddie just highlight on the budgets and you know, tax changes. 

 

Eddie Lee

Okay. Thank you, Boon Yip. So, my name is Eddie and I'm the tax director of MRI. I have about 30 years of experience and actually accredited tax advisor. I'm experienced in dealing with personal tax, corporate tax and cross- border tax planning, including international expatriation programs.  We have, of course, you know, is there anything that you need to ask? We can do it at the Q and A later on. Coming to the budget for this year, which was actually done in February. Just give you a very short overview covering the important points of the 2021 budget. 

 

Actually, as you can see from the slides, the budget is actually meant as, you know, the bulk of it is actually for support for workers and for businesses, I'll use acronym. And if you can see those highlighted in orange is actually jobs support schemes, later on, you you'll see that there is also other aspect of it, which is actually also more like a subsidy from the government to the businesses to ensure that workers are continuously employed in during this pandemic time. For example, this job support scheme actually is more towards support funding, the important areas or industries such as the aviation, the aerospace and the tourism, the hotel, the airport where in even if you are out of job, even if you are not allowed to go back because of the pandemic, the government will continue to pay the, the businesses that are in this sector, at least about 30% of the wages of the employees. 

 

Okay, next we go to which credit scheme and the job growth. Now, these two schemes actually started very early, which credit scheme that he started way back in 2019, I think. And it is actually more towards trying to co-match, incremental encouraging companies to support workers by giving them increment every year by the government will actually fund maybe up to a team of 15% of whatever increased on a year-to-year basis. So that's the WC equities which credit scheme, the next one is actually more to incentivize hiring of locals, which is under the job growth incentive. We call it J GI. And that's actually to look at, you know, local companies in Singapore, if they hire local, then there's a chance that the government will actually do a matching of the co-payment of up to maybe 25%. So, during the Spanish time. So, continuing down, the other changes in the budget are actually more on how to have the businesses to cope. We have various like the first one that we have executive the carryback relief. Now we have carryback relief, which, you know, you're allowed a deduction for up to a hundred thousand for the immediate year. Now this, this extension is actually allowing it to be carried back three years up to after three years from the current year, right? That's the current back relief. The next one is actually accelerated capital expenditure, which is sort of a de-position allowance about you can claim over a period of three years here, the government saying, okay, you are allowed to claim it over two years, 75% of the first year, then it 5% on a second year. Okay. So that's actually more like to say we allow you more so that you pay lower tax. Hopefully now the third one is actually on what we call the R expenditure, which is for refurbishment and renovation. Usually this is not qualifying deduction, but they are set aside say, look, we'll give you 300,000 over three years whereby if you don't qualify, but it fits into one of those refurbishments or those renovation, that expenses that it's actually not part of non-qualifying items, which is for buildings. Notice you can claim a deduction against your taxable revenue. 

 

Okay. Just now Boon Yip was explaining about the double deduction. Okay. That's actually in place from for many years, basically to incentivize or to encourage businesses, to expand overseas, do marketing, for example, the visit new places to open up new market or to sell new products in all market. So, the current criteria that if you look at a slide there about five now, what do you want to do now is actually to say, hey, during this pandemic time, I think instead of going for the actual physical threat face and boot it's setting an exhibition, you are not to do virtual treat face provider is approved. And then these are the costs that you in. And these are the costs that we will actually allow. In addition to those that has been given before. So, the value is about 150,000, which you are allowed to claim a double deduction. The value is the deduction is actually automatic. There's no need to apply for approval from the relevant authorities, unless you, there is you have X days spent above the cap of 150,000. And if you have any other new items that you think is not uncovered under the existing commodities or expenses, you may even ask for a case-by-case approval. 

 

Okay. Now the next one is actually more support for the, what do you call the non-business expect the, you know, the charities and the nonprofit organization, whereby there's an extension of incentive given, and this will actually be extended by a couple of years from where we have, it's supposed to be ending till end of the year, for example. And for example, in the case of the business and IPC partnership, yes, you will probably be extended to 2023. And the other one which is an investment allowance granted for to incentivize in 75 automation, productivity, scaling up of machineries and efforts. This has been scaled down, they actually decided to actually let it lapse, you know? Okay. 

 

Okay. These two, I think I'll jump because actually it's more for, it's more for friendly expenditure, which will qualify for additional deductions. Okay. Okay. This is actually a change on some change on the business tax, which is actually a consumption tax in Singapore, which is now extended to what we call a B to C business whereby kicking in 2020 generally we have this oversee vendor scheme. We call it OVR, and as well as the reverse charge for the GST whereby it's smart, a GST on the supply of goods and services coming from overseas by foreign suppliers. There's a need for GST registration. There's a need to see if you are liable for GST registration. If you're one of those vendors from overseas under the scheme, which is the old VRC, which all the reverse charge companies who have examined themselves and see whether they fall into the criteria for a compulsory GST position under these two schemes, okay, let's go to the next one. 

 

Okay. Low value of goods, it's one item whereby nowadays piecing opponents or those something apart likes to visit the neighboring countries. And then we bring back the goods. What this change means is that in the past, there's a green lane. There's a lane from now on which there'll be no greener lane everything will be declared. You have to defect for GST, which is to say that a low, value goods, which there's an exemption criteria. I think it was a hundred dollars, $150. And by you don't have a declared as a Greenland. You can go through now, there's a need to declare and PGST the moment you bring them in. 

 

Okay. The next one is actually B2C. I think that will come very much later whereby now, if you are subscribing to say education for maybe for trading or for seminar, whereby it is actually undertaken by foreign percent. So that will actually come under GST regime which is about the same as what is in place in Australia and in New Zealand. So, this will not come in so immediately it was, I think two years later, they are time to look at how to set up a regime that is able to cope with and monitor these days, this recovery of GST on from this area. 

 

Okay. There's one new change to the which concerned GST on how to rate media. Media and advertising revenue, which is actually going to increase in the future. So, we are looking at whether there's a possibility of doing zero rating on this kind of revenue whereby it is online. So, what happened now is that the government has actually say, look, we will define the loss for you. If the customer belongs in Singapore, the media sales will be standard rated, I mean, subject to 7%. But if you are able to demonstrate that the services actually belong to is actually for a customer overseas and actually is rendered overseas, then it can be zero rated. So, this is to define where zero rating applies or standards will apply. And this kicks in from next year, January. Okay. Okay. This is finance sector. I think I'll skip because it's more towards the bank, but we told him tax about double tax deduction. Again, same to our keep on the billing tax because it's financial sector, the banks, as well as well. We'll skip this. Okay. So, I think probably we ended, I think we'll have, would be to allow more time for Derren, for us to do a Q and A, thank you. 

 

DERREN JOSEPH

Thank you very much. Okay. So now we come to what I think is a fun part of the Q and A. I'm going to see some questions, for those who are watching us on zoom, you can just type in the box below, there more people watching us on Facebook and comment below on LinkedIn, the same. And we'll get to them one by one.

 

First question, what does a tax consultant need from clients to be able to help us file? You just need to reach out to any one of us, to Boon Yip, to Eddie, to myself, to Hannah, just shoot us an email. Our emails have been given in the box below for those who are watching on other streaming platforms, you can email us at help@htj.tax And we'll start the conversation going and get you onboarded. 

 

Next question. Someone know I commented earlier that the IRS is really backed up and it's really messy. And a lot of 2019 has not been filed as someone who's watching who that 2019 apparently has not yet been filed. If it is there any questions around 2019, you can, you'll probably need to reach out to the IRS directly, but bear in mind, especially at this time, there's going to be quite a long process. You need to email them that you can check for a contact number on their website. The number that I use and I get through typically within an hour, depending on the time of the day, I try first thing in the morning. So, like eight, nine o'clock or last thing at night, and I tend to get through within an hour. So that's 1267 941 1000, thats 1267 941 1000. And you can have a conversation find out whether they did get it or whether you need to resubmit it. And yeah, I know a lot of people who paper filed, they're having problems. 

 

Moving down. Someone was asking about a template for 2020, again, same responses above. You can email any one of us and we'll get you onboarded. And we'll get you the organizer. According to the rules of the American Institute of CPAs, we required by their rules to use an organizer. So, we have a spreadsheet that has itemized all the questions that we need to ask to onboard clients. So, we get that dialogue started once you email us, so included, somebody has been asking about reaching out to Boon Yip and Eddie directly their emails. If you've seen, if you are in one of the streaming platforms, if you're on zoom, if you look down in the chat box below Boon Yip email is there as well as Eddie's email is there, you can reach out to them directly. Feel free. Please. Please do so.

 

Next question. All right. I answered that one already. So yes, to the person who is asking about the presentation, yes Boon Yip and Eddie did speak about businesses, but if you have any questions on individuals, Singapore, individual tax matches feel free to just type in the box below that's no problem. It will be anonymous. I won't see your name. 

 

Scrolling down. Did you say earlier that we need to report our CPF account balance? The answer is yes. The CPF is a qualified plan in Singapore, but it is not a qualified plan in the US, which means you need to report that. You need to report the interest on your schedule B depending on the threshold, you need to report it in form 8938. And of course, you need to put it on your FBARS, the foreign bank account report. And sometimes for those of you who are using tax teams outside of Singapore, they don't know what a CPF is. So, you, you probably just need to share that with them, that the CPF is a qualified Singapore plan, but it's not us qualified. So, we need to report it accordingly. 

 

Next question. Brokerage accounts shares. This is regarding a brokerage account. She has invested, if I invest in a brokerage account and there's no income or dividend, do we still need to report that? The answer is yes. And this is where it gets interesting if it is that you just buy shares and Singtel or whatever you like, that's one thing, right? If it is, you had threshold report that in 89, 38 and interest on schedule B dividends are in schedule B. But if it is you, you invest in a brokerage account and really popular in Singapore would be like Ifast. Or some of, some of the other financial advisors sell you insurance policies, or they sell your pension plans. Now you need to be particularly careful with those because under US tax rules, some of those insurance policies, especially those with a cash surrender value are actually investment products. And they're treated as something called a PFIC, passive foreign investment company, which is the bane of your existence. If you're a US taxpayer, that is what you hit the most, because why, because it has to be taxed and treated according to special rules that were passing in 1980s. And it's taxed in almost draconian fashion. So, if it is that you have an investment and any sort of brokerage account, so any sort of mutual fund, any sort of unit trusts or pensions or insurance policies outside of the US run them by a preferred advisor, make sure that you don't run afoul of the PFIC rules. The PFIC rules are the ones that you want to avoid, like a plague.

 

Scrolling down. If you have your own business in Singapore, you would still need to file in the US? Youre absolutely correct the business reportable and a form 5471. And it may also any investments in the business, you report that inform 926 and the profits are also reportable on your personal tax return, depending on your situation, depending on whether it's a control, whether its shed or you shared all the US persons combined is exceeds 50%, then there's special tax rules that can, but the bottom line is yes, have business in Singapore must report to the IRS. 

So, one is asking for the IRS number again, the number that I use to get through within an hour, again, first thing in the morning, US time, last thing at night, us time, 1267 941 1000 and thats 1267 941 1000.  

 

Even if I make no income in the US are, we still eligible for stimulus payment? The answer is absolutely correct. Yes, you are. If you go to the IRS website and you type in a search box, like stimulus payment, and you get all the FAQ's and there a lot of tools that allow you to interact and to register, because of course, getting through CRS or the phone is like really hard right now. So, if you have not got it, you can input your details in CRS website. Yes, you are eligible for the stimulus payment and you don't want to miss out on the third one. The one that was just announced, decided by Congress or signed up by president Biden over the weekend, because that is pretty attractive. 

 

Next question. Can we live in the US and have a Singapore company? Yes, you can, you know, freeze, freeze country in the world. You can live in the US and you can ha you can have a country anywhere in the world, except if it's a jurisdiction that is subject to sanctions. So not Venezuela, not Iran North Korea, but yeah, you can live in the US and, and have a company outside of the US but remember, in that scenario that you are actually running the company from the US so you need to speak to your advisor because special tax rules may apply if you're running it, if you are the key decision makers, and you're based in the US as opposed to you have boots on the ground in Singapore, and you have a CEO, you have a team that's running it in Singapore. So, you speak to your advisor about the nuances of that.

 

Next question. I'm sure it varies state by state, but what is some of the things necessary to do in order to sever ties with us States, particularly where we potentially, or state tax, if we move back, that's a great question on you. And within your question, as the answer, it does vary state by state, but you want to pay special attention, especially those who may be domiciled in California, because of course, there's no discussion going on around wealth taxes, and you don't want to be caught in that neck, because that is double taxation to the highest level, but essentially what it involves. And again, it varies state by state. But what you've been doing is sitting with your advisor, and you're looking at one of the nine States where there are no taxes, most popular will be Texas and Florida, obviously. And you make sure that, you know, your hold mail address. If you want a US PO box is going to be there. If you, you know, if you go to register to vote, maybe you want to put it in one of those States, you know, the address for your brokerage accounts, everything you're going to put it in one of those nine States. So, in other words, you give up your driver's license as well, try and get it in one. So, in other words, you don't want to have any ties to the other States that States that that are pretty sticky. And to us, the stickiest state is actually Virginia. And for some of you who may be with not with the US-based, but with civilian contractors, maybe you don't have a choice. You stuck to Virginia, but you still speak to your advisors for those civilian contractors. See if you can cut ties with Virginia, if possible, and make sure, and redomicile yourself in another state. 

 

Next question. What if I haven't reported the CPF in the past years, I reported this year, would I be in trouble? If it is that your previous tax returns have been incomplete? The, is there are ways of getting up to speed with addressing that the most popular, which is something called the streamlined compliance procedure. And you Google that you'll see a lot of stuff online. Basically, the IRS says, okay, I know you haven't done whatever in the past, just the statute of limitation for your tax returns of three years and for the FBAR, the foreign bank account reports for six years. So, in other words, come to me with the amended tax returns for the last three years, which July has already passed. And that case you're talking about 1918 and 17, and the last six years. So, moved back six years and report your CPF on that, or report whatever the missing bank account or their brokerage account or whatever on that. And the IRS agrees that, and you have to pen a letter as well, explaining the reason for your non-compliance depending on the sophistication or the complexity of your situation, because we've had clients obviously with a more sophisticated structures and higher missing balances than others. Then we work with attorneys in Singapore to help you draft the non-comp the non willful letter. So, we work with Butler Snow, and with those Cartel Wong, which are, as far as I'm aware, the only, I mean, there's big McKenzie and stuff like that, and DLR Piper. But in terms of working with individuals, US exposed individual, private client work, you're looking at where this costs along and Butler Snow, we work with them closely to make sure that you get the non willful latter done in the right way to prevent any issues. But you're looking at streamline. If, if you need to catch up some people, especially online, if the keyboard warriors they're going to be Googling, and some people would advocate quiet disclosure, read the fine print, see whether those people are US qualified chances are, they're not, they don't have a CPA license on the line. They're not an enrolled agent. They're not an attorney. They're just, you know, a helpful keyboard warrior. And one of the, especially one of the Facebook groups, we strongly advise against quite disclosures. If it is you made a mistake in the past, we all make mistakes. You need to it in the right way, moving down. What is the approximate price range for helping us file U S individual federal returns start at 800 sing state returns, 400 sing AF by start at 400 saying if it is that you have a company, depending on the complexity of your Singapore entity, because we actually have to translate from, from Singapore gap, generally accepted accounting principles? And in Singapore, to US principles to report to the IRS and we charge 1500 or 2000 for those. So that's a rough price range, but please feel free to reach out to Boon Yip or Eddie or Hannah or myself. And we can get you up to speed, get you an accurate quote.

 

Next question. Dan's for the blah, blah, blah. Question will a non- US citizen spouse, retirement investments in IRL Roth, filing together with a US citizen, be at risk of higher tax rates in the future. If their green card is forfeited. Now this is something I actually have a client that I emailed like 10 minutes before this, they had a similar situation. Okay. A US retirement account is a US tax preferred. It's a tax deferred account. It's meant for us taxpayers because the benefit of having a 401k or Roth or whatever is as tax deferral, to some extent, depending on whether, what it, what it is, if it is you ceased to be a us person, because you now your citizenship, or you have given up your green card, then in theory, you should be speaking to you, broke her back in the U S and letting them know that you are no longer a us person, and they will work with you accordingly chances are you'll need to transfer the funds from the retirement account in to another. So, if it is that you were a us person, you invested in, you build temporary time in account, and now you are no longer a us person. You should reach out to your broker back in the U S because you may no longer qualify. And it's not just retirement accounts. Only people just have investment accounts on us platforms like Charles Schwab, for example, even if you still, you're still a us citizen, you're still a green card holder. You're living in Singapore. They don't like the fact that you're living in Singapore and it's not. They say it's against the rules. I don't think it is. 

It has nothing to do with sec rules. It has to do with the compliance burden. If it is that they have clients that reside outside of the U S they face an additional compliance burden. So, they, and that means an additional cost basically. And so, it costs a little bit more to service your account than it does someone who's based in the U S in terms of the extra paperwork. So even I know some people come back and say, well, I use a VPN. Some of the platforms are so sophisticated. They can tell that you've, you're signing in with a VPN, and they give you a certain number of chances and they freeze your account. So, reach out to them before they fill the stuff out. So, you can just work, it, work it through. They just don't like account holders outside of the U S so please speak, speak to your broker. Next question. How many years do you have to pay taxes to the U S after you give up your us citizenship? Yeah, this is, I know this is a, this is a big decision for many people. We deal with two or three clients each month who are giving up their U S passport or green card to them under the old rules. Yes. You had to file returns for a certain number of years under the new rules, the rules that are in play right now, unless you have some sort of deferred tax liability. 

Typically, you don't have to continue filing tax returns after you surrendered your green card or passport, if it is your covered X-Box and what I mean by a covered ex-pat covered expatriation, expatriation refers to the process, the legal process of giving up your green card or us passport and your covered X. But if your net worth is it's higher than a threshold, 2 million, or your tax liabilities for the proceeding three years, or more than, let's say 150 K or so. So, if it is that you are covered X by special rules apply, and some pre-expatriation planning may be necessary because you'll be facing an exit tax. So, if it is that you are a high net worth individual, and you're considering surrendering you, your passport or your green card, please reach out for professional advice because you want to mitigate as much as legally possible the exit tab. But typically, if it's just like a regular person, who's not a covered X-Box, there's no deferred tax liability, and you're giving up your passport or green card. There's no requirement to file returns after you're done, unless you have your source income, typically rental properties and stuff like that. Next question. If I own real estate, this is the last question, because we're approaching the top of the hour. If I own a real estate in Florida, but I'm not living in the U S I live in Europe. Am I still considered a us resident? Do I have to pay taxes in the US Hmm. It depends if it is it's you are. You remember when referred to section 77 Oh one previously, if you are not a us citizen, you don't have a passport. You don't have a green card. You didn't hit substantial presence, then no, you're not going to be taxed on your worldwide income. One, two you're outside. If it is that you did hit substantial presence, you do have a green card. You do have a us passport you're subject to taxes and your worldwide income. If you're not caught up because of such and 70, 71, you're not a us taxpayer. And all you have as a rental in Florida, it's okay. You just, you just pay federal taxes on whatever the net income is. Normally we work with our real estate clients. We make this an election because the default is that it's subject to 30% withholding rate your rental income. So, we make an ECI election. We make an election for the rent to be treated as if effectively connected income. So therefore, you get to deduct the expenses that are ordinary and necessary to run your real estate investment portfolio. And you only pay taxes on the net income. So, speak to us, speak to any one of your chosen quantified advisors if you have a US real estate portfolio. 

 

And with that, thank you very much. We really appreciate your time. Those who are in the various streaming platforms thanks logging in. Please feel free to reach out to Boon Yip, to Eddie, to Hannah, to myself. Thank you very much. Have a good evening guy. Bye now. 

 

VOICE OVER:

Here are four ways we can help you. 

 

  1. Sign-up for a free webinar on US Expat Taxes and International Entrepreneur Taxes at www.HTJ.tax
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Our books and upcoming events are available at HTJ.tax. Please subscribe like, share and comment down below or email us at help@htj.tax to engage us to advice on international tax or business matters.

 

[ HTJ Podcast ] Derren Joseph interviewed by Brad ‘Bảo’ Hirsch  host of the radical traveler podcast

[ HTJ Podcast ] Derren Joseph interviewed by Brad ‘Bảo’ Hirsch host of the radical traveler podcast

March 10, 2021

www.HTJ.tax

Proudly Present:

Derren Joseph interviewed by Brad 'Bảo' Hirsch

Host of the radical traveler podcast. March 10th, 2021

Derren Joseph (Partner, Hayden T. Joseph & Co. )

Derren is a Partner in Hayden T Joseph & Co. (DBA "Advanced American Tax") and a member of the International Tax Team at Moores Rowland Asia Pacific, with over 30 offices in 11 Asian countries.

Derren Joseph is an Enrolled Agent admitted to practice before the IRS.

He authored the "Taxes for International Entrepreneurs and Expats: Proven Principles for Legally Reducing Taxes" (available on Amazon).

He has 2 Masters’ degrees in Economics, a Certified Diploma from ACCA (Association of Chartered Certified Accountants in the UK), Executive Education with Columbia Business School, and completed Advanced Tax coursework at both New York University and the University of London.

Derren has had his views published in the Singapore Business Review, Forbes Asia, the American Chamber of Commerce in Indonesia, the International Business Structuring Association (in the UK), Offshore Alert, and the (Trinidad) Guardian.

Finally, Derren has given seminars on tax issues in the U.S., Singapore, Indonesia, Malaysia, Vietnam, The Philippines, Hong Kong, Taiwan, Japan, and the Caribbean.

If you need #InternationalTax advice?

We are here...

Here are 4 ways we can help you -

1. SIGN UP for free webinars on US Expat Taxes and International Entrepreneur Taxes at www.htj.tax

2. STREAM premium educational videos at www.htj.tax

3. CONTACT us for tax optimization consults over Zoom

4. High Net Worth? We can QUOTE for doing your "US - International" tax returns

#HTJpodcast #internationaltax #taxplanning #financialplanning #taxes #compliance #AdaptOrDie #internationalbusiness #offshore #expats #investors #offshore #liveyourbestlife #flagtheory #InternationalEntrepreneur #entrepreneur

 

VOICE OVER:

This podcast channel it's about you, successful international entrepreneurs, successful expats, successful investors. Sponsored by HTJ.tax

 

 

Brad Hirsch:

Well, hey, you know, already we got the Podcast going on. So, I got to say Derren, welcome to the show man.

 

Derren Joseph:

Thank you. It’s a pleasure to join you. 

 

 

Brad Hirsch:

So, sending you a scene that I understand you were living in Singapore these days, is that right? 

 

Derren Joseph:

Oh yeah. I bet. Well, like I guess many people who would be in your audience, I move around a bit, but I've been based in Singapore well, October will be eight years. Eight years. 

 

Brad Hirsch:

Oh 8 years, okay, okay.  So how many years would you say you you've been a guy like a digital nomad so to speak? 

 

Derren Joseph:

Well, I guess, you know, a digital nomad is a term that has a lot of connotations, which I guess we can get into later, but in terms of someone who is not tied to my desk, location independent, I want to be fair. It's started before I moved to Singapore, I did a contract with a, a large technology company, which I won't mention a name, but the rule was location independent because my team was split, but I was managing people in both the London and in Seattle, specifically. So, I was moving back and forth and that was the first time I realized, you know what, it really didn't matter where I was. I can work from home to work from one location and the other, and that kind of opened my mind up to a location independent. But when I moved to Singapore for the role that I do now, I think that's where it went to the next level. You know, that, that sense of freedom and flexibility, which I think many people do enjoy.

 

 

Brad Hirsch:

Sure, sure, I mean, what would you say that a living at Singapore has some special benefits to it as opposed to living in Laos or Cambodia or something like that? 

 

Derren Joseph:

Well, you know what I think, I think it really depends on and maybe this is an opportunity to segway back to the whole idea of location, of the digital nomad. I see, in my mind, I like I have like these two categories or two boxes, there are those who do it because, and of course, you know, there's crossover, right? So, then we should do it because, you know what? I enjoyed freedom. I enjoy lifestyle and you know, but I would mind a situation that's a bit more chilled. And then there’s those who you say, you know what? I do and enjoy the lifestyle, but I want to take whatever Business I'm in. I want to take this to the next level, right? So, you can be location independent, but then you want to enjoy some of the networking effects and being, you know, at least in a certain tapped into a certain ecosystem physically sometimes. And I work in financial services and my clients tend to be more in the second category. They are successful, they are six, seven, eight, or even nine figures and, and yeah, they enjoy being locatMany US #expats and US #InternationalEntrepreneurs, may reside outside of the US but have State tax responsibilities.               

 

If you need #InternationalTax advice? 

 

We are here...

 

Here are 4 ways we can help you -

 

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#HTJpodcast #internationaltax #taxplanning #financialplanning #taxes #compliance #AdaptOrDie #internationalbusiness #offshore #expats #investors #offshore #liveyourbestlife #flagtheory #InternationalEntrepreneur #entrepreneur

ion independent. They do cross border business and Singapore is a more useful hub for tapping into what is it an ecosystem 

 

Brad Hirsch:

Sure, sure. So yeah, it's a very diverse country from what I understand.

 

Derren Joseph:

It is, it is. 

 

Brad Hirsch:

Yeah. Well, in a while we were talking about being a digital nomad or, you know, an ex-pat an entrepreneur, I want to say, in your book, you talked about three flags or five flags, you know, or kind of that idea. So, can you expand on that a little bit? What does that mean? A three flags or five flags?

 

Derren Joseph:

Well, you know people that are familiar with flag theory, right. I'm aware that especially being in Singapore, I believe that they are actually companies Incorporated in Singapore and Malaysia and elsewhere that use that term. But so, you know, but my understanding is that it's not just the name of certain businesses, but it's a term you use to describe an idea or concept in a device by some guy I think in the 1950s. And basically, you know, some people talk about three, five or seven or eight flags, but, you know, I don't think it's meant to be dogmatic, but what it is, it is about a principal and the principal is diversify your lifestyle, which, you know, makes sense because finance 101 is you diversify your assets or your investments as well. Don't have all your eggs in one basket. So, it kind of takes it to the next level. What's your entire lifestyle. And for some of my clients, it isn't just something cool that is on a book, on a website, it's a genuine concern to them because they come, they may belong to a certain religious slash ethnic groups where historically the might of been persecuted. And even though in the younger, some of them, they had a parent, they have parents and grandparents that gave them stories of when, you know, politics turn against them. 

 

So, I don't want to get into that, but obviously that happens. And from then within their family, they have a philosophy that are just in one jurisdiction. They never have all of their wealth in one jurisdiction because as a family thing to remember what it was like to lose it all, you know, it was a couple of generations ago and for some of my Asian clients as well and Southeast Asia outside of Singapore, you know, whether, I know it's a bit controversial in some jurisdictions, but people of Chinese heritage tend to do statistically disproportionately well in business, right?

 

And there had been certain cases of civil unrest and within recent memory. Most recently, at least within my little network would be late nineties in Indonesia where people of Chinese heritage were deliberately targeted. So as a result, people with that ethnic background, they have a philosophy as well of also diversifying their lifestyle. So as a result, where they run their businesses may not be the same jurisdiction in which they have citizenship or residency. Maybe they have more than one. So, you know, they have that freedom of movement of needs to be, they may store their wealth in another jurisdiction as well, and they want it and be entertained and not just in Asia, you know, I'm thinking of certain families and South America or the Caribbean, where unfortunately, kidnapping is an issue as well. So, if they want to hang out and if they want to relax, sometimes they can't do it with their run, their businesses because conspicuous consumption, conspicuous displays of wealth may create problems. So, they have another jurisdiction where they go to hang out. So basically, it’s about diversifying your lifestyle. And then that becomes three, five or seven to eight flags depending on how we want to do it. 

 

 

Brad Hirsch:

 Sure, sure, that explains it really well, actually. So, I get a lot of folks that, you know, call me cause I'm a very light consultant, a broad consultant and of course the finance and citizenship side is only one piece to the puzzle. But, nevertheless, I get a huge number of folks that give me a call and are really at the beginning stage, just starting to consider moving abroad or, you know, expanding or gaining residency in, in other country. And, they often kind of the big question at the beginning is why and why bother because let's face it moving to another country. It's, it's got its own challenges. I mean the food, time zone and let alone tax implications and running in an international banking. We can all admit that it's a complicated thing, but why would you say Derren? Why is it a good idea for people to bother moving abroad in the first place? 

 

Derren Joseph:

So, you know, I preface everything I say, by the way, this game in a one size doesn't fit at all, what's good for one person is not good for necessarily good for another. Everyone has to figure out what the own way. But having said that, I think it's become more topical recently. And I guess because of the nature of what I do, most of my network are US exposed, you know, and so given, you know, whatever has been happening in the past few years, there's, you know, people are comfortable talking about colleagues leaving California and going to Taxes or leaving New York and going to Miami right or South Florida. So, part of that would be some sort of arbitrage with taxation given that California is the highest taxes in a union and you can automatically see 13% by moving to Taxes, which is zero tax. Right. 

 

Brad Hirsch:

That would make or break in Business. 

 

Derren Joseph:

It can, yes. But part of it may also be lifestyle. So, some people were, you know, they felt uncomfortable, you know, families, kids, whatever, with some of the protests had been going on or you know, some of the other social issues and they want it to move somewhere where things aren't as uneasy at the state. So, it, in other words, it's kind of like taking that same principle. The point is not everyone left California, not everyone left in New York, but for some people is the right thing to do for themselves, their family in their business. And similarly, why not leave the US because I mean, you've just saved the13percent. You can save a whole lot more by jumping in a plane and going to another jurisdiction that works for you, your family. So, there's as an arbitrage as a tax arbitrage, but for the most part, it is about creating the lifestyle and environment that, that works for whoever it is. 

 

 

Brad Hirsch:

Ah sure, sure. They do go hand in hand for sure. One thing I bring up to folks now, and then of course I'm not like a seven to eight figure guy and I'm more of a simpleton. However, it is the fact that my last a year that I live in the United States, I spent about 30 grands on a tax, you know, between state, federal, you know, you name it, employment taxes. And which made me smile is here in Vietnam. We live in a rather luxurious lifestyle, but we live under a thousand bucks a month. So, I had this moment where I'm thinking, gosh, in my tax savings alone, like, hey, if our tax burden was cut in half by moving to Vietnam in effect, I'd been living here for free. So, there's, I'm definitely in the category of people where my tax savings alone by moving to another country, only that a based in my entire lifestyle, everything is basically free after that. And I think that that's a really important point that a lot of people need to need to fathom. Do you run across that a lot? 

 

Derren Joseph:

Yeah. I mean there is, again, you know, when you get from my perspective is that when you get to a certain level of income, within reason you can afford to pay, you can afford and you are highly incentivized to get onside professionals who can help you, you know, rationalize that tax situation so much so with the right structures in play, you may not actually may need to leave whatever jurisdiction you enjoy being in. So, you know, if it is, you know, if it is that you are not a seven or eight figure income earner and you know, it's just, I'm not judging. I'm just saying that people make different choices, right? So, if you have not the end, you have to figure things out in your own. I think in terms of moving from one jurisdiction to another, that's a quick win and that's something you can more or less figured out on your own. OK, I'm in California, I'm going to move to Nevada. I'm going to move to Texas. Okay. Right. You just do it. Whereas if it is that you, you need it to remain, you know, you need it to remain in a certain jurisdiction, but you can pay a team to help you restructure the way you hold your assets. You can probably make a big saving as well. So, my point is that a more of a move is not always necessarily to save. It could just be surrounding yourself with the right people, and that advised people unfortunately, and people complain. But that advice isn't cheap because, you know, it's not like you can pick up a book and, and learn the nuances of some of these rules pretty quickly on your own. And in addition to what is the change frequently? So, the learning curve is pretty steep and it's expensive. So, people who had that sort of advice need to be doing a compensated for push for providing it. So, there’s that aspect of it, you don't necessarily need to move to save that kind of money. So therefore, if you choose to move, it will be for other reasons as well. Maybe savings will be part of it, but that's not the entire picture. 

 

Brad Hirsch:

Sure. Yeah. That's a good answer. Yeah, certainly. I mean, you got to build a life wherever you're at as well.

 

Derren Joseph:

Exactly. 

 

Brad Hirsch:

Going to that direction you've talked about, or I liked the metaphor that you brought up and your book's there, where, when it comes to financial advice, it's really an analogous to a medical bag, you know, and you don't have a pediatrician and ask him a neurological question or a heart surgeon and asked him about a foot of disease. And so, we can agree that in the medical field, there's a lot of a specialty and we could also agree that in the medical field is infinitely deep in every direction. So, finding the right specialists, you know, for the job, for what you're trying to do is a real key importance. And one thing that you mentioned when it comes to finding a good team to work with is finding, finding a group or not just an individual, but an individual part of a larger team that is stationed all around the world. And, and that's the case with you and the companies you work with is that right? 

 

Derren Joseph:

Yeah. So, I run a semi-autonomous team within a larger practice called Moores Rowland. So, within Asia, so we're based in, in Asia was so we have just over 30 offices, around three offices in 12 countries. So as far North, as Tokyo and Beijing, all the way down to Australia, New Zealand and Singapore, and the point is that, you know, as you intimated a one person can't know everything. So even though I may be at the point of contact with the client behind me, I have a great team and those were the shoulders upon which I stand. And you know, it would be disingenuous and professionally responsible for me to give an advice, knowing only part of the picture, because let's say for example, you were in Vietnam, Cambodia or whatever, and I can give you US advice. It may work for the US, but I might put you in a worse position within Cambodia Vietnam right. So, on both sides and, you know, and give you something that optimizes across all the jurisdictions in which you're exposed 

 

Brad Hirsch:

Sure, sure, sure. An excellent way to put it. Yeah. And because they all do have their own unique things and like one interesting example to kind of use this metaphor a little further. Last year I ended up getting sick and my wife suggested I go to the hospital and of course we showed up and within a minute, you know, got a quick blood sample and they have the machine to check and then gave fever, malaria, Zika, basically your tropical diseases, the whole smatterings, and the whole test from start to finish took about 15 minutes. 

 

And yeah, and it was, it was great. And in person, we have all the medicines for all of these in stock. They have the vaccines for all these insects. And I just smiled thinking to myself, gosh, if I let's say God forbid got malaria and I showed up in America, how long would it take them to figure that out? Like it's just not on their mind. And perhaps are a lot of these doctors have never once ever seen a case of malaria in their entire, in the entire life. So, so I think that that's a good example of a situation that might be obvious and easy to solve here. If you take a local advice from local doctors, but despite the fact that the American doctors are terrific people, extremely smart, well-trained an excellent in their own way would be ineffective. Just plain and simple. 

 

Derren Joseph:

Absolutely. Absolutely. And you know, it kind creates a slight conflict. If I'm going to be completely honest with you, and it’s not just myself, but many of my fellow practitioners would agree that we actually make more money cleaning up mistakes. Then we do, and helping people get things right the first time because, you know, it's natural. You leave Australia, leave the U S or whatever, and you, and you start move around doing business. And then your natural instinct is, well, I've worked with my guy back in Sydney or New York or Florida forever. What am I going to change him out? You know, if it ain't broke, why fix it? And then, you know, he he's loyal to you or she's loyal to you as well. So, they don't want to say exactly what I'm not to. Sure. And some of them will wing it and it ends up by bringing you in, in the end. So, we need to try and unwind whatever mistakes we've done and, and that, and that can be pretty costly to a taxpayer. 

 

So yes, obviously, and then, Oh, another thing would be those who spend a lot of time in online forums and Facebook or whatever. 

 

Brad Hirsch:

Oh sure. So, I researching. Yeah. 

 

Derren Joseph:

Yeah. And it was like the blind leading because just because you know, Brad is also from the US, I'm not going to copy everything that Brad did because I work for Brad and then, you know, he has, Brad has his own business model in his clients in a specific place. And he lives in a certain place. So, people just copy and paste without understanding that when it comes to taxes things, a pretty nuanced, and they give themselves in trouble as well. But, you know, I guess it's just all part of the, you know, the experience and we call live, we live, we learn, we try to do better next time. 

 

Brad Hirsch:

Sure, sure. And then I'm going to keep hitting on your book there, because I had some tax questions and stumbled across to your book. And I was like, man, that was the most specific title I've ever seen him. And, but either way, and a lot of chapters, you know, you'll start it off with a general advice and talk for about a minute. Like, here's the general big picture followed by 30, 40 minutes of nuance, the changing environment. And a good example. And I think a strong takeaway for a lot of people is that, especially for Americans is a foreign earned income exclusion. Yeah. That was a big one. And, and it's something that I personally am able to rely on quite a bit. In other words, I'm a real quick, it's a hundred, and I think it's a $106,107,000 for single filers is basically I explained it as it's a write-off. It doesn't mean the tax tree. It's basically a write off of your, you know, state and federal income. You still have employment taxes, but that takes a huge chunk out of it. And, and that's a huge reason for a lot of people to consider moving out here. If, you know, broadly speaking in your first a hundred grand is tax free. I mean, it's an overlay or an over simplification, but sort of true. And now that's a big draw for a lot of people to be sure that's full of a ton of nuance, you know, as well and a ton of details and you cover those really well in your book. But with that said, is there some general things you can say about that exclusion and, you know, how does it apply to people, I guess some general advice. 

 

Derren Joseph:

Okay. So, I'll kind of like create the context, explain what it is, and then explain some common misconceptions. So basically, what it is, section 911 of the US tax code provides for that, if a us person is outside of the US and when I say a us person, I use that term very, very carefully. So, a us person would be someone who has either a us citizen has a passport or a green card, or is someone who triggers substantial presence. So that is something we deal with all the time. It’s typically something we deal with. But right now, with COVID-19, it's a bigger issue where people unintentionally through no fault of their own. There had been so many travel disruptions. I have a client this morning who a European based in Singapore, who was doing a job in a certain state in the US, and COVID hit, he could not leave. There are no flights. So, what is he going to do? 

 

And then when the flights came back, it was hard to get into Singapore blah, blah, blah. So unintentionally he's spent a long time in the US, he's now US taxpayer, right? So those were the three categories, citizen, permanent resident, AKA green card or substantial presence. There's another one, but we believe that for now. So, if you are a US person and this is as I've defined it, and that comes from section 7701 in the tax code, and I think it's important that, you know, you trust, but verify. So, whoever is speaking to me, whoever it is, you know, just double check that person is, you know, knows what they're talking about. So, anyway you spend a certain number of days or time outside of the US, and you can qualify for something called the foreign income exclusion, which excludes the first a hundred K plus of your income from US taxes. So, you still report it, included from the tax calculation and under that section 911. 

 

So, you can benefit in one of two ways. The is the one that everyone understands. So, because, it's a quantitative, and objective. The other one is qualitative and subjective is just harder to understand. So, the easy one is the physical presence test. So basically, you don't spend more than 30 days in the US. Wherever it is in the world, you qualify in a day in the physical presence, right? Easy. You just count your days easy. 

 

The other one is more, it's subjective, it is qualitative, it’s a test of intent. So basically, you have to demonstrate on the form 2555, that center of life, your center of life has moved from the US to whatever jurisdiction you claimed to be a bonafide resident of.

 

 

Brad Hirsch:

Job, company, contracts. 

 

 

 

Derren Joseph:

Exactly. Do you pay taxes in that jurisdiction as well? So basically, they try to ask whether you are a bonafide residents. Now the common misconceptions on that side, I have a client this morning, based in the middle East and connected with them in LinkedIn, they are doing very well. But the point is that they didn't pass that threshold for the Foreign income exclusions, and the person made less this, it moved to the inflation, but for 2020 is 107,600K. So, this is not passed that threshold for the past few years. So, they incorrectly assume, because again, that's some of the misinformation, some of the fake news being peddled in some groups that if you don't pass a threshold, if you don't need to file, and now she's having an aha moment, she's been misinformed. So, she needs to play catch up. So that's one of the misconceptions believing that you don't need to file. In fact, the threshold, depending on your filing status can be as low as $5. So, in other words, 

 

Brad Hirsch:

Of course, if you're a married, yeah, 

 

Derren Joseph:

Exactly. So, you made in $5, you need to file a return. So that's the first, first misconception. And then the second thing is, of course, we spoke about the arbitrage. You know, you save the 18% in theory, but moving from California in Leslie to Nevada, Texas, and you can even assuming you make you know, like a, a hundred grand or whatever, maybe you can save everything by moving outside the US that's a second misconception. Not exactly because you need to move to somewhere and unless you're going to move to Dubai or a certain Caribbean island, wherever you are going to move to? They have tax rules as well. So, you may be tax free from the US, but you are living in Bali, which is my case yesterday. A bunch of people living in Bali at many people live in Bali, but in Southeast Asia, Indonesia has one of the most aggressive tax codes. So, you jump pot into the fire.

 

So, you know, so yes you have saved $170,600 at least excluded that from your tax calculation to the US but Indonesia also taxes you and your worldwide income. Indonesia also wants to see a list of your assets. You know, they want to know about your bank accounts in the US, what LLC you have, they want to know about everything as well. So, the point is, yes, it's important to understand where you're coming from, but also be conscious of what are you going to.

 

Brad Hirsch:

Of course, yeah, yeah, definitely in, and this is a big deal. And we keep on talking about this exclusion because, as an example, it's reasonable that a person could be paying, let's just say, $30,000 in taxes, federal and state without the exclusion, you know? And so that would normally they'd be paying that 30 grand, but with the exclusion, maybe they'd pay close to zero. So, it is possible that it's a $30,000 difference, whether you qualify for this income exclusion or not. So that a huge one. And, and I keep bringing this up to American folks all the time. You know, if you're in the neighborhood of earning about a hundred grand, 80 grand a year, man, considering moving overseas and qualifying for that, shoot you’re doing great. You know, you brought up an interesting nuance in your book that I thought was really a worth focusing on. And that is that this is actually earned income. That means if I have a job and I'm working online, for example, or I'm a consultant or something, and I'm actually earning money, great, then it would qualify for this income exclusion. Now, in contrast, if I'm receiving social security benefits or like residual income, well, or I'm receiving like a pension from the male or the military or something, well, that wouldn't really qualify. That's not considered earned. Is that right? Did I understand that nuance correctly? 

 

Derren Joseph:

Yeah, absolutely. So, we need to differentiate between an earned and unearned, otherwise known as like passive income or investment income. So, the foreign income exclusion section 911, applies to earn income. So, you performed a service are provided a good, and you, you know what, whatever it is, you, you actively engage in a trade or business. You are performing something and you've been compensated for it. So that will quantify where's your investment income, not necessarily. And it works both ways as well. So, some people may move to the jurisdiction. So, I spend time in Portugal. So, Portugal is quite popular for the location Independent people is probably number one in a lot of people's list. And again, the fake news and some of the misunderstandings and some of the groups on Facebook or whatever would be you move to Portugal and you live tax-free under the NHR program, not a habitual residence. Well, yeah, but it's tax free for certain types of income. So, for example, investment income, interest dividends, or whatever, maybe yes. But if you are working, no, you are going to be paying taxes. So again, it is a distinction that it's really worth taking time to understand between the investment that income and the earned income, not just from a US perspective, but as I always say, if you leave the U S where are you going to go? So, you need to pay attention to the rules there as well, because they have rules. 

 

And as we see, well, given the health situation that the, the entire world is facing, I don't think there's a government in the world right now that is encountering their pennies. And there are going to look at tax revenue as a way to plug the holes that they have in their balance sheets. And if it is so once upon a time, they would turn a blind eye to people, you know, just kind of like pop in, and out or whatever, doing stuff online, not anymore, not anymore. 

 

Brad Hirsch:

Sure. Is there are getting a lot, stricter is what you're saying. Okay. Sure. And a one angle to that I think is important is a, you've talked about areas or know certain countries and the penalties for not reporting certain things. For example, if a person from America living in Singapore happens to have a Swiss bank account, for example, and doesn't report it and doesn't say anything about it. Well, that could be like they would get penalize. In some cases, I think you talked about a 150% penalty are more, in other words, if you got a 10 grand in there, well, it's a $15,000 penalty for not reporting. Is that about, right? That there are a lot of penalties in the world for people not following the rules. 

 

Derren Joseph:

You know, just dipping out in a bit of geopolitics. I think for a while now, we have at least anyone who has been paying attention, appreciate that the new oil is the new gold is data. And also, to Western countries in particular, what matters more than collecting revenue is collecting data. And for the US, I think the inflection point was 911. 

 

So, post 911 at the Patriot act and certain other rights that kicked in that basically meant that the government, the IRS, you know, various government agencies, they are very, very sensitive to data. IE what are US persons as defined previously doing a broad. So, if you didn't file a tax return, okay. All right, well, penalties interest, if you don't pay the taxes and we're in a zero-interest rate environment. So, depending on how much but if it is, you did not report investments or holdings outside of the US, there may be other past to be an implicit assumption that you’re up to some sort of nefarious scheming, you are doing something that is counted to the interest in the United States? So as a result, the penalty is a pretty draconian. So, in the US, my home state is Florida. So, a few years ago, there was a case that was, you know, we get all of these legal emails. And there was a case where there was a professional living in South Florida. I think he was a dentist. And he had a million dollars in a Swiss bank account, which she did not report to the IRS. Now, the IRS held that he didn't report that balanced for three years. However, they made that assumption. Now the maximum penalty that they can, they can levy on an unreported bond balance is 50%. So, 50% of 1 million is half a million over three years at 1.5 billion, which is a case that if you just mentioned, so here he was, you know, that was the penalty that he was asked to pay. It was settled out of court. So, we don't know how much, but that's what they can. And they take it very, very seriously and is not just the civil penalties, but they can also be criminal charges as well. 

 

As we saw with the people connected to the former US administration, regardless of whatever hacking or whatever the point was at this particular person who his name, I won't mention because it is enough in a media that they had bank accounts outside of the US and they did not report it. They use that as an opportunity to get a at the person. So, the point is, you know, what all they want is information, and it's not necessarily taxable. All they want to know is what you're doing. Have you invested in a company and outside of the US just tell them what it is? Do you have a bank out in Vietnam? In the Philippines? just tell them what it is, because if they find out on their own, it's going to be a whole different game. 

 

Brad Hirsch:

Sure. Yeah, certainly. And why bring up to a lot of my friends and colleagues and clients that, hey, I bring up to them. How long have you been sitting around and thinking about your travels in taxes? They're like, Oh, I don’t know, a few weeks, a few hours here in there. And like, right these boys have been thinking about it for 200 years. They know way more about it, the news. So, don't try to cheat the system, you know, instead a you're better off learning how the system works, you know, of course, finding a professional help and you can go on from there. And I'm, and I don't want to touch on, you know, you talked about fees and sure. There was a certain cost with, you know, getting help. I'm like even calling me, there was a certain fee I'm a pretty low, but there is still a fee. But my goal and what I always tell folks is that a I'm here to save you money. In other words, if you pay me a hundred dollars, but I can save you two grants. Well, how much did it cost to talk to me? Well, in effect, you came out at 18  hundred bucks a head, and there's a countless situation where a, you know, vocally and over the phone wedding related you name it where, you know, a small input of talking with an expert can save countless hours of stress, headache, and God forbid, you know, penalties and fines and that kind of thing. 

 

So, so would you also say that in your experience, when you're seeking out clients, you're looking for clients, for whom, you know, you're able to save them a lot of money and, and absolutely make it worth it. Is that, is that right? Or do you have any examples of that for people who 

 

Derren Joseph:

Absolutely. So, my most recent client in Bali, I think we wrapped up his account. And last week, I mean, my fees were around $10,000, but he got a refund of much more than that. I mean, I won, but it was quite so, you know, in other words, I did your returns for free. If you look that way, you know, but I guess the thing is to, you know, to the point you raised earlier, some people want to do the right thing, but unfortunately, they are people who they may be very well-intentioned. 

 

So, in this particular, this client in Bali, he didn't do the return's previously on his own somewhat to help him. And I'm sure that present a really good, hot, and they were trying to do the right thing, but they are not qualified no of the experience. So, he was paying way more in taxes than you needed to, which is Y could get him 20 to $30,000 refund. Right. So, you know, so it's not that people, you know, some people are trying, some people are trying to hide out. I mean, that, that happens. 

 

There are emails that I just don't reply to because I can tell they're kind of shady, but some people want to do the right thing, but unfortunately, they don't know where to look. And unfortunately, people who are qualified and experienced, well, we are restricted by the terms of our license, by what we can say in how we can market ourselves. Where people who are unregulated, and unlicensed they're hands aren’t tied and they can get on to YouTube. They can get on to Facebook and they can say whatever they want. They don't have a professional liability insurance. They don't have to worry about anything. And if you notice what they do, they will never be in Singapore because Singapore is heavily regulated. They'll go next door, to go to Indonesia. Malaysia there will never be in Western Europe because that's heavily regulated as well. So, they'll go to Eastern Europe. They'll never go to the us or Canada. They claim it's high taxes because it notes regulation. So, they'll go to Panama or Mexico and they will make, and they will say what they need to say, because they know that if they were to make that video or to say those things for when, in one of those regulated jurisdictions what's going to happen. 

 

And I know that there is, you know, there's another, you know, like an online personality who it turns out last year is under investigation and seven jurisdictions, seven. 

 

In the US the UK, Australia, and New Zealand, and a couple others, you know, who is not looking, but, you know, he is a regular, he has a really, you know, charismatic personality or whatever, but he was, he's an unregulated ish. You know, he has no license or whatever. And sometimes he says things and, you know, he does have a business. So sometimes he does things that kind of crosses some lines. So, it's a weird, so people do look, but my advice is to look for someone with a skin in a game, the score would be a licensed to lose. So, if it is that, you know, go sideways, you have recourse if you have recourse. 

 

Brad Hirsch:

Yeah. I understand what you mean. Not well, and I think a lot, not only stand in the game, but it's nice talking with a guy like yourself, because you're actually living in another country, you are actually doing that in your practice. Right. And so, you can answer lot of questions, which in my own experience, you know, so at that, that really, you know, certainly, certainly so well, good. Okay. So, to shift topics a little bit, I wanted to ask you, because you've been in this game for a while, what kind of trends have you noticed, or what has been some changes over in the last, let's say 10, 20 years. And it will, if we went way back to the 1970s, yeah. You ended up talking about that book, a future shack, you know, and that was really predicting the digital nomad explosion and the post-industrial world, you know, that we're really living in here now. But, but anyway, so that's, that's kind of a futurist book, but it's proven to be totally true. But what, what trends have you noticed in the last five, 10, 20, 30 years? What are you seeing? And demographics types of income, types of questions. Yeah. What have you seen? 

 

Derren Joseph:

So, you know, so I did write a follow up to that book, it’s called, Adapt or die. And I penned in when I was under locked down in Indonesia when things for us kicked off last year, because I can see that certain preexistent trends that the health crisis that we're facing has served as a catalyst. So, it's accelerated process and trends. So, some of the key trends that I pay attention to, and it has implications to me and my clients would be difficulties in travel. And that's something, you know, I have a client who, whose grandparents or great-grandparents are whatever, you know, move to the US in the late 18 hundred, early 19 hundred. And they, you know, they came from Europe, from Western Europe and then the whole Ellis Island thing back in those days, because he traced his records, you know, like a family tree, and you can have shown up and Ilice Island without any form of documentation, no ID. And it's like a rough kind of a health check, you know, and make sure you’re ok, welcome to America. Now, something, you know, fast forward a bit, suddenly you need some form of identification. I mean, there was like a passport, but how are you show me something that says where you are and where you have come from, and then fast following, they need passports and then fast forward visas. So, they, they are barriers to free them to the movement of human beings. It's becoming increasingly difficult. And when we see in the present situation is that all visas had been thrown out. Everything has been scrapped, all biological, everything has over. So, you back to, you know, there was a period of time. We were having a US passport was at the same level of having like an African or an Asian passport or some, another emerging market where no one wants to let you in. And yes, boarders are slowly reopening on a bilateral basis, but for the most part, and on essential travel is still, is still pretty difficult. And I don't expect that, you know, there's no returns to 2019, this is something that was going to continue. So, one of the first things is difficulties in travel, which means that for those who do business internationally, who are location independent, these are runs and stuff like that. And that's all news. You need to cultivate and curate a portfolio of residences and citizenships that's. So, you know, I'm going from a sixth one next month, which you moved in 

 

Brad Hirsch:

Six flags. Okay, sure. 

 

Derren Joseph:

Not a flag, but in terms of jurisdiction, because, you know, I want to be able to enter and exit, and I recognize that and the snap of a finger, they can shut the borders again, once things, you know, and I may need to get in there for business reasons, and I don't want any problems. So, you need to cultivate that portfolio and you need to do it carefully. So that's the one thing another thing is to, in terms of taxes, as we mentioned, we hinted earlier, every government in the world is hurting right now, no matter how rich you are. And, you know, Singapore as a pretty rich country. And they're feeling the pain as well. So, expect that Taxes, we're going to go and to go up whichever jurisdiction you are exposed to expect taxes to go on that that's, you know, that's a given and in some cases Expat so, you know, in the US and I think New Zealand, some of the jurisdictions there've been conversations and the UK as well about wealth taxes 

 

Brad Hirsch:

Ah, okay. That's a broad category. 

 

Derren Joseph:

Yeah. So, you know, it's a conversation has been happening where, you know, you are not being tax on income, but just by the, you know, having assets be on a certain threshold, whatever that may be, they may want to tax you. And what we've seen after the tax cut and jobs act 2017 of the president, previous president, previous administration, President Trump, those taxes can be retroactive. So, it's not like the way that it's coming up. So, you have time to plan and get your phase in order. And I can say surprise, here it is. And, you know, we kind of get them back data in terms of, so again, you know, but you know, I think tax professionals, especially those that are qualified in a jurisdiction, they have the add to the ground and sometimes they know what is coming when or what the legislatures are thinking of. So again, as, as a business owner and, and I guess many of the people that we do with our business owners that, you know, it's worth keeping the, keeping the lines of communication open with your tax professional, your structure, your corporate structure, your business structure is kind of like your core. You know, you need to have it service, make sure it runs properly. You don't want to break him down at the moment that you need it most.

 

Brad Hirsch:

It's a good metaphor, I think, Oh yeah. You think is enough spend in a few, a hundred dollars repairing a car. Well, you know, spend a little money looking at your financial structure and arguably that matters more. 

 

Derren Joseph:

Yeah. So, those are two, two trends that I think is important that, you know, people who do cross border work need to be aware of. 

 

Brad Hirsch:

Okay. Sure, sure. In my own experience what I can say, and I've had my experiences rather than narrow, but in America when I was growing up, I never once met anybody or heard of anybody that left America to go and live and retire in another country. I think the first guy I met, maybe I was about 25 years old in Mexico. And I'm like, you can do that. Wow. And like, it didn't occur to me. Similarly, when I first got to Vietnam, let's say five, six years ago. 

 

I didn't know anybody who wanted to retire and move to Vietnam. I didn't need a single one, but if I look around now in 20 to 21, I know at least nine people firsthand that live in my city only sure enough, they are retired in America and they're like, whoa, I can live on a hotdog, toilet paper and in water, or go to Vietnam and live like a King in effect. So, I would say people retiring and moving to places like Vietnam or Eastern Europe and so forth, I would say it's considerably trendier more accepted and there's more of a, a path to go they're would you say you've experienced that like an influx or more people that want to retire and in another country? 

 

Derren Joseph:

Hmm. That's tricky. So not necessarily, no, to be honest, no, most of our clients are still in the, in the working space. And I think our fees aren’t the cheapest, just, just being completely transparent, completely honest. So, I think when someone gets a, a, a situation where with the end of the working life of the things, a pretty simple, then they, theirs, they probably are no need to, to pay for a team, a, a, a, a certain team, a team that operates at a certain level to do their taxes. Sure. I can try, they can try and do it on their own, and they can get a team that is perhaps less qualified in more complex things in more quantified, in a simple thing to help. We do have some retirees. So, you know, and I focus on what is expensive jurisdictions, so, when someone retires in Singapore to stay in the Singapore that you have to been doing pretty well, because things certainly aren’t cheap there and have a portfolio that is sufficiently complex to keep, you know, teams like my busy. So, you know, that is not an area of growth that we see where we see as an area of growth would be, you know, just peep Entrepreneurs doing business deals, cross border, you know, a couple creating the tech start-ups, you know, you know, various apps or whatever the case may be the one to penetrate certain markets, or they want to raise capital in others. And that's, and that's kind of like where we see a lot of growth right now. 

 

Brad Hirsch:

Sure, sure. And neither of us know the future here, but I had a bit of an anticipation that I'm with a large, the millions of Americans, just to pick an example of that are finding themselves able to work online and able to work remotely over zoom or whatnot. I wonder if maybe 1% of those folks are going to realize like next year, they can continue to be online, but just move to Southeast Asia or a move to Eastern Europe and continue their same job and can continue to the same level of productivity. I would really anticipate that in this next year, the whole world was going to see a lot more digital nomads, full working employees, working at a company, IBM, Microsoft, you name it. We are working at their companies, but just happened to be stationing, you know, overseas. I think that we're going to find the highest year ever, you know, or the probably set a new record for a number of folks doing that. Would you expect that to be the case yourself to do? 

 

Derren Joseph:

Absolutely. So again, pre health crisis. It was a thing; the number of remote workers was on the increase. And, you know, a certain, a commercial district was feeling downward pressure already. Now we have a health crisis and that trend has been accelerated. And well, we don't need to talk about Wework in other coworking spaces. And those who deal in the office space game, feeling the heat as people work remotely indefinitely, and the industry leaders have, you know, they have set the example, you know, the Googles, the Microsoft’s, or whatever the Facebooks have said, you know, indefinitely go. And just as long as you get stuff done, just go wherever you want to go. So, I see it increasing now as to where people go that may change, you know, so pre health crisis, you know, you are popular places like Thailand or Indonesia you know, where else? Yeah. I think this is some really big one's in Asia. Now, the, we do Asia is handled. This situation is different from the rest of the world. And that everyone uses terms like lockdown, but when Asia locked down, they really locked down. You know, we've had examples like in, in KL, in Malaysia with security guards will not let you out of your condo. We'll let you leave right. Now in the West. When we say locked lockdown, sometimes it's not that strict. So, you know, so some people have fell back and they say, oops, I've lost your camera. Are you still on? 

 

Brad Hirsch:

I'll get it fixed. 

 

Derren Joseph:

So, they they've said, you know what I've seen people say, I want to remain location independent, but maybe Asia is not for me given the lockdowns. And they, you know, the lack of freedom of movement and the way I was unable to leave and come, even though I had like a residence permit, I was not allowed to return to Singapore, to Malaysia, to Indonesia to the Philippines. They did not let you back in. And your life is there, your home is the Knicks, your friends, your family, whatever. So that was pretty off putting. So, I see that having long-term implications, in addition to, which I don't think is Asia has figured out how to reopen in a way that lets that is comfortable for people. So as a result, I've seen people who do have that freedom of movement choosing other jurisdictions is choosing a Portugal's, Spain's in Netherlands, a middle East, Dubai, Mexico has been a huge winner. 

 

Once you go to a lesser extent Columbia, Barbados, Bermuda. Because Barbados does come with the Welcome visa, Bermuda. So there like 16 jurisdictions and we have tracked predominantly the West's that have reopened. And they’re welcoming because they have pivoted, they've realized that short-stay tourism is over food for the foreseeable future. We need to build our industry based on lost the tourism. So, then we propose, they will tell us for whatever creates at visa and Tax systems and attract these location, independent people in, let them in. So, my point is you're right, that trend will continue. It has taken a massive leap forward as a result of the situation we're in now with the jurisdictions that you would have anticipated would be a clear winner may not be, and some are coming out to the background and people didn't really think up like who would've thought a Barbados, Barbados is huge.

 

Brad Hirsch:

Huge, meaning they’re popular. 

 

Derren Joseph:

It used to be popular, yeah. 

 

 

Brad Hirsch:

Sure, sure. A great right there. And, you know, interestingly enough, I see, like in the case of Vietnam here, when they have folks that expats don't want to move here and we'll just start from the country's perspective. They're like, gosh, almost 0% of them are a drug deal and criminals so, nice they don't cause any troubles. And if anything, they earned money from outside, you know, online and then spend it all right. Here, it's kind of hard to beat. In fact, if the number of ex-pats living in Vietnam double, Oh, they'd be laughing and they wouldn't mind it a bit. So, I, I definitely noticed that not just here, but in a lot of other countries where they on the ground level and on a macro level, they really do welcome a long-term, you know expats and like, like you said, I would expect that to go up the focus on long-term. So yeah. We'll see how the bees is work out and all of that. Right. 

 

So, Okay. Well, great. Well, I did want to ask you a, what a day in your case living in Indonesia and would you consider yourself multi-lingual, you know, or just in various languages? 

 

Derren Joseph:

Well before I moved to Asia I, well, I did a French, Spanish in basic German and I thought, you know, I'm moving to Asia. Those languages will be useless. It has helped me though, in terms of many I've been, I pick up a lot of Swiss and French clients and then, you know, many Asian as well as American clients, once you know you’re doing pretty well, you want to invest or do you want to have your wealth? You know, flag theory in Switzerland and in Luxembourg, basically jurisdictions where your documentation comes to your statements on French or German. So that has held in terms of day-to-day life, my highest net worth clients on tonight, Singapore there are actually in Indonesia. So, and it does help to you know, I just know survival Bahasa, you know, to deal with taxi drivers because obviously my client's a multi-lingual that speak English, but, you know, just dealing with like restaurants and maybe some guys on the hotel, Uber drivers, or grab a driver. 

 

So, I think the language does help to just create someone into the local society. But if it helps someone develop to a certain amount of respect, you know, you there, you know, you're doing business you, you know, just, you know, it takes time. Just, it shows that you, you show up, you know, you, you have invested, you've invested, not just the language, but the customs, because we all know those who've lived in different countries. There are different ways of doing a, doing things that you want to be respectful. So, and the respect comes not just from the language, but understanding how things are done. 

 

Brad Hirsch:

Sure, sure. And then in a more professional level, you've talked about the importance of finding a team of professional team that is multi- lingual, in other words, if you’re moving to Portugal, you better be darn sure that they got an opposite in Portugal in a way, and they speak Portuguese. So, in that sense, and I'm sure there's a lot of cases where you rely on a broader team like that. And perhaps if somebody did call, let's say they were a Portuguese speaker and they did somehow call you directly, you'd be able to forward them over to a person. You know, who's a native Portuguese speaker, is that right? 

 

Derren Joseph:

Absolutely so important. So, our firm is also a member of a network called Fusion, which is a more or less centered in Europe. So, that gives us access to that talent pool. And as, I don't know if you are aware, but I do quite a few webinars. So, the next couple months I'm doing 15 webinars and Portugal is, you know, Portugal, the US tax is something we do not monthly, but probably every other month. And so, I do it with Augusto Paulino, you know, he is a Portugal a tax attorney, you know, he is part of a practice. That's about 200 people strong. So, these aren't like, you know, some guy is sitting in a corner, I'm trying to figure everything out on himself on their own. They are fully qualified and have a strong team behind them as well. And together we handle queries. And when you look with a client, similarly, it's been a Ricky, his law firm, even in Israel, we do Israeli taxes as well. So, yeah. 

 

Brad Hirsch:

Well good. Are your webinars normally opened to the public?

 

Brad Hirsch:

Yeah, we prefer RSVPs. So, and we encourage people to submit questions in advance and we do it on a first come first serve because normally, so we, who did we have last week? I think we did Spain last week and yeah, we had dozens and dozens of questions, so it's good that we get them in advance and we can look for the people, you know, many people ask the same thing in different ways. We can respond in a way that covers a large number of people. So yeah, that one, we, I think we probably just had an over, just a little bit over 200 people for that one. So yeah, we have webinars regularly. They are all on our website. HTJ.tax, and, and you can feel free to, to RSVP and you can get, we give us the zoom link, like 12 hours in advance, but we have also started live streaming it on Facebook, on LinkedIn. 

 

Brad Hirsch:

Okay. Sure. So, it's not the most interactive. 

 

Derren Joseph:

Yeah. The thing is that if it's like, stream, I don't necessarily see your questions, but if you RSVP in advance, and you emailed me, then we have your questions, right? The guys that are on zoom, there’s the chat box. But I can't see the chats on Facebook or LinkedIn or whatever, so yeah. 

 

Brad Hirsch:

Yeah. Okay, great. So, for a lot of my listeners, they can find out more about you and see some of these webinars by going to your website, which I'll link, of course. And, and along the way I would recommend to a lot of people are to everybody read your book, man. It's, great. And it's, and it’s pretty short, like the audiobook version is only three and a half hours or something like that four hours. And it does a real good job of giving an overview and it really does. And, I really believe like I can point to three people that are just in his last year, if they were to read your book, it would have saved at least a thousand dollars. I can think of three exact people and I'm one of them. Yeah. So, I definitely in the long run will encourage folks to consider getting that book. And I mean it's in my opinion for $10. Oh my God, that's nothing, that's a sandwich in the pot and a soda. Right. So yeah, that would be another good thing. And other ways do you, you know, keep up on Twitter, are there other places to kind of keep in touch with you or mostly Facebook or other the website? 

 

Derren Joseph:

So, we have a social media team and every day. Yeah. I think it's every day new have a video of like a one minute. So, I mean, but it's on YouTube is on Tiktok. It's on Instagram. It's on everywhere. Well, most places including whatever. So just basically. Basically. Yeah. Yeah. And the stimulus payments are your stimulus payments taxable. 

 

Brad Hirsch:

Yeah. Let's just say the important questions actually. I think I might've saw that one on you. I think indicated that instead of receiving the payment, you can actually get it reduced off of your tax bill after you file. That was the aha that I heard from one of your videos like, Oh, that's because I had hated to pay taxes and then receive the payment. It's a difficult for me to receive a check and then pay tax is I would rather just be deducted on the front, on the back end. 

 

So, there was an example of a quick question and a quick answer that had a huge impact on my own exposure. So yeah. 

 

Derren Joseph:

And that's a great example too, because you know, if someone only knew half the picture of like the US site, they would say, no, it's not taxable post-op but the person who actually asked that question was resident in Dublin, in Ireland. So, the complete answer, no it's not taxable to in the US but yes, the Irish government will tax it. 

 

Brad Hirsch:

Whew. Oh man. Well, you're just full of great insight. There are Derren and I want to say, I really, really appreciate you joining me here on the podcast, answering a few of my questions and I really hope that, you know, folks down the road, if they're in a situation where they need advice like yours, that they're able to find you online and contract you down the road. 

 

Derren Joseph:

Well, I appreciate you giving us an opportunity to join your podcast as well. It's been an absolute pleasure and I look forward to the next time, 

 

Brad Hirsch:

Hey right on, man, we'll leave it at that. And you enjoy the rest of your day and we'll see you next time. Thank you very much 

 

Derren Joseph:

Thank you very much too. See you next time. 

 

VOICE OVER:

 

Here are four ways we can help you. 

 

Number 1. Sign-up for a free webinar on US Expat Taxes and International Entrepreneur Taxes at www.HTJ.tax

 

Number 2.  Stream premium education or videos at www.HTJ.tax

 

Number 3. Contact us for Tax optimization consult via zoom 

 

Number 4.  High Net Worth. We can quote for doing your US International taxes returns.

 

Our books and upcoming events are available at www.HTJ.tax. Please subscribe like, share and comment down below or email us at help@htj.tax to engage us to advice on international tax or business matters.

[ HTJ Podcast ] U.S. AND SPAIN TAXES FOR EXPATS - 4th March 2021

[ HTJ Podcast ] U.S. AND SPAIN TAXES FOR EXPATS - 4th March 2021

March 6, 2021

Things to Know About Expat Taxes in Spain.

About this Event Spain is famous among U.S. expats.

The beautiful climate and investment opportunities are a draw for many foreigners.

If you’ve considered a big move to Spain, you’ll want to consider the tax implications.

Taxes from both the U.S. and Spain perspective…

In this webinar, we will understand the following:

- Taxes Treaty Between the U.S. and Spain

- Treatment of Pension Funds

- FATCA Agreement with Spain

- Interest income or dividends to report from Spain.

- Treatment of companies in both Spain and the U.S.

Taxes can be intimidating and confusing.

Fortunately, there are experts to help demystify the constantly evolving tax landscape.

Join this discussion of the U.S. and Spain’s critical tax rules and learn how you can legally minimize your tax burden internationally.

Our Speakers:

Ricky Gutierrez Becker- International Tax Advisor Based in Spain, Ricky is an international tax advisor at Gutierrez Pujadas & Partners- a global firm with a boutique mindset specializing in wealth tax optimization.

Wherever your location in the world, your property, assets, corporations, companies, estates, and wealth can benefit from GP’s excellence, know-how, and over three decades of experience.

Ricky has a Master’s Degree in Tax Consulting and Management from ESADE Business & Law School.

Derren Joseph- International Tax for Private Clients, Global Mobility, & Cross-Border Investors (US, UK, & SE Asia)

Derren is an EA (Enrolled Agent - license # 00100858-EA) who has been admitted to practice before the IRS and is an associate member of the American Institute of CPAs (#7920958).

He is the author of "Taxes for International Entrepreneurs and Expats: Proven Principles for Legally Reducing Taxes” (https://www.amazon.com/author/derrenjoseph).

A Partner in Hayden T Joseph & Co. (DBA "Advanced American Tax") also a member of the International Tax Team at Moores Rowland Asia Pacific, with over 30 offices in 11 Asian countries. He has 2 Masters degrees in Economics. A Certified Diploma from ACCA (Association of Chartered Certified Accountants in the UK), done Executive Education with Columbia Business School.

He has completed Advanced Tax coursework at both New York University and the University of London.

Derren enjoys writing and giving seminars.

He had his views published in the Singapore Business Review, Forbes Asia, the American Chamber of Commerce in Indonesia, the International Business Structuring Association (in the UK), Offshore Alert.

He also has given seminars on tax issues in the U.S., Singapore, Indonesia, Malaysia, Vietnam, The Philippines, Hong Kong, and the Caribbean.

Note:

"Pictures or videos will be taken during the event to be posted on social media. If you do not wish to have your image used, please notify the event organizer BEFORE we begin. Thank you."

 

VOICE OVER:

 

This podcast channel it's about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax

 

 

DERREN JOSEPH:

 

 Okay, good evening to most of you and good morning to those of you and other times zones and jurisdictions. Good to see you. Welcome to our webinar on US/ Spain TAXES so just a bit of housekeeping, please could you keep the volume? The volume is off. I have it on mute. Everyone is mute. So please don't unmute. And please keep in mind that we are recording this. So, if it is that you do not wish to be recorded. You, feel free to turn off your camera. We will proceed as we have done this. I think some of you who have joined us before from the names that I can see, I'm seeing some familiar names. So, what we do is we have 20 minutes. I'm going to talk for like 15, 20 minutes on US tax. My colleague Ricky is going to speak for 15, 20 minutes on taxes in Spain. And that frees us for the remainder of the time to do a Q and A. Thank you for those of you that is for those of you who submitted your questions in advance. We have them and we will get to them during the Q and A. If you yourself have any questions right now, feel free to type in the box below the chat box here or in zoom, just to type your question. And we will input time permitting, we will get around to your question. So, without further ado, do you let me start sharing my screen? 

 

All right, wonderful. So, I'm going to talk about the US side for international entrepreneurs and expats who may or may not be based on Spain. Alright, so just in terms of a bit of background about myself, my name is Darren Joseph and I run a semi-autonomous tax team within Moores Rowland. So, more's role in Asia Pacific is a medium sized tax practice, accounting practice. We, most of offices are in Asia, where we have 30 offices in 12 countries as far north, Tokyo and Beijing, all the way down to Australia. I actually sit in Singapore. This October I would be eight years in Singapore. Because I am US qualified, I am required to say that nothing that we discuss here this evening should be construed as advice for those who may be self-filers. And you can with pen and paper and your thinking, and a lot at the end of this, I'm going to be able to complete tax returns on my own. Definitely, definitely, definitely not. We consider this an education piece or what we hope you'll walk away with are some key concepts and principles that you need to keep in mind as you engage in advisor who knows your situation inside out. Again, this is not advice. We are having a general conversation about general principles, nothing we say here should be construed as encouraging you to pay a less than your fair share of taxes in any jurisdiction of which you are exposed in. And of course, we have to say that to stay out of the jail, thank you.

 So, when we say that the IRS has a long arm in the region are overseas. These are the two examples of gentlemen that I like to use, who have been caught by a long arm, of the United States, even though they're outside. If it comes up in the Q and A I'll circle back and reference them, but in the meantime, I'll proceed with all that. 

 

So, the takeaways would be, I want to talk about citizenship-based taxation. I want to talk about the mechanism that the US government uses to figure out what you're doing overseas. Even though you may not report what you're doing overseas, and as US exposed persons reside outside of the US, I'm going to talk about basic principles and we distill them into four keywords that I think, and acronyms that we call the BEST, do your best. So, I'm going to talk about bank accounts, estimated tax, state tax, and transfer taxes. I want to touch on stimulus payments because we've been getting quite a few questions on that and President Biden's tax plan and what we can, the changes of we may expect to see. So that will assist you guys in terms of your follow-up planning, because we like to look at plan, taxes from a strategic perspective.

 

 Alright. And citizenship-based taxation. I think it's pretty clear that the US does practice it in such a big tax Asian. Now that may seem obvious to you guys, but believe me, there are still people out there who believe that they are not outside of the US, and therefore they are not required to file and pay taxes. That can be cannot be further from the truth. Regardless of where you reside, you’re required to file and pay taxes. It's just the way it is. And yes, citizenship-based taxation is typically attached to the two jurisdictions. Well, so from the US, in Eritrea, a country in the horn of Africa, but you know, many other countries practice a wide taxation. And depending on the situation that existed, when you leave your country of origin, many European countries, they have a fallback rule. So even though you reside outside of Europe or outside of your European country of origin, you're still required to file and pay taxes back in Europe. So, the whole idea of being bound by citizenship is not new and it's not really restricted to the US. I mean, the US is extremely sticky that you cannot get rid of it, but there are other jurisdictions where you are still required to file and pay even though your outside. And then the way these fallback rules are becoming more and more aggressive. So, we think this is a trend that is happening, you know, across the developed world, to be honest with you. 

 

 

Now people ask, okay yeah yeah, yeah. You know, whatever I'm required to file and pay taxes back in to the U S, how are they going to figure me out? I'm all the way in Spain. I'm all the way in wherever. Who's going to know? How are they going to know? That's the answer right there is called FATCA. The Financial Account Tax Compliance Act. So that was passed, I think, in around 2010 or so. And empowered in the US government to go around the world, signing bilateral agreements. So, for example, Spain has signed an agreement with the United States and they have basically set aside the domestic bank secrecy laws, and they require all financial institutions to go through their books and ask the team who may be US exposed and report them to the US government.  So that's the check and balance even do you may not see the banks and financial institutions are legally required to say, and not just balance, but we are not just talking about brokerage, brokerage houses or cryptocurrency exchanges. It’s quite popular these days, but so any financial type institution is required to observe certain protocols and report you US exposed persons to the US government. Now like me, I'm sure many of you have more than one passport.  So, you go to sign up for whatever it is and you pull out your other passport. Now, keep in mind that even though you may deny or avoid the topic of being US exposed, financial institutions are required to look for certain indicia or indicators that even if you deny it, without you knowing they are legally required to report you to the IRS. So that is how the system of check and balance that exists. What did we mean by US exposed persons? So obviously if you have a us passport or a green card, otherwise known as the lawful permanent residence or a resident of the US, but there are other circumstances that may trigger that US tax status. One of which happened I mean, it's been quite popular within the last year or so, given the travel disruptions, it's substantial presence. So quite a number of people have been disrupted. There are unable to leave. So, there were trapped in the US and unable to return to their jurisdiction of origin and unintentionally they may have become US tax residence and not just within a US, but other jurisdictions. People will trap for a while and unable to travel. 

 

There's also the issue of what we call accidental American. So, if you’re born outside of the US, you may be born in Spain, but at least one of your parents was a US exposed. And there are deemed to have been domiciled in the US, whether you registered a birth at the embassy or not, you are a US person, and we help clients catch up once they realize that they are US exposed later on, but accidental Americans is a very, very real.

 

And then not very well known, there is this non-resident alien spouses. So, a non-American spouse married to non- US spouse who would decide to make what we call the Section 6113 G election, where they elect to be treated as US person, even though they are not required to. Now that could be part of your strategy because again, taxes are not just about filling out forms, it’s about thinking strategically. If this is an interest, we can handle this in the Q and A later.

 

So, what are the responsibilities of US persons? Well, obviously you need to file and pay taxes of the amount that is pretty clear, right? But here’s a trick, right, when it comes to international tax, the IRS is a bit counterintuitive. What do we mean by that? So, when it's domestic tax, they want to make sure you pay. When it comes to international taxes, when you look at the schedule of penalties and charges for non-compliance, it's pretty clear that the emphasis is on information, not on filing and pay in taxes. If you don't file and pay, okay, fine, you do get interest or whatever, but if you don't report a bank account, or if you don't report your investment in a company in Spain or whatever the case may be. If you don't report mutual funds or whatever, accounts outside of the US that is not just the civil penalties, but it also may be criminal. You can go to jail and the penalties are pretty draconian, even in a civil penalty have a really aggressive. So, it tells us if that's what the IRS wants, and they become aggressive in post 9/11, the Patriot Act going forward. It's all about information there. Implicit assumption in the side of the U S government, if you do not report what you're doing overseas, it has assumed that you and engaged in some sort of nefarious activity and the treat you as such. So, report, report, report, if you are reporting bank account and stuff like that, it doesn't necessarily need to lead to the tax liability. It's simply reporting requirement. 

 

Okay. So, you know, this, we are almost done with this side, and this is just I think it was a cool acronym, just a reminder of what your responsibilities are. So, you need to do your best. We don't mean by do your best. So be your report, all your bank accounts, as I mentioned. Not just your bank account, sometimes you would invest in a certain insurance products or certain pension structures outside of the US but when you look at it, it's really a wrapper and inside it’s some sort of a mutual fund or ETF or whatever. These are, tends to be a highly nuanced, if you should get advice, but they may be treated in a special way of what we can get into something called ppix, but just keep in mind that you have a responsibility to report financial investments or financial holdings outside of the US.

 

 Estimated taxes. Obviously when you’re back in the U S you get paid on a W2, and yeah, there is withholding there's nothing much to do, when you are outside of the US so there is no withholding. So, part of the responsibility of yourself working with the tax team is to work on what your income as expected to be and make estimated tax payments to prevent those underpayment penalties.

 

State tax issues, most states in a union are a domicile state. What that means is that you need to be particularly careful about the rules about tax residency. So, in some states, even though you do not reside there, and you'd been living in Spain for a while, you may be deemed to still be resident in that state. So, pay attention to where the rules are to make sure that you've properly sever state of residency before you move on. And what we tend to coach our clients to do is just shift your domicile to one of those nine states without any taxes, particularly, you know, everyone likes Texas and Florida, or one of the, any of the states that are zero personal income tax states. So, make sure that that's where your deemed to be domiciled so, you don't have any surprises when you ran to the US.

 

Last but not least is transfer taxes. And these tend to get ignored and overlooked why? Because they're not really mentioned in great detail in the tax code. I mean, in terms of the other, being a resident for income tax purposes, you have Section 701, but we don't have much that speaks to domicile issues. So, what we need to do is understand domicile issues. Domicile issue, domicile drives with your exposure to gift and estate taxes. And the concept of domicile is understood through case law, not through the tax code.  But basically that's where it, you know, that's where having an advisor comes in to make sure, especially as your living outside of the state, you maybe into a relationship with someone who's not American and you receive a gift from him or her, or you may gift to him or her, even if it's a spouse, a non-resident alien spouse, the gifting back and forth may be reportable, not taxable, but definitely reportable and in a certain threshold when certain thresholds are past.  And then of course there is a state planning, and I know it's a bit morbid, but, you know, Hey, it's about taking care of loved ones after you, you, you pass on. So, estate planning is, is something that you should not overlook, especially when you're dealing with assets across a, in multiple jurisdictions. So, yeah, please do your best. I'm going to touch on the stimulus payments because we'd been getting lots of questions course had been to rounds. There was a first-round last summer, and then the second round there was approved in this late December. And there's a third round, which is of course being negotiated right now, as we, as we speak, if you did not get it and you qualify and you see the qualifications, they're, if you didn't get, it's not too late, you can file for a recovery-based credit. So, on the new forms. And one of the reasons why the tax season opened late this year is because the IRS had to revise the tax forms to include extra lines for the recovery credit. So, if you did not get it, just let your tax advisor Know. And if you are expecting to refund, the refund will be higher. If you have a tax liability, it will be reduced by the amount of that recovery bit credit. And if you have questions or on this, please check the website. The website is a really comprehensive of lots and lots of Q and a. The IRS has put, I've put a lot of effort into keeping it up with a website. Up-to-date check it up in terms of following the requirements. 

 

This is often confusion around a foreign earned income exclusion. Some people are confused of the threshold for the foreign earned income exclusion, which is around a hundred and some thousand dollars where the threshold for filing is actually quite low. So, if you filing separately, married, filing separately, if their threshold for filing a US tax return in this year is actually $5. So, if you make more than $5, a tax rate is expected.  Do they found an income exclusion, which is something else that's a benefit that comes to US persons that work overseas, and as a benefit afforded by a Section 911 of the tax code, which relieves, which provides an umbrella, a protection of the first seven to 107,000 or so, it moves it inflation of your income protected from a US tax liability? That's something quite different, which we can discuss later on if there's any misunderstanding on that. And most of our clients are higher income earners. So, some of the questions that we field, you know, from time to time is, Hey, where's my free money. Why didn't I get my money? We need to explain that the phase outs. So, when you earn more than a certain amount, the amount, so on the screen, the amount of, of the, of the stimulus payment would have been reduced or completely eliminated. So, for those of you who also have an income earner, that this could be one of the reasons why you didn't get it, if you were expecting it. 

 

So now we're getting to President Biden's tax plan. Now it was pretty for those of you who looked at it. It was really a lot when, when he was campaigning last year, it was, you know, the document was circulated as a pretty comprehensive, obviously can be covered in its entirety right now. So, what I did is I just kind of pulled out some of the key points that might impact those of you who are abroad in within the demographics are the people that we normally interact with. So, for those who are higher income earners, there is proposals. These are all proposals and who knows what's going to happen once there is a negotiation with Congress, it may be completely different, but at least this is a starting point as we understand it. So, for high income earners, those are running over $400,000, expect at a tax increase for those who run their own companies. There is corporate income tax rate is expected to raise from 21 to 28%, which also has an impact on guilty for those who have structures in offshore jurisdictions like BVI, Caymans, Singapore, there’s Hong Kong, Malaysia. So, the mountain of the Gilty Tax, which is attached to the earnings that are returned within the company, that sets increase. There are also some changes around the lifetime exclusion for a gift in a state tax. So that may have implications for you as you plan you, you know, you, do you engage in estate planning or your succession planning with your companies for those who are on their own company. So those are some of the key points that I want to pull out in terms of what you expect to see as the negotiations continue on. So, again, it's not too late to speak to your advisors and get some strategic planning done. So, with that, what I will do is hand it over to Ricky, who will talk about Spain. 

 

RICKY GUTIERREZ 

 

Hi, good afternoon to everyone, good morning for some of you. So well, my name is Ricky Gutierrez. I am from Barcelona Spain I'm from Gutierrez, Pujadas and Partners. It’s an international accounting tax and a law firm in Barcelona, Spain. We mainly, well, we are, we do both International and Spanish taxes, but we are currently for the past few years, we've been currently focused on international tax and the international client. We deal with many jurisdictions, not only a Spain, in the U S also a jurisdiction such as in Ireland, in the Netherlands or the UK, Germany, and even some East countries. First of all, I'm going to speak about the, this Spanish tax. Nowadays, well, and also in the past, the Spanish taxes have been pretty complex because you have to differentiate between the state tax and because here in Spain the percentage of taxes, it depends, or it may differ depending on the state or the region that you’re in, for example, there are three communities In in Spain, <inaudible> and the Basque country, they have their own tax system, and it's different from the other part of Spain. If you have, of course, if you review or you don't file your taxes, you can get severe fines and penalties this Spanish tax year. It runs from January to December, unlike other countries, for example, the UK, it runs from, from July to June. One of the big benefits that we have here in Spain is that we have many, many tax treaties, as you will see, we have over a hundred, a double taxation treaty, and there are two main, or are the two most important taxes for the individuals are the income tax return and on the wealth tax. 

 

So, first thing, and a very important thing. How do we know if we, our tax rate and in Spain? Well, you have to, to see if you meet one of those three rules. The first one is if you spend more than a 182 and 83 days in Spain within a single calendar year, you will be a Spanish secretary. If you don't meet this for a role, then we would go to the second one, which is your primary professional activities, or if they're conducted in Spain and the third one would be your main Interest. For example, if your spouse or your children, which are still depending on you, if they, if they live in the space, The, the Spanish, the Spanish income tax, spanning six residents, they, they all, they pay income tax on their worldwide income while non-residents only pay tax on the income generated in Spain. As, as I saw some of my questions, some of the questions I received from, from Derren a, if you are generating incomes, if you are not tax rate and standing, you are generating incomes outside of the Spain you won't be paying for those incomes on your taxes. You will only be paying on the income you generate in Spain of course, and you can have a deduction with The with the expenses. The, there is a 19% tax rate for the EU non-residents, it's a flat rate and a 24% tax rate for the rest of the world. Non-residents the Spanish income tax is divided into categories. You have the general activities in the savings. And of course, as I mentioned before, the Spanish income taxes, it can be it's different depending on the, on the region that you're living that, for example, in Catalonia, normally it, it, it should go up to 45, 47%, but it's, for example, in Catalonia, it can go up to 54%, which is a pretty high, a, a pretty high rate. The, the non-residents in the form for to file the, the income tax for a non-residence is the form to 10. Now will go into the different to, to configure it from there, from the income tax. The first category is income from savings. These incomes are basically Interest from the savings. You have a dividend payments income from the life insurance policies, income from annuities and gains made from the disposal or a transfer of assets since 20, since 2016, the tax rate on, on savings. These are the following incomes up to 6019% from 6,000 to 50,000, go to a 21% an income, over 50,000, It goes to 23%. As I was speaking earlier with, with Derren with the current government that we have, they been trying to implement new taxes or implement higher taxes. That seems there since the government is not as strong as it's supposed to be, or if they would like to be, they were, they were enabled to pass on. There is new tax system. So, so we are still stayed with, with the tax system we had before with a few changes, but that not many, the general income taxes, an it's income from employment, it's a salary. You have some Pension and rent this Spanish income tax rate unemployment it's in comes from eight to 12,000.  It's 19%, 12,000 to 20,000, 24%, 20,000 to 35, 30%. Well, and of course you can see that the percentages, 

 

For the income tax day is whenever you have to file your income taxes, the time for you to file the income tax, it goes from April to June. So, in less than a month, the income tax campaign starts for an individual, the individual income tax, you have the personnel allowances and deductions, of course, at least six residents to have personal allowances while not residents don't have any deductions in allowances, which is unfortunate. Of course, a Spanish tax resident should have some, some benefits. Some of the allowances that you can have its If you have people over 65 years of age, living with you, if you have children that are under 25 and they're still living with you, and they're depending on you. And these are some, some allowances that you can have. For example, if you have a person living with you, which is disabled He with some disabilities that you can have allowances to, for example, you can have allowances in deductions, four, some of the pensions, you might have a job, or if you pay like the social security system, you can have some deductions in that. Now we get to two, one of the most important taxes for individuals, which is wealth tax. With wealth tax there have been this, this tax has been reinstated and introduced, removed and reintroduced again, because let's say the, if you could bring here in Spain to the US the democratic party, there are always trying to implement this kind of taxes while the Republicans we would like to avoid this tax because they say it's better for wealthy people. These people are basically, this tax is designated for people who are all significant worldwide wealth, the declare assets after tax allowance of 700,000. For example, in Catalunia, the tax allowance, it's up to 500,000. We did is less than the normal. You can also have a 300,000 tax allowances. If you are more for your primary residence in Spain, if you are a tax resident Spain and the tax rate goes from 0.2% to 2.5% imagery, there's no wealth tax, but the current government, they are wanting to implement work tax in Madrid. So currently most of the wealthiest people, which hold a lot of a wealth, they are leaving in Madrid because of this study. So, for individuals AND, this is very important. We have formed seven 20 from seven to 20. It's a, an overview of demean individuals, world-wide assets it's for the individuals that they come to live in Spain, and they become tax residents. And they have to declare all their assets that are abroad. And these assets have to be worth more than 50,000 euros. What happens is that a lot of people do come and live in Spain and become a tax resident. They, they don't know about this form and they forget to file this form. And then couple of years later, when they declared the income tax, since in your income taxes, you have to, to declare some of your assets, or what are your possessions, they'd get, they get fines and penalties for not presenting the, the stacks. Some of the fines can go from 30,000 euros to higher amounts. This form, you have to file it. Once you become tax resident, you have to file it the following year in between the 1st of January until the 31st of March. So, if you become a tax resident in Spain the past few, the past year, and you'll have to file the form, and you still have time to do it property, tax owning a property. And in Spain and, and living in there from 1st of January, your subject to, to do some taxes one of the taxes, it's called AB it seems implicit. So, they'd be in the same level. This text, it applies to both residents and non-residents, there are also some other types of property tax payers, status, rubbish collection tasks. And also, you have transferred Tax. For example, when selling a property, you, you will be taxed for that, depending on the amount that you, that you sell your property. Now, a copy, the gains capital gains, or taxes on profits from selling our property or, or the other investments tax residents in Spain pay capital gains on their worldwide assets while not residents, they only pay capital gains on their tax gains that they have made, or on a scale of a Spanish property capital gains tax that it is easier for non-residents because they are subject to a flat rate of 19% while for a Spanish tax residence you can go up to 23% sometimes more 

 

The corporate tax nowadays corporate tax in Spain, it's 25%, a for newly formed companies. They pay 15% of the first two years, the tax here, as well as the as the individual tax, here it goes from January to December, and you have to declare the corporate income tax. It has to be paid before the 25th of July of the following year. 

 

And of course, also with, with the current government, they are willing to increase their corporate tax to, to 30% a year. They haven't been able to do it yet. From my point of view, I don't think they will be able to do to increase the tax rate. Well, let's hope they, don't another tax that we have here. It's inheritance and give tax deeds. This tax is a little bit tricky, and it's not easy to calculate because well, individuals, they are starting to tax when they are transmitting or gifting assets and tax residents in Spain. As I mentioned before, there will be taxed based on their worldwide assets while non-residents only on their Spanish assets. There are a lot of reductions in the suit taxes based on the degree of kinship. For example, it will be less expensive if you give something, or if your let's say your daughter or your son, they may inherit something a rather than given it to someone, you know, you don't know to a third person, the last thing that we are going to be, I'm going to be talking about this, a special tax regime. There are a lot of people Know that is for a new York's come to work here. Spain we are talking about the backend Law. It enables foreign people to do, to move to Spain. And instead of going from the percentages that we spoke about when presenting the income tax, they have to pay only a flat fee of 24% on the income they obtained in Spain the flat rate of 24%. It's up to an amount of 600,000. Once you are above the 600,000, you will be, your percentage will be increasing on there in the progressive Tax. So, you will be paying 45% or more over the 600,000. This, this Law. I mean, the person, the people that this is going to be moved into the Spanish territory is going to be paying this 24% only the first six years that you are in the country, after that you become Spanish sexual accident. And it works, as I explained before. So, the main requirements for to apply to this Law the expert can have been a Spanish residence in the past 10 years, the foreigner must have a job contract and signed by a Spanish company. So, if you are coming here, but your job, it’s with a company that exists outside of Spain, you can apply to these Law. It has to be with a Spanish company and with the Spanish contract and the directors that come here and they can purchase more than 24% of the company. And the core of the workers professional activities must be in Spain if you have any questions. 

 

DERREN JOSEPH:

All right. So now we get to the fun part, which will be the Q and A.  So, let's get to the list of questions. I'm just going to read them for us because for people who may be watching the recording afterwards, they won't see the questions are written as you can see it in the chat box. So, okay. I keep getting different answers to this one questions. Maybe you can clarify. I have a rule of an IRA and a Roth IRA in the US. 

 

I was told by a Hacienda in Madrid, back in 2012, when I physically went to inquire that the IRS did not have to be put it on form 720. Now I'm hearing from various persons that this is not so, and that they need to be disclosed. What is a correct answer? Ricky?

 

RICKY GUTIERREZ:

So, what I mentioned before, when I was talking about the form of 720, when we speak about the form 720, we declared the assets. We have, we don't consider the pension an asset. So, in this case you wouldn't even if the Pension needs higher than the 50 or 50,000 a year, you didn't have to declare the Pension in the form of seven 20. You will declare the Pension in the income tax. 

 

DERREN JOSEPH:

Okay. Gotcha. Next question. A couple questions. Number one, I'm a registered freelancer in Spain. I'm going to be releasing an e-book by my own website soon this month, and I'll be using a third-party platform to facilitate payment. I will have to add an additional economic activity to my list of activities, but which one would be recommended from my specific situation and also which tax rate will be associated with purchasing an e-book. 

 

Ricky?

 

RICKY GUTIERREZ:

 Yeah. So of course, if you’re doing another activity that is not your main activity or it's not the similar as your previous activity, you would have to go into the thing that we called EIA and you would have to check with a paragraph that matches your activity in this case I check before and it should, when we are talking about online selling, we recommend doing the six, six, five, which is basically a direct selling regarding  the percentage of vat that it is, you should apply to the e-book, it's a 4% a at the beginning, we didn't know If for e-books you'd have to increase it since you are using a platform and all that stuff. But I checked and it's only 4% for this second question. Yeah. I don't know if you read that out loud. 

 

DERREN JOSEPH:

No, not yet. I'll just read it on quickly. It's from the same person. So, if I had been offered freelance teaching position or three hours per week, but the company only issues contracts to all of its employees, do I still invoice them or a as I would an invoice them as they would have another client is taken to account retentions or what do you suggest that I do? 

 

 

RICKY GUTIERREZ:

Okay. So here you can do two things. If you were saying that the company or the school or whatever, they, they only the only issue contracts, you can be both a freelance and you can also be in the, in the general regime. So, you can be contracted well. And if you don't want to be contracted, you can also invoice them as a, as a freelance. You can do both things. So that shouldn't be a problem. Of course, if you invoice them, you would have to, to take into account a, the retention would be probably a 15%. 

 

DERREN JOSEPH:

Okay. Gotcha. Moving on to the next question. I've contacted a few companies now are all focus on the US side or do you guys help in filing both countries? They answer is a definite. Yes. And you're right. Whoever wrote that to insist, because if you just doing the US side and being completely blind to Spain, you might put yourself in trouble with Spain and vice versa. You needed to work with a team that understands on both sides. Next question. I'm living in Spain, but getting paid to a us bank account by a US company, is this an okay arrangement? And how does this affect my taxes, Ricky you want to talk to the Spain side? 

 

RICKY GUTIERREZ:

I mean, it is okay. First of all, though, we will need to know. I mean, you are living in Spain, but we will need to know where your resident is you a raise in SPAIN or in another country, if your resident SPAIN and you are receiving income from outside Spain to a us bank account. I mean, you wouldn't have to declare that on your income tax because, well, sorry, if you are, if you are a non-resident in SPAIN, you wouldn't have to, to declare these in your income tax, because you only have to declare the income generating Spain. If you are in case you are tax the Spain of course you would have to declare these. This is income in your income taxed and regarding the, the bank account. And if you haven't filed a form seven 20 and your bank account is over 50,000 Europe, you would have to file the form 720 and declared it. You have this, this amount or this income, 

 

DERREN JOSEPH:

Right? I'm from the US will you go? This is pretty simple, worldwide income doesn't matter what it needs to be reported. Pretty simple. Next question does real estate owned overseas need to be reported? I'll answer from the US side. If it's an income producing asset, the answer's yes. For you to clear the income on your tax return, if it's not income producing, but you hold a real estate through a structure, it may have to be reported. And for me, the 938, which has the new FATCA a relatively new FATCA form. Ricky from Spain. 

 

RICKY GUTIERREZ:

Yeah. What is that? 

 

DERREN JOSEPH:

This is another question someone sent it to me directly does, or overseas need to be reported. 

 

RICKY GUTIERREZ:

Well, of course it depends on whether you’re a resident in SPAIN or not or if you are already in the Spain of course you'd have to declare all your world-wide income. And in case if you have some something outside of the same, you will have to report it as well. Yeah. 

 

DERREN JOSEPH:

Okay. Next question. I'm considering purchasing a property in Spain with my partner. How could the purchase impact me when I found my US taxes, is it advisable to leave my name off agreements? Well, again, that's kind of connected to the previous one in that it depends. If it is an income producing assets, it, you are going to Airbnb as you want to rent it out or whatever, then that is going to be reported on your tax return. As that would be regardless of where the real estate is, is located.  But if it’s going to be occupied or are you just want to have it at a holiday home, where are you going to do it or whatever, then it doesn't produce income. So that doesn't need to be reported. Except if you hold it through a structure is if you're going to hold it through some sort of corporate structure, then it needs to be reported potentially on form in 1988. Moving on to the next question. How did the taxes apply to someone with a Spanish, non-lucrative visa? Ricky? 

 

RICKY GUTIERREZ:

I'm with an onlooker at the visa, I guess he will still be considered non-resident. So you would only, you would only be paying here for your income generated in Spain and you will still be paying for all your taxes in other countries that you are a resident here in order to become a tax resident. We have to meet the three rules that I mentioned before, or if you could always buy a golden visa, which is pretty expensive. 

 

DERREN JOSEPH:

Okay. All right. Next question. How are IRAs individual retirement account SEPs, which are a simplified employee pension plans? I think AND deferred investment accounts are taxed here, here being in Spain, Ricky? 

 

 

 

Speaker 3 (48m 5s): As, as I mentioned, we would have to do regarding Pension. We would have to, to take a look at the, the Spanish tax Treaty with the, with the U S and see whether they are taxed in the U S or not. And probably regarding the pensions that we are talking about. Some of them you might get, if you, for example, if you have, if you're paying for those pensions in the U S probably you would get a, a refund here, here in Spain. 

 

Well, you will pay in both in, in one country, you would get refund a bit. Of course, we would have to take a look at which kind of PR with which kind of pension are we talking about, and if they are taxed or they are not in, in the other countries, that's why. Yeah. But you also, of course, you wish you would have to declare them in the, in your income taxes. 

 

Speaker 1 (49m 7s): Right. And just a, just to add to a Ricky you said when it comes to a pension, that's a pretty involved on my website on HTJ dot TAX. We have like a block section. We have over 1000 articles free on various tax issues. So as a result of a back and forth email conversation that I had with Ricky, I actually was able to draft like a, sort of a primer on how Spain deals with US pensions, for those who our tax resident in Spain it's might be some pretty heavy bedtime reading, but it, it does provide some sort of insight. 

 

And again, this speaks to the point that we raised earlier, where you have a US person doing US Taxes with someone who's resident in Spain and they don't understand both sides is going to get messy. So it's really important to understand both sides because when it comes to pension, that's a, a real use case as to how both sides and to play. And the treaty comes into a treaty, his needs to be referred to, to prevent double taxation, because nobody wants double tax. And this is, this is an example, what really comes into force a next question. 

 

How is Ricky this one's for your hierarchy? If I were to inherit a property and a US pending, sail, how would this be treated? 

 

Speaker 3 (50m 31s): So if you inherit a property in the U S of course, we would have to, to get advice regarding the inheritance in the, in the us, see if you would have to pay taxes there and probably leave you pay there. Maybe you would get a, a, an exemption here, but of course, we would still need to know if you wear your resident, because if you are not spreading sexual ideas, and then you don't have to pay any taxes here in SPAIN for, for the, in, for the property that you inherited regarding the pending, depending on, I mean, we will still need to know a, of course, the amount of the sale, because it is different. 

 

 

RICKY GUTIERREZ:

If we, if we are talking about a really high, a value or a lower value. But as I mentioned before, we would need to probably seek advice on there, on the US side regarding the inheritance. Because from what I know, it's kind of a different, like the Taxes regarding the inheritance or the difference from, from Spain. Yeah. I don’t know if you can add something to that. 

 

 

DERREN JOSEPH:

Yeah. Right now, so the tax cut and jobs act the estate tax threshold, where Tax might actually be triggered, assuming someone is US domicile. This is why the concept of domiciles comes in. Right. Because it's, if it is. So again, we can't rely on the us tax code because it doesn't get into domicile when it comes to estate and gift taxes. So, we need to look at case law. So, the case law tells us that a, the courts in the U S look at intent plus deliberate action. So, if it is, and I'm just being completely extreme. Now, if it is, when you are leaving the US, you did you stream yourself in a Facebook live, you got all your friends over to your apartment and said, I am gone goodbye. I'm never going to see you guys again; I've saw and everything. The U S is no longer my home. I am out. Then you can make the case that you are domiciled in Spain and no longer domicile in the us. And therefore, the threshold may be lower or from a us tax is a state tax or a gift in a state tax perspective, as, as opposed to it is that you, we're still domicile in the, in, in the U S you know, rights and what state will be higher. So, it really depends on a lot of moving pieces is the answer from the, from the U S and Spain side. So again, you to sit with the team that understands it and we need to work it out. 

 

RICKY GUTIERREZ:

Yeah, and of course, in this case, we will also have to take a look at, which was the value of the, of the property at the beginning, and which is the value that we are selling because we can have a capital gains and of course, you'd have to pay capital gains for that in your income tax, in Spain, 

 

DERREN JOSEPH:

For those. So, in the US, in a state taxes have been levied on the estate to the person who has passed away. The, that, that they have that estate would be a burden on another person who is receiving, but, and just having, having said that historically, we've had what we call a step-up in basis, because you, again, to the point with capital gains, right? Cause when you sell you inheritance, you're going to pay a tax on, on the, on the difference, right? Well, you know, what you get up until this point is the basis or the, the, the cost price or determining where the capital gains or amount would be. 

 

Would it be the, the value at a point where you inherited it? So you get this a step-up in basis and that's particularly, so for those who have used a trust as part of the planning structure, now, again, this is for those who are thinking strategically under a president, by the way, I want to do away with that step up in basis, a potentially. So again, this is an opportunity to think strategically about how about your situation moving on? Sorry. 

 

Speaker 3 (55m 3s): We hear well, a bad thing here in Spain. We don't, we don't recognize the bigger of the trust that it's. Okay. 

 

Speaker 6 (55m 13s): Okay, cool. Next someone is writing. If I didn't file a form seven to zero last year Ricky will I be penalized for filing this year? 

 

Speaker 3 (55m 31s): I mean, if you didn't finally this year, I mean, there's some certain ways that we can, of course, we would have to take a look at the time and see what are the things we didn't file. But of course, I guess we could, we could try to find a solution to see, so you don't have to do to get any penalties. 

 

If you take at the, let's say the law of a thing. Of course, if you didn't file it last year, and then you evaluate this year, probably you can get a small fine, but probably with our help. I mean, we'll help you out to see the will help you out. So you don't have to, to get any fines and we will try to find some solutions for you. So if you don't get any, any penalties for that. 

 

Speaker 1 (56m 32s): Okay. That was great. Someone is asking me, can you put your email address in a box down below? There are asking for three minutes with, you know, I know you, I know it's somewhere up, but I think it had got pushed up with all the messages. And while you're typing that someone is asking, if you purchased a home in the U S for less than 50, 50,000 euros many years ago, do you have to declare that on the form seven to zero? And if the value now is more than 50,000 euros, do you still have to declare it? 

 

Speaker 3 (57m 7s): Yeah. If you purchased a home a well or a property in its over a 50 or 50,000 euros, yeah. You have to, to declare that, but the form of seven 20, you just file it once. I mean, you file at once and then it's okay. Because if you, if the value of that home increases, I mean, nobody's going to know until you sell it once you sell it, then you probably, if the value is higher, you're going to have a capital gain. 

 

And we would have to declare that a file the form of a seven 20, you only file at once. 

 

Okay. That's great. Next question. The non-lucrative visa requires more than six months in Spain. So, you you'd be a tax resident and would have to file even though the visa itself does not allow income generation. And Spain, I guess someone is making a comment. I don't think that's a question. Okay. Next question. I think income is entirely from the U S social security and from dividends from US companies. How much are we protected from the Spanish taxation, since we already paying taxes on this income? Well, again, typically you won't be taxed twice. Once we get to invoke the, the treat you, and even if Spain does insist on taxing it, which many times they, they would, then we can use a certain form to recapture, to raise the income and therefore get your credit for the Taxes you have already paid to Spain. So, the bottom line is at once the team that you're working with knows how to leverage the double tax treaty between Spain in the United States. You won't pay tax twice. Ricky you want to add to that? 

 

RICKY GUTIERREZ:

Yeah. I mean, it's, as we, as I mentioned before, if you are, if you pay taxes, I mean, the double taxation treaties are made, so you don't, you don't pay taxes twice. So, if you pay taxes in one place, probably a, they can require you to pay taxes in other countries as well. The, with the help of people like us, such as tax advisors and all the stuff we can help you out. So, you can ask for refunds. So, you can double tap. 

 

DERREN JOSEPH:

Okay. If we are a Spanish resident who moved here at the end of July, 2020, do we need to fill out the form seven two zero this year or next year also have heard that you need to make payments throughout the year. Is this true? Ricky 

 

RICKY GUTIERREZ:

So, if you came to Spain at the end of July, it means that you were in a tax resident this past year, because you were more than 183 days. So, you will need to, to file the form of seven 20 in between January 1st, 2020 to and the 31st of March, 2022. So, for this year, you are okay, you're going to be calm Spanish tax resident in 2021 you're going to have to file the form of a 720 in, in the days that I mentioned in 2020 to, and you're going to have to file Spanish income tax in, in 2020 to a, regarding the debt payments throughout the year. Yeah, that is correct. You have to make a quarterly payment, but these payments, once it gets to your income taxes, for example, in a, when you present your income taxes, you deduct those payments that you made before. 

 

So you are not paying more. For example, if during the year you reached, you paid more than the, what you want your income tax safe, then you're going to get that money back. 

 

Speaker 6 (1h 1m 21s): Okay. So we can go with the top of the Our. Do you have time to go through some more questions? Do you need to go 

 

Speaker 3 (1h 1m 28s): A year? You'd have 10 more minutes. You have no problem. 

 

Speaker 6 (1h 1m 32s): Okay. Let's do it. And we can get three in 10 more minutes. You have a question. So after five years of non-operative visa, I'm not getting my residency. Can I take advantage of backends? Law are now starting in year zero, or because I've been here five years or ready? Will I only have one year Ricky? Okay. 

 

Speaker 3 (1h 1m 55s): The thing is that we would, I mean, if you have the non-locality visa, we are, now we are saying that you were in touch with me in the state. So when we talk about the back-end Law, the first requirement is that you can be sex-related in Spain for the past 10 years, but we would have to take a look, because maybe since you been living here for, or already five years, maybe they would consider that The then you are, of course the resident here, we would have to take a look at this situation, but yeah, we will have to take a look. 

 

I cannot not give you like a certain answer now because I'm not sure. 

 

Speaker 6 (1h 2m 47s): Okay. Right now, the next question on gains and tax deferred investment accounts in the U S considered income. And Spain, this was part of what we answered in that back and forth on email. So I think I mentioned that before, if you go to my website, HTJ our tax. And you look on blogs. We have have written over a thousand articles on international tax related issues. And we did a algebra compensation Ricky and I, we were having, we came to a primary. It's not a how to guide. 

 

So don't use it in go file a tax return and point fingers. And what it does is it pulls out that the key concept, and I'm going to get into this idea of a tax credit investment ACCOUNT and it's triggered a SPAIN. So I'm just want to go with you quickly. Cause Rick, you only have 10 more minutes. Someone, a foreign tax credits. We have been filing your best Taxes. We don't have to understand how to win this credit applies. This is one of our foreign tax credits. Again, it's how you do nuanced. And, and it, you know, to make sure you don't pay tax twice, we leverage the Treaty and some unique aspects of the us tax code to make sure you don't pay tax twice. 

And using the prime tax credits, using the form 1116, we can't go into right now in terms of a how to guide, but we are seeing that it does exist. It can happen when you speak with your tax team, this should be able to walk you through that process. Okay. That has an actual question. What if I sell my Spanish property for $1? That's an unusual one. Ricky, what do you think on that? I mean, when you sell something U you have to sell it by a somewhat like a real value you can say, okay, I'm going to sell this by one is the tax authorities. They do investigate this kind of a sale. 

 

We are to sell a property for $1. I mean, the point when, when, whenever we take care of the sales of properties and all of that stuff you have to, to do like a big study, you have to, to take into account the real value of the, of the property. And then from that real value, or maybe you can play a little bit with, with the value of that, that not to say, okay, I'm going to sell my property for $1 because probably the tax authorities won't believe it is, 

 

DERREN JOSEPH:

Seems a bit suspicious. Kristin, your question, we answered that yours was the first question we answered with a P courting. Again, you'll be, you'll be able to see it. We will have the recording at each of you in our tax once it's posted, like someone else has seen, I have a double citizen ship. So, I guess maybe it's just a comment on next. What services does he do? Your firm's offer? Do you do it together to complete US and Spanish taxes for you as citizens, Spanish residents, the answer's yes. We offer dual, well, both sides across the board of tax planning, as well as compliance, as Ricky mentioned earlier, he does more than Spain US he does Spain and many of the jurisdictions at all, a team we do more than US Spain we do US and many other jurisdictions as well. I have three more questions. Two more questions on another platform. Someone is asking you, if you become a legal Spanish tax resident in 2021, would you have to file 20, 20 or 2021 for the Spanish tax year? A thing that's kind of obvious, but Ricky?

 

RICKY GUTIERREZ:

Yeah. I mean, if you become Tax roasted in, in 2021, you will be filing income tax in 2022. 

 

DERREN JOSEPH:

Okay. And then what I think is the last question. Not sure if you can have a look, I'm an American living in Spain, I will move back to the States for two years for work and then come back to live in Spain and hopefully forever from a strategy perspective, when it comes to investing for retirement, would your recommendation be to invest in Spain or to invest in the U S Know in the long-term? I will leave the money back in SPAIN. I believe they'll be a tax in the patients in both situations. That's a, a, a different type of question. Ricky you have to take a stab. 

 

RICKY GUTIERREZ:

I mean, it, it depends on whether you, I mean, I cannot, it depends on the person if you really like Spain, I mean, of course there are many, many places here in SPAIN there really beautiful, like in depends on whether you want to invest in it, up to you. I mean, if we invest, if you, if you invest here or there are many opportunities, they're a, for example, now with copied and unfortunately, a lot of people is telling many properties and wealthy people. It's taking advantage of that because some prices have gone lower. Then of course, the, there are many opportunities here and of course as well, there will be many opportunities in the us and it’s up to the person. A but if you had mentioned that you would want to be leaving in Spain in the future. Maybe it’s good to have a homie in Spain Admiral if you buy a property here and he used it at your primary residence, you can get some deduction from that. So maybe that can be a good reason. 

 

Okay. Sort of know about you. So, like an investment and retirement planning and stuff like that is more than just a tax.  You really can just sit down with an advisor who understands, who has a conversation with you and is able to advise based on a knowledge of both jurisdictions. So, we want to speak with an advisor and with that, thank you Ricky thank you everyone for joining us. Thank you everyone, it was a pleasure. Everything will be available live on HTJ.TAX and we'll see you next time, bye 

 

VOICE OVER:

 

Here are four ways we can help you. 

 

Number 1. Sign-up for a free webinar on US Expat Taxes and International Entrepreneur Taxes at  www.HTJ.tax

 

Number 2.  Stream premium education or videos at www.HTJ.tax

 

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Our books and upcoming events are available at HTJ.tax. Please subscribe like, share and comment down below or email us at help@htj.tax to engage us to advice on international tax or business matters.

[ HTJ Podcast ] Taxes for Digital Nomads/Location Independent Entrepreneurs 25th February 2021.

[ HTJ Podcast ] Taxes for Digital Nomads/Location Independent Entrepreneurs 25th February 2021.

February 27, 2021

WHAT YOU NEED TO KNOW...

About this Event

As borders become more porous and online communication becomes more accessible by the hour, the number of digital nomads—individuals who work remotely from any location worldwide—is rapidly rising.

Given their nomadic lifestyle, handling their tax affairs can be problematic for the digital nomad.

What are the tax issues that they need to be aware of? How do they report their income? What provisions are there for full-time travelers, and what are the pitfalls? While location-independent work is on the rise, tax regulations struggle to keep up with it, and there are still many grey areas in the matter.

Regulations also vary greatly from country to country, so it’s always recommended to do some research of your own or talk to a tax professional.

Join an hour conversation with a qualified professional from Moores Rowland Tax Consultants.

A group with over 30 offices in 11 Asian countries (including Bali).

Get to know tax responsibilities as a digital nomad.

Also, find out about tax responsibilities in your home country.

We will separate facts from fiction.

Key Takeaway:

1. Flag theory and how to diversify your lifestyle from a tax perspective.

2. How to structure you're personal vs. your corporate residency?

 

Our Speaker;

Derren Joseph- International Tax for Private Clients, Global Mobility, & Cross-Border Investors (US, Europe, & SE Asia)

Derren is an EA (Enrolled Agent - license # 00100858-EA) who has been admitted to practice before the IRS and is an associate member of the American Institute of CPAs (#7920958).

He is the author of "Taxes for International Entrepreneurs and Expats: Proven Principles for Legally Reducing Taxes” (https://www.amazon.com/author/derrenjoseph).

A Partner in Hayden T Joseph & Co. (DBA "Advanced American Tax") also a member of the International Tax Team at Moores Rowland Asia Pacific, with over 30 offices in 12 Asian countries.

He has 2 Masters degrees in Economics.

A Certified Diploma from ACCA (Association of Chartered Certified Accountants in the UK), done Executive Education with Columbia Business School.

He has completed Advanced Tax coursework at both New York University and the University of London.

Derren enjoys writing and giving seminars.

He had his views published in the Singapore Business Review, Forbes Asia, the American Chamber of Commerce in Indonesia, the International Business Structuring Association (in the UK), Offshore Alert.

He also has given seminars on tax issues in the U.S., the U.K., Singapore, Indonesia, Malaysia, Vietnam, The Philippines, Portugal, Hong Kong, and the Caribbean.

Note:

"Pictures or videos will be taken during the event to be posted on social media. If you do not wish to have your image used, please notify the event organizer BEFORE we begin. Thank you."

 

VOICE OVER:

 

This podcast channel it's about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax

 

DERREN JOSEPH:

 

 Right. Okay. So, we are live. Thank you for joining us this evening. Afternoon day. Good morning, depending on what other part of the world you were in. So, we're going to talk about Taxes for international entrepreneurs or Digital Nomads. I use the terms interchangeably because sometimes people think digital Nomads carries a lot of baggage and implication, so like, yeah, everyone knows what I mean. 

 

So, we were doing this more or less every month now. So, you know, some of you may have seen this before on our YouTube channel. And so, it must be, we have joined us previously for those who have joined us previously, good to see you again. So, the format will be more or less the same. I'm going to talk for about 20 minutes or so go through some slides and afterwards will be the Q and A. And I know that that's the really important part because that's what brought so many of you here this morning, this evening, this afternoon. 

 

So, without further ado, I'm just going to jump six important things that I believe that the International entrepreneur or the Digital Nomads should be familiar with it when it comes to Taxes right. Just to give you a bit of background about myself and my team, because I'm not a one person show, my practice is a semi-autonomous unit within a larger practice called Moores Rowland Asia Pacific. 

 

So, we have just over 30 offices in 12 countries. I am actually based in Singapore officially this October, we'll be eight years that have been based in Singapore and because I’m US qualified, I am legally required to say that nothing that I say here should be construed as advice. We are having a general conversation about general principles, consider it an education piece rather than advisory. And more importantly, nothing that I say here should be construed as encouraging you to be less than your fair share of taxes in any jurisdiction in which you are exposed. 

 

Then of course, we had that in writing. This is how I stay out of jail. So, thank you for bearing with me. So, these are the takeaways I'm going to talk about just probably six or, you know, the title is six things to consider. So, I'm going to talk to about six things, and then we jump into the Q and A, the first thing would be Flag theory. 

 

And I know that there are a number of organizations who have branded themselves like Flag theory. But my understanding is that Flag theory started out as a, as a term coined by a guy in the 1950s, essentially, it’s about diversifying your lifestyle, where they, where you are as a citizen, is not necessarily where you are legally resident, maybe different from where your company is incorporated, may be different from where your assets are stored, your cash or your, your crypto, and maybe a different jurisdiction from where you enjoy yourself. 

 

So, the key thing is just like how investment 101 is that you don't have all your eggs in one basket. The same applies to international business. You're not overly exposed to any one particular jurisdiction.

 

Number two, fake news. So, there are no doubt is no shortage of online influencers and gurus who claim to know everything about everything, which is fine. But I always advise caution when it is a decision with a financial and legal implications. Typically, you would want to get advice from someone who is legally qualified to give that advice. I think that should be, it should be pretty obvious. You know, what I've done is I've called out a certain issue that I've seen misrepresented in, you know, in popular or online landscapes. Some of which we will jump into in greater detail, others, we may come out in the Q and A.

 

The third thing I wanted to talk about would be direct versus indirect taxes. So now we'll be getting actually into the tax piece. I think most entrepreneurs, I think more digital nomads are familiar with direct taxes. If you have a company, assuming the company is incorporated in a jurisdiction, which they are taxes payable, then you know, the company files and pays the taxes. And similarly, if you are, as an individual will find yourself in a jurisdiction in which you are required to file and pay taxes. That much is obvious. You're required to find them pay taxes. What is less well understood are indirect taxes and I think this is, it's something that is not well understood, but equally. So, it's an area that is opening up to create a law enforcement in certain addictions, whereas they may not have paid attention to it historically now is a huge deal because as you know, most governments are strapped for revenue. So, every penny count, right? So, they don't let things slide anymore. So, what I'm talking about, it would be like VAT in the UK and the European union, a GST in Singapore and goods and services, Tax sales and use tax and a US. So basically, it is taxes that are not paid to the tax authority, like a direct tax. It's a tax where you may be required to collect this extra revenue from the person who is buying your good or your service. And like in Malaysia, where you have a services tax and you remit that on their behalf to the tax authority. So, it just something to keep in mind, as you are in your business models that are evolving internationally. 

 

The place of effective management. So, this is was flag is one of the I probably the first item where I was speaking about fake news, right. There is this misconception that if I incorporate a company in a, for example, you know, one of the tax-free jurisdictions, so BVI or Cayman, or an IBC in international business company in Dubai, then, you know what I have my company is tax free, not understanding the many jurisdictions have and their tax law is something called mine and management and management and control. 

 

What is it basically saying is that, for example, if you have incorporated a company in jurisdiction, X, Y, Z doesn't matter where it is, but you run that company from Portugal or you know, especially if it's in a low tax jurisdiction, a lot of no tax jurisdiction or one that's on the OACD black list? And you run that entity, you manage it from the EU or any other company, you just manage it from the UK or we manage it from Singapore wherever you may be based, then the tax authorities in that jurisdiction may take the view with, hold on. I knew your companies incorporate it elsewhere, but you're managing it from here. So, we deem it to be a domestic company. Of course, you should ask the question, you know, how are they going to know? Well, when age of social media and we've seen cases increasingly becoming common where social media brings undue attention to someone. So, someone thinks, well, I'm managing my company from jurisdiction, wherever I am. Who's going to know I'm doing it online. I'm a remote worker. Yes. But you may be a YouTube influencer. You may be doing something on social media, which draws attention to, and that draws the attention of the tax authorities. And we can talk about that later on as well. 

 

And that is part of the whole concept of Nexus, which is basically about having a connection. Where you have a connection with a jurisdiction that creates a taxable presence. And it is a very nuanced definition. Typically, it has been interpreted to mean physical presence. So, if I'm physically present in a jurisdiction, it may constitute nexus, but what are we seeing happening in other jurisdictions? For example, I skipped a slide, right? In other jurisdictions, particularly in the US right now, what they say is that economic activity may constitute an access. So, for example, those who are selling on Amazon FBA, you know, you get your report from Amazon and Amazon tells you all the warehouses in which this store, or your product on the way to the final consumer. And typically, that physical presence was enough to constitute access. And you find that you paid taxes, I'm talking about the indirect tax as a sale and use tax is what we're finding is that many jurisdictions, for example, and the case study being the US, they were saying, you know what, physical presence, it's parts of it that can constitute Nexus. But we are also looking at the economic activity. So, if it is that you have ultimate, if you're selling and you have consumers using that product in a given state or a given jurisdiction as well, you know, we want you to pay taxes, even though you are not there to do your consumers are there, you are benefiting from conducting commerce online in that jurisdiction, in some jurisdictions, we'll quite a few become quite detailed in his book about click through nexus as well. If you have cooking, if you have a film, if you’re doing affiliate marketing and in certain States that can constitute nexus. 

 

So, the idea of a taxable presence, I want you to take away the idea of a taxable presence can be very, very nuanced. It doesn't necessarily mean physical presence, physical presence, hell you had definitely, but just business activity can lead to tax nexus.

 

 

 So no, I'm going to talk about those who may be US exposed, right? And then I'm going to talk about the other advanced economies and then the rest of the world. And that those are the three baskets that I tend to put people into. So, the US is of course, a special case. Y as everyone who is US exposed should know the United States, along with one or other country in the horn of Callie, rich Rhea, there was a really only two countries in a world where you are required to file and pay taxes, regardless of where you reside of the jurisdictions with, with, by following certain procedures, you may be able to sever a tax residency in that jurisdiction. The US the answer's no, no matter what you do, you count at several a tax residency with a US. If you are a us person for tax purposes, the only way out is surrendering your passport. Are you a green card? That's the only way out, but their opportunities by immediately moving up or overseas, you have the opportunity to shelter the first $107,000 of your, or your income from US taxes and is something called the foreign earned income exclusion, and the FAA. 

 

And that, and that is a huge incentive. You know, we are seeing people are leaving California for Texas or New York or Florida. How do you immediately, well, not immediately with some doing you, you get the opportunity to legally avoid state taxes, that 30% state tax in California, for example, you can take it one step further. And by leaving the us, assuming that you have been earning less than, let's say a 110 grant, that whole 110 gram maybe sheltered from, from the U S income tax. It's something to think about a win the U S because of the, the, the way the TAX networks internationally, that's different from domestically, domestic, it all about filing and paying taxes on time. 

 

That's the name of the game internationally with the U S is all about reporting. So, if you don't fall and pay taxes, you know, pay your taxes. I mean, yes, interest in penalties, but if you don't report that you have a foreign bank account, not only would you be encouraged civil penalties, but also criminal charges as well. So, they got pretty aggressive and you are also required to disclose the activity of any company in which you hold B on a certain threshold, in terms of a shareholding, what do you control the company? 

 

It has reportable to the US as part of your personal tax return. Now, people see to circumvent this by using nominees. It doesn't work. It doesn't work. That that is decades ago that his old school, the IRS sees right through that. And if they discovered that you have been doing it, you are, you're going to have some Hertz. So, it's all a School don't do it. It doesn't work, pay attention to your banking. As I mentioned before, you need to make sure you report all about it, because over which you have signed in authority, even though you may not be the UBO the ultimate beneficial owner, you are still required to file and pay taxes on it, 

 

 

So, it just needed to mute someone who is from whom we getting some background noise. Please don't have to mute yourself until you get to the QA reports, your band, and report it to the bank accounts over which you can sign for your company report, your investment accounts, who overseas you, you have to trust your mutual funds, ETFs outside of the U S everything needs to be reported to the US estimate to taxes. The IRS is not like to wait to get taxes at the end of the year. 

 

They want to get quarterly payments at least so that it needs to be part of the discipline estimating what your TA, what your income is going to be and paying taxes accordingly, and not forget state taxes. And this some, you know, you have 50 different States, 50 different rules. Some States, mostly it's a domicile States in some States have a more aggressive Tax nuts in others. And you know, for us, they are and what the stickiest state, or maybe for Virginia, even though you may be outside of a junior for years and years and years, you must still be a tax resident of Virginia. So most, what do we, what we tend to council our clients do is before you leave the us to, to work internationally, you would want to sell yourself two, one of the nine States without an income tax. And, you know, just say the most popular TO would be of course, Texas and Florida, but that we, the U remove any possibility of the state's, you know, rich EA taxing YOU in your absence and all your return to the US your face with a huge tax bill. 

 

I have some case studies that we can get into if necessary, for the Q and A, and the next wouldn't be, then the next group of paying would be a Kansas. I don't know if I saw that online. I thought that was an interesting acronym, but basically a UK, Canada, Australia, New Zealand. Now we said that the U S was the one jurisdiction where you cannot break tax residency. Increasingly these jurisdictions are becoming sticky as well. So, unless it, and this applies particularly for those who move around a lot as, as Nomads, as far as digital nomads, if it is that you will know you're not a bonafide resident of any other jurisdiction, these countries have a fallback rule. So, if you will not read properly resident somewhere, your center of life has not shifted from Canada, from the UK to some of the jurisdiction under certain circumstances, even though you're not there for years, maybe you can fall back into the tax and any of the CRA in Canada or HMRC in the UK on a, you know, the ATO in Australia. So, it, it is something to keep in mind and to speak with your advisor. About most of Europe, there are the 183-day rules. And once you spend, you know, certain number of days outside of, of Given European country, you tend to just keep their tax. And then, but still sit in, people would, we need to be filed. And some jurisdictions, again, like the kinds of countries are becoming quite aggressive. So, for example, we've seen Italy recent time and say, you know, hold on, if you're moving to a so-called tax haven. So, we have clients in, in the UAE, in Dubai, we have Clients in Malaysia and the MLM to H my Malaysia a second home where their resident their tax free. And then it'll be, is saying, well, no, you need to pay tax on it. If you're not paying tax on wherever you are, as a citizen of Italy, we're going to talk to you back at it until the day. Even if you know, longer live, there are other European countries have increasingly increasingly seen that a rule where if you, or if you, if you are centered, life has been properly shifted and you are taxable somewhere else, or you me, that is not happening. 

 

You may still be tax. It will be back in a European country of origin, something to pay attention, to and speak to your advisers. About right. And this is, this gets into a, a bit more of an EU situation. And I give some examples as two, the, the process is becoming less. SE more involved to set up a tax residency from your European country of origin. And you may be still tasked a resident for a certain number of years after you have left. 

 

So again, pay attention, get advice from someone qualified to do so. The rest of the world and the rest of the world might be thinking, you know, well, I'm not a European don't need to worry about those fallback rules, and I'm not. American there for, I'm not subject to the citizenship-based taxation. So, I'm home free write. I can live tax free. Well, we have clients that have tried it and there they've run into some problems are what do I mean by problems? 

 

And the problems revolve around banking. And when you speak to S tax advisors, and we be up to speed with tax rules, but they may not be all fake or are, they may not be a current when it comes to banking rules. Now, increasingly bands are under a lot of pressure to prevent money laundering. And they're the QA Sue, and they know their customers are becoming quite aggressive. And what does that mean? It means that you need to prove source of funds. 

 

And I'll give you an example. Give me an example of a, a client we had in SE Asia, he's a popular DJ and try not to be too precise of people can figure it out who he is. He is from a certain country. Now he's been living in a traveling in certain parts of Southeast Asia and as an entertainer, what certain like clubs or whatever, and he's done pretty well for himself. And he had a situation where he wanted to return to his country of origin, which is fine. 

 

No problem. It still is a citizen who has a valid passport. What is the problem? The problem is that he was banking in whatever country in SE Asia. And then, because he was moving around, he Legally perhaps might not have been required to pay taxes. And when he tried to wire that money Baptists country of origin, there is even though this was a band that he has battled with since he was a child or, you know, growing up a family, whatever, you know, the, the, the money was frozen. 

 

And it was returned to the country of origin where the funds were originally wide from, even though he can prove it is wide from himself, himself. And he called the band and he said, well, don't, you know who I am and check on lane and S you know, I'm whoever I am, but the, the, like I understand, but how do we know that this money was legitimately earned? We don't know, you know, I can give anybody 10 minutes and they can drum up an invoice on Microsoft Excel invoices, and prove anything for many banks. 

 

What constitutes real evidence that the money's clean is a tax return is a tax return. So, there's a, there's a strong possibility that if it is that you do move around internationally and you Legally, perhaps because of your situation are not required to pay taxes. You may find yourself in problems with the bags. So, we always advise clients, pick a country to be tax resident, pick somewhere, to be a center of life. 

 

And we can get into that in the Q and a as necessary. So, what should be pretty clear from everything we've discussed so far is that you need a team, and there's no way that one person could understand everything. You know, all the jurisdictions, all eventualities are possibilities. So, you are looking for a team of advisors who would be qualified and experienced in the, the, the jurisdictions in which you were exposed. 

 

So, with that, I'm going to jump into the Q and A. Feel free, at the bottom for those watching on zoom. I'm streaming on Facebook as well. So, sorry, no QA in Facebook, but for those on zoom, there's a chat box in the lower, right. Please feel free to key the questions in there. I we'll have a look and once they are right now. Okay. Thanks to those who are all right. I'm scrolling down. 

 

DERREN JOSEPH:

 

Oh, this is what I have, this is a great question. How to avoid falling under the guilty provisions on setting up a foreign entity abroad as a US citizen living abroad? 

 

So, this obviously applies to US person’s, which, as we mentioned in the, in the slides or those that have the most arguably the most complex tax situations to contend with now. The IRS internal revenue service, they have a number of anti-deferral mechanisms. And what do I mean by that? They are for, for many business owners, as the holy grail is the ability to run a business overseas, not paying any taxes and, and have the ability to reinvest the profits. So, your earned money, and you'll be able to reinvest that continuously and your business, right? That, that that's great. All right. And only pay your profits when only pay the taxes when you do, when you extract money from it. 

 

Now the government has, obviously the US government is obviously aware of that. So, they have a number of laws to prevent the ability to defer income. Because obviously that will put you in an advantage, let's say to someone who runs a business within the U S Wright, where, you know, they make a profit every year, they need to pay taxes before they can reinvest what is left over into their business. Right? So, it was just being fair well for everyone, so that there is something called PFX pacify, an investment companies that is something called Subpart F. And there's also something which was recently created under president Trump's tax cuts and jobs act in 2017 called Gilty, which stands for global intangible, low tax income. So that's at a tax levy on companies controlled by US persons, outside of the US, particularly those companies' in a low tax resurrection. So, we see in a lot of it and where we operate in Singapore and Hong Kong, right? If you were in a, a high tax jurisdiction, for example, Europe, it's, perhaps it perhaps is less of an issue that is for those who operate in a low tax jurisdiction now in terms of how to legally avoid it. And I know that the go-to response is I'm going to get a nominee. I'm going to get a nominee, no attribution, attribution rules mean by that. And really it doesn't work because they know what the law to speak to is shared of value and voice values, and so value being a shareholder in the voice. So even though you may not be on paper, the controlling shareholder, and this is a big deal for people who operate in Bali and Indonesia, or in Dubai, where, you know, you, you are legally required to, if you having an onshore Emirati company, you need an apparatus.  So, you must have a nominee, but once you have that control in voice, you are controlling the company and it falls into guilty. So that's the anti-deferral, you're going to be paying tax on money, even though you have not extracted it from the company, it, it falls onto your tax returns. How do you avoid it? There's honestly, you can't, honestly, you cannot, no, you can minimize it. A and there are certain elections, as you can make where you can enjoy a lot more tax than the default, which is your tax ID, your ordinary tax rates as an individual. So, then ways to avoid of minimizing it, but to legally avoid, it means you're going to take on a Partner who is a real partner, not a partner with a paper, but a Partner who is actively engaged in running this business with you. So, yeah, I mean, there are people online who do whatever they do, but we, we are a goody two-shoes we, we, we follow the law and Legally, there's no shortcut. 

 

There is no hack to avoiding this other than doing it. The right-wing next question, how to structure earnings in a foreign entity owned by us citizen, living in broad, do earnings carry fire. It needs to be declared on what's a fiscal exposure there. So, I guess that ties into the previous question. Anti-deferral rules, whether they be Pacific rules, support F a recent or guilty, meaning that the earnings they need to be declared in the year in which they earn, assuming it’s a CFC, a controlled foreign court, as we mentioned. And the response to the previous question, if it is that you are really not, the, the, the company really is not controlled by US exposed persons, then it’s not a CFC and therefor it's not subject to these anti-deferral rules. And then yes you can. If assuming that you're in a jurisdiction like an IDC in Dubai or Cayman or BVI, whatever the case may be protected, theoretically, it will be taxed and you can reinvest and you can plow it back in those profits and reinvest and, and you know, scale your business.  And it will be taxable to you as a US person upon receiving a distribution, either in the form of dividends or a salary or bonus or something like that. So, the key is to not have it be a CFC, a controlled foreign Corp, a company controlled by US exposed persons and control being a chef, a value-add voice. So again, that nominees don't work value on a voice that that's a sure now you can use the stove idea. And I'm sure that if or when I scroll down, some of these is going to be shared in Estonia studio, the studio, as soon as a lot of fans and, and, and they respect that, but the tax rates are pretty high. So you can, I mean there people who do it seems like in perpetuity, they just, they just never take a distribution and they are continuously reinvest the profits. But when you do that, strike those profits, the corporate tax rate at a stone is in a low twenties plus it's plus you ping, as a shareholder who is receiving dividends. So, you know, it, it is, it is pretty aggressive when you contend that you have much lower tax jurisdictions you have in Bulgaria or a 10% YOU of Ireland 12%. And of course, you have tax free in other jurisdictions. So, you know, I, I guess it's you need to do some sort of sensitivity analysis, some sort of comparison. Is it worth picking a jurisdiction like a stone, you and there are others as well where you allow it to perpetually re-invest to avoid the, the, the guilty or are they or whatever? And, but when you do pull it out, you're going to be stung. Do you choose a little chat's jurisdiction when it comes up? You know? So, you know that there needs to be some sort of comparison. So anyway, the next question. Yeah. What is it? Which is the best, what it will be the best jurisdiction to be tax resident. If you have the choice, no one size fits all. And I know when you go into the chat groups, everyone has to say like Panama, Uruguay, Estonia. You know, they wanted a little card and whatever. It really depends. It really depends on who you are and the nature of your business. One cannot propose a solution, I think is professionally irresponsible. When people do it proposes a solution without understanding your circumstances inside out, and which is why you find it, that people who propose those things. There are one person shows working from the garage, which is fine, but it means that their exposure is limited. We have professional liability insurance, seven figures because we know things Get when we make a mistake, there are serious consequences. And so we're very, very guarded and we try to follow the rules and do the right thing. We see influencers who are not based on an advance economy. They are hired, you know, I'm not hiding, but they are an unregulated jurisdiction. So that won't go to Singapore where they'll be held to account for giving by the, by they may go to a Malaysia. There will be in Western Europe, whether it would be held to account, they go to Eastern Europe. They wouldn't be in North America to go to the central or South America as the case may be. So, a and these are the people who say one size fits all my point is it does not. 

 

We need to understand who you or what, what residencies you have because the residents can make a difference. What citizenships you have, what is your business model? We need to understand that a business model inside and out, where are the key decision-makers based? Where are your customers? Based where are you banking? What do you want to bank? Because you know, jurisdictions, I had mentioned backing is really difficult right now. And most banks as a default would be, we don't want your money. If you are not resident where you are not a resident in our jurisdiction, why do you want an account? 

 

So, it really, it really depends. You need to sit down with an advisor who understands you and your business inside out, and then you can work out your options. Now, then there are some great options opening up as they are in the world, opens up in a way on our website. HTJ at our Tax, I've updated it recently. I'm with, you know, look, I think we put it in today. The three countries in Asia that are not essential travel has been locked down, but there are some jurisdictions where would the right permissions and falling the right immigration rules you can be let in. So, in Asia Indonesia is opened back up so far as which means Bali is opened back up for those who get the business. So, the social visa let's see Thailand is opened back up for a long stay. And for those who get their section nine visa, I think for The Philippines you can re-enter the Philippines now with, with the right permission. The second Caribbean islands have open back up, you know. I understand that. I think Dominique is opened back up central America. So, they are the places that have opened back up. And that I'll love coming up. Particularly the us exposed to people who were kind of blocked previously. Okay. So, what else is asking? What if you are from the country Venezuela? So, if you are from a country, which is subject to sit the sanction, so a Venezuela Iran and, and, and so on, obviously you are, your options are slightly limited for where you, as a, as an entrepreneur would be able to set up your business. You would want to choose a jurisdiction without the sanctions. So as to where that is, where you can go, I honestly can't say right now, I think we need to probably discuss that offline. What would we be options? Because we need to check the rules to see what is a lot on what is not a lot. If you are in Venezuela still, then no one who is US six Bush really should be helping you because it's against the laws of the US to, to work with Venezuela right now. But if you are, that is real and citizen outside, legally outside of Venezuela and living and working abroad. Then perhaps there may be an opportunity to work with you. So, we can probably catch online, offline my email address with type of thing, how to take it up. So, if you scroll up in the chat box, you'll be able to reach out to me. The next question you seem skeptical, but the residency possibilities offered to international professionals. Can you tell us some more about it? 

 

So again, my caution is that a one size is not at all and it's, you know, it's hard. And I think it's professionally responsible to paint with a broad brush and say it a solution for everyone has a Billy's company and a story in a residency. So, when you eat a residency programs in particular, it is not technically an immigration program and is not. When you looked at the definition of a residency in the dictionary, it's not technically not what. It's an ability to access government services, which is which of course is great. And then at his store, he has done a wonderful job of it. But as to whether it is the right jurisdiction for, for every what I really think it depends on the facts and circumstances. I think any qualified professional would first one to examine and the fact pattern and, and follow that through. And, and not only in a goes for, in corporations, it doesn't know where to go from banking, but also, you know, residency as in a legitimate residency where you are according to the immigration law is in a jurisdiction, have permission to stay there. So, one size can fit all. And when we have people that may be driven by commissions and sorry, this, let me just turn off. I'm getting a bus in a bar, right? So, when people are driven by commission and monetary incentives, sometimes that creates a bias and that's a natural, we are human beings. People are running a business. If it is that I'm being given more commission by one incorporation agent over another, I'm going to need to pay my rent, right?  I'm going to do it. Or if I'm, given create more commissions by one residence or immigration, Agent, I'm going to push the people in that direction. because I need to pay my bills. So, I get that. But all I'm saying is that that may not always be best for the client. And I think the client should always come first, next question. How to deal with, I guess, far as an income exclusion for a foreign entity owned by us, citizens, living abroad, not sure what you mean by, by the phone and come up with a foreign entity. 

 

So, the foreign income exclusion, just to explain what it is. And it is a tax planning opportunity often by section nine 11 of the us tax code, which says that if a US person or a us person has defined typically by section 77 Oh one. So, it's either us citizen or a green card holder. What someone subject to the substantial presence, who, who by, by the nature of spending a lot of time in a U S and a us person for tax purposes, right? If it is that they are working abroad, then as a, they were able to leverage this section nine 11, which says that the first and it moves on inflation. So, this year in 2021, as we do in 2020 tax returns is a 107. It will go up the next year, right? So, do you have a, a 107,000 of your, your income that will be sheltered from US Taxes right now, you can qualify for this amazing benefit in one of two ways, one physical presence test, and everyone gets that by counting your days on us soil, and don't spend more than 30 days on us soil, then you will be able to enjoy the foreign income exclusion this second way. So that's an objective, and that is quantitative. The second way is subject in a qualitative. What do we mean by that? It means that we're talking about the bonafide resident’s test. So, in order to qualify under a desk, you need to basically your center of life or your heart or your, your, your, your city or your personal situation with some of the legitimately changed from the U S and then the jurisdiction. And there are a certain question asking for more than 25, 55, TO evidence this, like, where's your family under what visa are you in that foreign jurisdiction? More importantly, are you paying taxes in that other jurisdiction? So, anyways, so I don't want to have those two bases, or you can qualify for the, find an income exclusion as a person. So, your individual, your earned income, not your passive income, not your investment income, but your earned income. We'll be sheltered from the IRS. Legally using a foreign income exclusion. Now this is separate from your company, the company that you own, and you control at that separate in law companies, a separate legal person from you, but rights and responsibilities of its own. Your company can fire you, you as Steve jobs found over at Apple, right? So, your company, you can find your set up. It's a separate person at a law. Now, the company does not qualify for the finance, the earned income exclusion you do. So, I hope that clarifies moving on, ah, the Welcome stamp, Dwayne, good to see you hear the welcome stamp program and a lot in Barbados, it has been advised that the nature of the visa is that you would pay taxes in your home country. How does that work would 183-day rule? It does. So, Bobby, it was Bobby. This is a curious example, right? Because with the, some of the other long stay visa programs, The, there is the taxability elements. So, if it is that you are on investment income, then that's fine. So typically, they want to make an attractive to you. So, they will say, you know, investment income, okay. Find you, you can legally avoid paying taxes on investment income that arises outside of their jurisdiction, but for a, a jurisdiction like Barbados to say, well, not just your investment in combat all of your income, and you can work remotely. You can work on the line and it's all tax free. And that, that, that is unusual in, in the whole landscape. How so on the face of it, it does seem to be a contradiction to the typical 183-day rule where under normal, a tax laws in, in Barbados, that I assume typically, once you spend 183 days in Barbados it is you would be subject to taxes the buy the tax authority in there. So, it seems as if the tax authority has, we have that right in order to make the visa more attractive. 

 

Now that has implications to that visa holder, in the sense of where is their country of origin? We said that with the US, it really does matter. You know, they are going to be paying Taxes Legally back in a U S any way. So, you know, there are going to be Taxes for suiting European countries and for the terms of countries. So, including Canada, including Australia and New Zealand, there are tax authorities, me, and they need to be careful here that the tax authorities meeting the view that moving to Barbados for a year does not relieve them of the obligation to pay taxes back in their country of origin. They need to check with someone who is qualified on taxes back in their country to make that International Taxes back in that country to help them make that determination. And similarly, Western European countries, as I mentioned, Italy, and some of the other European countries would say, well, you know, you're going to Barbados from one a year. You still need to pay your taxes back home. We don't care. So, I think it's really on a case-by-case basis, each person who takes up that, that welcome visa, which I understand it has been extremely, extremely popular. They need to assess their tax situation so that on returning to their country of origin, they don't have any uncomfortable discussions with their tax office. They don't want to get in trouble. And basically is, is the point scrolling down? Does Venezuela have to pay tax on a worldwide income? Sorry, I can't comment on, on Venezuela. There are, there are certain rules not buy the tax authority, but by the department of justice being US qualified a new US license and being a US person myself, I'm going to be in Miami in a couple of weeks. 

 

Sorry. I really can't comment any Venezuelan who is still based in Venezuela. If you, if you are living outside of the Venezuela, however, them, the question becomes, okay, well, you know, log-in in Venezuela, good. What are you? And it, you must be somewhere and wherever you are, has laws and that. So, we need to follow the laws of the jurisdiction in which, you know, reside in which you are not a tax resident. So those, those are the laws that would Trump, no pun intended Venezuela, even though your bed is really as a citizen, you will not be resigning on seven Venezuelan. So, the first thing to pay attention to is where are you presently resident? And then you mentioned belief IBC. You know, I have no offense that the beliefs funds, and I know there are a number of Billy's finders and now, you know, no disrespect intended there. The challenge with that, and I, I believe Billy's is on the blacklist. So, which has a good thing, which was of course a good thing. The problem with a Billy's IBC is where you live in a bank. 

 

Very few I want to touch a Belize IBC similarly with a Panama company. Yeah, no problem. Panama, but Panama has been the subject of negative publicity. So, you, if you show up in, in particularly what I would call a tier one jurisdiction, you rock up into a US bank or Singapore and, or a European bank, Hey, I want to open a bank account from my Billy's company or from my part of a median company. Well, I don't think you will be warmly received. Of course, there will be exceptions to that rule, but generally speaking, you may not be warmly received. So, I believe the ABC is all well and good Pat and Panama's are well and good, but think about where am I going to receive that many? Where are they going to bank? So, you would probably be locked out of a tier one and maybe some ScentAir to jurisdictions see left with a tier three jurisdiction, a tier three bank is the bank reliable. When you look at the Global index, that score as the, the strength has a bank, is it abandoned? A robust is in a bank is going to be a round in the future as we face economic uncertainties, or is it one of those bands that is going to fall? because, you know, it's not strong enough and the reserve requirements that are in the reserves on there. So yes, you may get a tit three incorporation that remember it has to be paired with a, a, a tier three tier three bank. So just think, always think about the pairing and if you're prepared to have them that risk, then go for it. But there is a risk involved scrolling down. What are the transfer and pricing implications of structuring a US LLC on, by a foreign entity, buy you a citizen living abroad of structuring? Are you a chance to present to us a little bit of foreign? Okay. So that it's a subsidiary relationship, right? So, are you US LLC is owned by a foreign entity now just to loop everyone into that, that concept? So, transfer pricing is a se a discipline within tax at economics that deals with getting the correct price for an intercompany transaction between the related companies. So, for example, if you own a foreign entity, like in this, this person's case, you may own a foreign company. And then you may, as in a non-US company and you all in a US entity, that's fine, no problem so far, but if they, if they, you know, they share certain services. So, for example, there's a shared service in terms of accounting there, she had services in HR that has services in marketing, especially for a digital nomad, too, you know, doing stuff. Everything is online right now. Those shared services need to be priced in a way that because, you know, you know, where people go with this, you know what else we have to go on with this? If it is, you have two companies, one at a high tax jurisdiction, one in a low tax jurisdiction, naturally your intent is to shift as much profit as possible from the high tax jurisdictions in the low Tax. I mean, that, that just goes without saying, and of course, tax authorities have been doing this for decades. And, and particularly those in advanced economies and they are clued up and they want to see documentation that evidences that the price charge for those shared services is an arm’s length transaction. So, if they were, if you need a comparable, you need typically you need to do a study. And those studies aren't cheap. You know, I'd say ballpark, a decent study starts at around 20,000 us dollars, but you know, it's worth it for that. Whenever it is that tax authority does challenge you. And right now, along with a Taxes for online transactions transfer pricing, I think that's the cutting edge of where tax authorities are paying, giving attention, because they believe that there's a lot of money to be made in collections. In those two spaces, companies that are been involved in shifting profits to low tax jurisdictions and the companies that are using the internet to avoid Taxes completely. So, turn to your question, if it is that you have to companies and they are involved in, in there, are they both, they're both owned by the same shareholder. You presumably have to have common shareholders. So, this is common ownership and their shared services or share transactions, or maybe one is producing something with gender is buying or selling or whatever the case may be. You need to take advice from someone qualified and competent, and that jurisdiction to make sure that you have the transfer pricing documentation in play so that when the tax authorities Knox on your door, you're not prepared to answer them that scrolling down. Well, this is a long one to be legal If to be legal in proper one. And it has to be based in a sovereign country and pay taxes there as in the case of the DJ's are sitting in a region and not being able to Patriot the money. So usually depending on a person's work, an opportunity for the library of the country would just be chosen, correct? Depends on the individual. Their circumstances depend on the nature of the business I'm with you so far. So, my question is this let’s see, in South Asia, Africa and Latin America, where countries are good to be, based where, when moneys are being made online or from various countries in the region, revenue is not confined to domestic, but from a wide network. 

 

DERREN JOSEPH:

 

Oops. Okay, your question has been cut. 

 

So, you know, so your question, I, I guess it was two long to fit in that a little box so I can see what the actual question is, but let me see if I can figure it out from what you have written. So, let's say you were in a, I guess an emerging market. So, like South Asia, South Africa or Latin America, it was, and you're making money online, but revenue is not domestic, but it's International well, those countries that you mentioned. So, if you are in SE Asia in one of, as you had countries or South Africa, South Africa is one of the most aggressive tax authorities in the world and they become even more aggressive and a, I guess, Latin, America's kind of like a, it's a mixed bag. The, the, the point is, if you are working online, are you working online, running a business online? And that's why I think, you know, they have no idea of a technology company is redundant because every company needs to have technology on its course. So, I mean that you run a typical company, which means that using technology, you're doing something on the web. 

 

Remember, we said, in the slide's we spoke about it, the concept of nexus. And then we spoke about the place of effective management. Even though you were doing something online, management and control is being exercise. Some where you are resident somewhere, you're living somewhere. If you're a resident in South Africa, if you’re sitting in Bali, if you’re sitting in Columbia. You are running a company online from that jurisdiction, even though you may not have any Clients in South Africa, even though you have no Clients in Bali and you are sitting in Bali, or even if you had no clients in Columbia and you are sitting in Cartagena, to me, it doesn't matter who you are running a business from that jurisdiction. You're spending time that you may be tax resident in that jurisdiction. It doesn't matter that the money is being collected in another country, in another bank. It doesn't matter that the company is incorporated in another jurisdiction. You, as a key decision maker, you are there. So therefore, legally that company has already been pulled into the tax and it out of South Africa of Indonesia Bali of Colombia, they already have a legitimate right to tax that company. And they deem it to be domestic because the place of effective management is a local. And so that's where I say a one size doesn't fit all on that. I tied this back to the previous question being US one size is not fit all. And for those who want to pay it to the broad brush, they answer to everything has to believe that it's everything is a story or a Panama, whatever the case might be. It really depends on individual circumstances. Tell me about that individual. What is, what is their citizenship? What are their residencies? Where else are they Legally resident? We need to find that out. We need to find out if the nature of the business, where the customer is, where's the economic, where they are in banking, where the suppliers, where the, where are they, where housing, because we are housing can create an access as well. So, once we have the picture of that individual and the business, we can make an informed choice, but otherwise understand that the whole concept of nexus means even if your customers are not in the country where you are, even if the money never comes in, sometimes that makes a difference. So, for example, I know with Thailand that it does make a difference or for your honor, the remittance basis in, in Ireland or in the UK, if you're a resin on Dominic, Cleveland, a remittance basis. So, okay. Generally speaking, right? Generally speaking, you're running a company from that jurisdiction, even if you’re banking somewhere else, or even if the customers are somewhere else or the place of affect in management, is that a jurisdiction and that jurisdiction typically reserves a right to tax them.

 

 

Down resonating with the Salvador and may company, is it in Salvador is exempt from taxes. OK. 

 

All right. So, you were a resident of this outside the door and your company and in El Salvador is exempt from many taxes. 

 

Okay. I'm not 

 

Seeing your question, but that's okay. Any other questions? 

 

Feel free to write it in the box, you know, and then a few minutes. So, we have left a please feel free to follow us. So social media or YouTube, we are on YouTube, LinkedIn, Facebook or Insta, Twitter, we update it daily. I post a video every day with a video of that is not more than one minute. I try to keep it to one minute with a useful piece of advice of a use of piece of education to help you make an informed choice together with your qualified adviser. So, we post out a new video every day. We do webinars probably every week, at least one a week. We did one last night. This is the second one. So, we were pretty active on online providing information from people who want to make the right choice. Because as you know, all over the world, governments are strapped for cash and they definitely need to pay for their expenses somehow. And they're looking at you as entrepreneurs, looking at you as a business owner and they are seeing, they're seeing dollar signs. What do you think about cryptocurrencies in terms of taxation? They are some gray jurisdictions to be Based in terms of crypto, there is Portugal, there's more to, there are Singapore of course they need to, you know, Singapore is, is pretty Advanced in its own understanding and incorporation embracing cryptocurrencies. So, they are some jurisdictions that a great to be based in. But again, you need to think holistically, if you, if you are like 100% crypto, that's one thing. But most people, most entrepreneurs, we deal with the diversified, right? Yes. They have some of their wealth in crypto, but they were also running a business. There are also doing this in a real estate, whatever the case may be. So, there are some jurisdictions, a tree crypto. Well, but you have to look at the other side of the coin, right? How did they treat your other asset classes? But the only asset does you want is a crypto then. Yeah. But you have to look, I would say, look holistically at everything of what, of course is a place of non-US person, because if you're a us person, well, they are IRS at this point at time sees crypto as a, as an asset, as a property. It doesn't see it as a currency as Portugal does Portugal bill, for example. So, these are the currency Thank Switzerland as well. So, if it is that, you know, it depends on it. Again, it depends on one side can fiddle. It depends on your personal situation and your business, your, your wealth.

 

DERREN JOSEPH:

 

Oh, we have one more question. As we approach the top of the hour as a US citizen, living in Indonesia and conducting business online with international clients, how to optimize a worldwide tax issue required by Indonesia and avoid double tax?

 

Well, as you're in Indonesia does tax you on your world-wide income once you are deemed to be tax resident there, and historically they would have been more or less turning a blind eye, but within recent times have been high profile cases were the tax authorities had been proactive on Farnaz, who all being based there. We have seen some photographers. I mean, this is quite common. Photographer's in Bali who will obviously be doing some sort of shoot there being, you know, questioned and so on. And when I visited the US embassy in Jakarta someone a consul official did tell me that he has one or two members of his team. They seem to be almost permanently dedicated to getting US persons out of trouble when they were in Indonesia, working with our permission. So, but anyway, the you see where I'm doing with this. You need to register; you need to get your key test. You need to register, you need to properly pay your taxes in Indonesia, you need to do the right thing. Now you there's a, there is a double tax treaty between the Indonesia in the us, but you don't necessarily need to rely on that because the US does, you know, as you probably know, from doing a tax, which is this for a triple one, six, which gives you foreign tax credits on Taxes paid in Indonesia. So, you will not be taxed twice. Once you have a professional, once you have a team that knows what they're doing, a repeat, you should not be taxed twice. You should not be taxed twice. You don't need to worry about a double tax, but Indonesia does have the right to attach any worldwide income. If you're a resident in any part of their jurisdiction, exceptions, of course the rule. Yes, you can. I think there's by term and in town, or there are some special economic zones where they have their own tax. But very, I, I see very few there that they attract people into like manufacturing and some tourism related stuff. So, I'm assuming you're not in any of this special economic zone that you had some, one of the other 17,000 islands in Indonesia where you are subject to the irregular tax regime. You will be taxing a worldwide income and no, you will not be double taxed once the team knows they are doing.

 

 And with that, I thank you for your time. And I quite enjoyed the engagement as always, please have a look at HTJ.tax where we have upcoming webinars. I think we have nine upcoming webinars on the website. If any of them interest you, please feel free to join us and let's continue the conversation. Have a good morning, have a good evening, have a good night, have a good day, depending on where you are. You'll see you next time 

 

 

VOICE OVER:

 

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[ HTJ Podcast ] U.S. TAXES FOR INTERNATIONAL ENTREPRENEUR AND EXPATS 24th February 2021

[ HTJ Podcast ] U.S. TAXES FOR INTERNATIONAL ENTREPRENEUR AND EXPATS 24th February 2021

February 25, 2021

Everything you Need to Know About U.S. Taxes for International Entrepreneurs and Expats

 

About this Event

 

When you and / or your company does business internationally, tax planning / filings is more complicated.

The tax consequences of international activities are often misunderstood.

Fortunately, there are experts to help demystify the constantly evolving tax landscape.

Join this discussion of the critical tax principles and learn how you can legally minimize your tax burden internationally.

Our Speaker:

Derren Joseph- International Tax for Private Clients, Global Mobility, & Cross-Border Investors (US, Europe, & SE Asia)

Derren is an EA (Enrolled Agent - license # 00100858-EA) who has been admitted to practice before the IRS and is an associate member of the American Institute of CPAs (#7920958).

He is the author of "Taxes for International Entrepreneurs and Expats: Proven Principles for Legally Reducing Taxes” (https://www.amazon.com/author/derrenjoseph).

A Partner in Hayden T Joseph & Co. (DBA "Advanced American Tax") also a member of the International Tax Team at Moores Rowland Asia Pacific, with over 30 offices in 12 Asian countries.

He has 2 Masters degrees in Economics.

A Certified Diploma from ACCA (Association of Chartered Certified Accountants in the UK), done Executive Education with Columbia Business School.

He has completed Advanced Tax coursework at both New York University and the University of London.

Derren enjoys writing and giving seminars.

He had his views published in the Singapore Business Review, Forbes Asia, the American Chamber of Commerce in Indonesia, the International Business Structuring Association (in the UK), Offshore Alert.

He also has given seminars on tax issues in the U.S., the U.K., Singapore, Indonesia, Malaysia, Vietnam, The Philippines, Portugal, Hong Kong, and the Caribbean.

Note:

"Pictures or videos will be taken during the event to be posted on social media. If you do not wish to have your image used, please notify the event organizer BEFORE we begin. Thank you."

 

VOICEOVER:

 

This podcast channel it's about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax

 

DERREN JOSEPH:

 

So, this one is a bit differently and we are streaming it live over on Facebook as well. So good afternoon, good morning, good evening depending on which time zone you're in. I know that we got quite a number of emails and messages about the time. And again, that's why we use Eventbrite because Eventbrite helps sync the time and the date with your local device. So, but apologies for those who had any sort of inconvenience or confusion, about the actual time. 

 

It's good to see everyone. We are doing this probably every month now, because we believe is that time, we had a year and the demand is there. You have lots of questions. And as always, what are we going to do is keep it really tight. I'm going to talk for about 15, 20 minutes max, on just some basic principles around US Tax. And right after that, we just jump into Q and A, because many of you have questions. We've got your messages on email or on LinkedIn and Eventbrite, whatever. So, we know there are lots of questions. So, we leave ample time at the end for us to go through as many questions as possible before the hour is up. So once again, thank you for joining us this morning, this evening, whatever time zone you're in. My name is Derren Joseph. I run a semi-autonomous TAX team within a larger practice called Moores Rowland. 

 

We have 30 offices in 12 countries. I've been based in Singapore. in October and this year, I would be eight years in Singapore. And this is my profile now because I'm licensed by the US Department of Treasury, as an IRS Enrolled Agent I'm required to say that I'm quite to remind you because I'm sure every webinar you've been to, they would issue the same reminder that everything we say here should not be construed as advice. It's considered like an educational piece. We talk about general principles. And if it is, 

I know some of you have come a self- filer, I respect that. I appreciate that, but we cannot work with anyone who is going to, so you, you can't think that in the end of the hour, you're going to be equipped with everything needed to runoff and a failure on tax returns. And that is simply not true. The intent here is to highlight certain key issues that you take to your preferred tax advisor. So again, don't think you're going to walk away with, you know, your notes, with all of the key points, you need to do an actual calculation. That's impossible, it'll be professionally irresponsible for us to, to suggest that is even possible. 

 

And of course, we need to have the same disclaimer and in writing as well. So, nothing should be construed as advice and nothing should be construed as encouraging you to pay a less than your fair share of taxes in any jurisdiction to what you were exposed. And these are two guys at a bar I use as, as references and we can circle back to them if anyone wants to take a deeper dive into it. 

 

So, this is when people say, well, you know, of outside of the US, no one is paying attention. The IRS won't come on me. One of them used to be my Facebook friend and he no longer is precisely because of that. He was arrested. And, you know, he had a really hard time because the IRS believed that he broke certain rules are outside of the US but we can get into that later if that's relevant.

 

So key takeaways, I'm going to set the scene. I want to have this acronym called BEST, do your BEST. I want to talk about bank accounts, estimated taxes, state, and transfer taxes. you know, to me are the core things that you as a US exposed person needs to keep in mind if you want to stay on the right side of the IRS. 

 

So, that's what I want to hit. And then I'm going to touch a bit on stimulus and I'm the President Biden, because some of you have to have been asking those questions, and then we will just go straight into Q and A if that's okay with everyone. 

 

So, citizenship-based taxation. Yeah. And I think it’s quite well known and well understood that the US taxes, you and your worldwide income, regardless of where you reside. The point I want to make with this slide is that, you know, what do you S is not alone. People will commonly say Eretria. And this is a country of the heart of Africa, which also practices citizenship-based taxation. But what are we seeing is that many advanced economies are trending in that direction? They're creating rules, which have more or less of a fallback position where you think, you know what I'm outside of that country. And therefore, I should have no responsibility to the pit. TAXES back in the country of origin. Well, we see those rules changing where there is now a responsibility. And we see that as a trend. So, my point here is the US is not alone.

 

 

Transparency. When someone, you know, when I tell people, you know, you are outside of the US, you're a US passport holder here. You're a citizen, you're a green cardholder. You need to stay on top of your taxes. People ask, well, you know, how are they going to figure out how to do they know how much I'm earning in jurisdiction, X, Y, Z. And this is the answer and checks and balances lie within a relatively new rule called FATCA would stand for the Foreign Account Tax Compliance Act contrary to popular opinions or, or a popular perspective. It is not a tax. What it is, it’s a framework for information exchange, what the US government has done since 2011 also is go around the world and signed bilateral agreements with countries all over and most countries in the world have now signed. And that would include countries and jurisdictions that you did not think would sign or something like this. So, it includes Russia. It includes China, basically everyone, except, you know, your North Korea, Iran, Cuba countries that don't necessarily play well with a US. So, most countries that you would be exposed to, they have signed this agreement on what they have a lot of greed to do is bypass or set aside their own domestic bank secrecy laws, and require all of the domestic financial institutions to go through their books. So, for example, in the UK or Argentina or whatever the case may be, every financial institution needs to go through their books and flag individuals that this aspect of being US exposed and report those people to the US Treasury. 

 

Now you may think that, you know, I have more than one passport. I have more than one pass for many of you do as well. And sometimes you may walk into financial institution and you moved in on an account user in your other passport. Then the rules are built into that. Were there, there weren't, there was a indicia that the financial institution supposed to look for. Some of them were more vigilant than others. And if they see any of these indicias, then they are supposed to push the issue and inquire as to really whether you are US exposed, even if you deny it and they still suspect that you are, they will report you without your authorization. So, it's something to be in mind. This is the check and balance. This is how the US government can find out what you are doing overseas. And when I say US person, I know I had mentioned passports, a permanent residence or a green card holders, but I also include substantial presidents, which is a big deal right now, because as we know we're in unprecedented times, and in 2020, and up to today, there have been many travel disruptions. 

 

So, people have had to spend more time in a jurisdiction, than they plan to, and many people who are not Americans were trapped in the us and could not leave because travel was disrupted and there may have triggered what we call a substantial presence. So, they spent more than a certain amount of time in the US as a result, they may have become US exposed from a tax perspective. Accidental Americans. These are persons born abroad. Obviously, once you are born in the US soil, you are a citizen, but some people born abroad to a parent. Once you have at least one parent that is consider to be US domiciled whether, you registered at birth with the embassy or not is irrelevant. They had this conversation with a client today. That person is a US citizen. Those kids are us citizens. And then there are situations where you may be married to non-American, and it may be to your advantage to take what we call a section 6013 G election, to treat that non-US spouse as a US person, only for tax purposes. And they don't need to have a passport or a green card. You can make that election because sometimes when you’re thinking, and you're doing your tax planning for a very strategically, it may be to your advantage to do so. We can talk about that later on, if there's any interests around that strategy. 

 

What are the responsibilities of all of US persons now that we have established who these people off task purposes, obviously you need to file and pay taxes? Now, what would you find when you deal with international tax from a US perspective is that a greater emphasis is placed on reporting than there is on filing and paying in taxes. So, you know, you don't pay your taxes, interest, and penalties. We are in a low interest rate environment, depending on how much it is. It may not be very much, but if you don't report a financial asset, a mutual fund that you have overseas, a bank account, do you have overseas? It can be up to 50% of the unreported balance, you know, which is pretty aggressive plus jail time. So as a civil plus criminal penalties, the example I give a typically is Florida, which is a way for me in my home state. So, there was a dentist in Florida, and this is a real case. He had 1 million above, $1 billion in an account outside of the U S in Switzerland, and the IRS found out about it. So long story. But the point is the IRS determined that he did not report this foreign account. And again, when you all are asking you to do is report, and this is on the heels of 9/11, there is an implicit assumption that if you not reporting, what do you have overseas that you are up to some sort of nefarious purpose? So, this person anyway, and this person is deemed not to have a reported their bank accounts for three years in a million dollars in at 50% penalty. So that's $1.5 million for an account with a million in a door. And he settled outside of court. So, we, we don't know what it is. It it's not recorded, but that's how the IRS views. And when you look at the rulings that, you know, it's, that's a, this was like a few years ago, but when you look into rulings that have been coming through recently, they have been, and they continue to be quite aggressive and policing those US exposed persons who have bank accounts outside of the US and are not reporting it. 

 

Noa this is the core of what I want you guys to take away. And this is the acronym that we had developed, which we think captures the essence of what you need to do just to stay on the right side and that's do your best. So, B bank accounts is where established, it's not only including bank accounts with financial accounts, for all your financial accounts outside of the US need to be reported. There's a threshold where the maximum as you get and balances 10K, 10,000 US dollars. 

 

So, but once that threshold is met, all your accounts need to be reported. A unit trust, mutual funds, even dormant accounts need to be reported as well. Also, if you are a senior in a way in the company that you worked for, and you will have signing authority, have the bank accounts for that company, there was a, even though you are not the beneficial owner of those accounts, they are the property have your employer. You just have signing authority. You need to report that. And even if, well, you can sign your core signatory. 

 

So, it's you plus another signature. You need to report that. So, bank accounts, please pay special attention to that. Estimated TAXES. It goes without saying that the IRS does not like to wait until the following April to receive the taxes from a given tax year. They want to get it along the way, the very least they wanted quarterly. So, for quarterly payments that you should be making in a timely fashion failure to do that, unfortunately, the results and other payment penalties. 

 

So, the estimated taxes to pay attention, do your calculations when you were working in the us, you know, most people or paid on a W2 from what she does with holding every fortnight every month is the case. Maybe when your outside of the U S there is no withholding typically. So, you need to work with your chosen tax professional calculate what in advance, where the tax liability should be forgiven year, and make sure that you have sufficient funds in place to remit quarterly payments of the IRS next state tax issues. 

 

This again is a, unfortunately, this is not very well in the same. So, you have 50 different States, 50 different rules than this one States without any state tax is most popular of, which would be TAXES in Florida. But, you know, for all the other States, do you have, I have a responsibility to file and pay taxes. When you were outside of the U S many times, you would set up a tax residency with those States. But most of those States of domiciles States, which means that sometimes specific and intentional acts need to be made to sever Tax ties with a given state. 

 

And if you did not meet those specific acts, you would deem to still be within their tax net. Even if you have not lived in that state for many years, and I have clients and say, well, you know, what are they going to do? I'm all the way in whatever jurisdiction, but at some point, in time, you may return to the us. And once they find out you have a big fat tax bill, and we've had people are having their accounts in the U S frozen and just, it creates complexity, which is not necessarily just pay attention to your state tax issues. And we work with Clients to sever TAX ties to States do have a team that will tax you on your outside. And you just, it just is good practice to re-establish domicile in one of the state's that does not tax you to prevent complications lasts, but not least will be a transfer tax. As you can give to any estate taxes, give TAXES, perhaps are so easily overlooked. You outside of the us, you are living outside of the US. You get into relationships, you get married, you have friends, your business colleagues, or whatever, who are not US exposed because your receipts right. A lot. And if you are in a relationship with them, there's an exchange of gifts. Sometimes you receive something are, you can give them something, you know, as part of the relationship, as a case of a and B, that needs to be reported once it's over a certain threshold. So, do you know, not forgive and forget your, you, your gift re, and again, this is a reporting requirement. 

 

Most times, no taxes need to be done. Yeah. And it just needs to be reported. And then, then we have a state TAXES unfortunately, you know, it's not, it's kind of morbid. You don't want to think about it, but you want to have your affairs in order so that, you know, you know, God forbid you pass on, you don't want to leave a burden and a mess for your kids, for your spouse to deal with. And that's where some estate planning comes in. 

 

This state taxes are a bit more complex and that the, your exposure for estate taxes is a gen, you know, and it hinges on a concept of a domicile. So, it is a very, very nuanced, but we can talk about that in the Q and a, if there's a greater interest in it and understanding that, but the take away is be conscious of the transfer taxes. When are you speaking with your adviser, speak to him or heard about the gift? Taxes speak to him over about a state tax is as well 

 

Stimulus Payments. Of course, you know, people have been asking, many of our clients tend to be higher income earners. So, they actually may not qualify for this. And they, you know, and get a lot of emails on WhatsApp. Why do you know where is my free money? And I'll have to explain to them that you're above the threshold. I have that just to DEI clients in South Africa. That's a, you know, he's asking, well, where's my money. You know, unfortunately the price of your success, you earn above the threshold from the stimulus payments. But for those who do earn on the, you know, below and within the, the, the, you know, the, the amounts that would qualify for this, there was the first round, probably around last summer. And then it, at the end of the December, the second round where it was passed. So, you should have got it. I, the check in the mail or a direct deposit to US bank accounts, if you did not speak to your tax adviser, there is an additional lane in the form, 10 40 for this tax year for the 20, 20 tax year, which we're dealing with right now in 2021, where you can get a, a rebate credit. What does that mean? It means that whatever your tax liability may be for 2020, it would be reduced by the amount of the, the, the economic impact payment that you may not have received. If you didn't get a check in the mail, because you have a Cesar, the IRS, they didn't have you address the et cetera in the end, these things happen. If it is your, your refund, the refund will be increased by the amount of the rebate credits. So, make sure you speak to your tax advisor as well. 

 

Yeah, there's a pretty comprehensive website. The, the IRS has quite a few pages on this with FAQ's. So please, if you have any questions at all the, the ample resources and the IRS website, please, please have a look. I want to talk a bit about filing requirements because there's a MIS and there's a misconception, a misunderstanding that people think, you know, I'm outside of the U S I make less than a hundred grands there. If I don't need to file a pay any taxes that is so far from the truth, people tend to conflate and confused the foreign earned income exclusion with the filing threshold, the foreign earned income exclusion, it’s an amount that's the thing is like a 170,000 for this tax year, but it moves in inflation. 

 

So, it goes up a bit each year. And what that means is that amount would be sheltered from US Tax it must still be reported, but it's not Tax but it must still be reported at a tax, which is a must still be filed. And if you want and what is the threshold for filing a tax return? It is actually a pretty low if you found my filing separately, a threshold is $5. So, are you following my father's Everly you out? You know, even though your outside of the US did you make more than $5 last year? Chances are you dead? 

 

You need to file taxes. So again, speak with your advisor and don't assume based on something in a, a, a Facebook group or whatever that you don't need to file pay taxes, get professional advice. 

 

Yes. Just have this one slide about the phase out because people have been asking, you know, what is the phase out of this? So, depending on how much you earn the amount that you get for this is a stimulus payment would be reduced and it goes down in a scale. So, the more you earn them, the less payment you get until you pass a certain threshold and you get nothing at all. Now, w people have been asking about president Biden and what is his plans are now during the election campaign last year, he published a pretty comprehensive tax reform plan. 

 

It is pretty comprehensive and it will take probably an hour or more to have a conversation around that. So, we don't have that time. So, this is just like a snapshot of some key takeaways for someone who is US exposed, but it is living internationally as an ex-pat as a, you know, whatever outside of the U S as an entrepreneur, as a nomad, whatever the case maybe. And there's going to be the first thing is that for those that are higher income earners. And when I say hire in this context, it's over 400K per year, be aware that there'll be some additional cha a tax is going to be levied. So, you know, right now the highest band is I think 37%. So, this pushes it a 37th and eighth 39 40. I mean, it pushes you basically over 50% is, is, is the takeaway on there, there was a lot of debates and discussion around that during the election campaign. So, for those making over 400K, and if this goes through, expect a higher tax bill, now bear in mind that everything is subject to negotiation. These are his plans, but once it goes to Congress, they'll be a lot of movement. They'll be a horse trading, you know, to be give and take. So, it's unlikely that this is exactly what you're going to get at the end of that process, but this is what his opening negotiation stance will be. Those who run their own business, most of our clients were Know tend to be business owners as opposed to just a employee and guilty or the global intangible low tax income TAX, which came in at the President Trump's a tax cut and jobs act of 2017. They, everyone is familiar with that. So basically, it's a tax on controlled foreign companies. So, US owned and controlled companies outside of the U S it's an extra tax. There was levee on anti-deferral or a mechanic. That's got to go up that the, that the guilty rate is, is, is going to go, what is going to go up? So, and that's on top of the fact that the corporate tax rate as well, and separate and distinct from the, the corporate tax rate is 21%. That's supposed to be pushed up to a 28%. So, these are some of the things that you, you, you, you need to keep in mind, and it's not too early to have a conversation with your tax advisor. That might be a, a, a good tax advisor. Isn't a form filler. There is someone who sits with you or gets on a zoom call with you. And you go through a, you know, this is my structure. This is where my business is running. What can I do to protect myself? What can I do to preserve my wealth? What can I do to be smarter, you know, more tax efficient way with what I'm trying to achieve here? And so, there are mechanisms that can be put in place to, to hedge against some of these movements. The A lifetime exclusion is supposed to come down potentially. And so that has impact on transfer taxes. So, this will be a gift and your state taxes. 

 

What else, for those who have a trust, you know, a trust is not necessarily the preserve have somewhat of someone who is super wealthy is just someone who is really smart. These, because these are legitimate tax reduction tools that anyone can access and leverage. So many of our clients use trust. I have a trust myself, it's a tool that's accessible to everyone. And there are certain changes that supposedly made to the trust in terms of the step of basis on the debt of a grantor that that may be removed, that, that step up in basis, which benefits your, your beneficiaries, your spouses, your kids, and making sure that there's more money in their pocket, that's going to be revised. So, these plans, so in terms of the state planning, you need to be talking to your advisor around President Biden's plans. If you all are a structure, you need to be talking to your advisor. If you are in your own company, I need to be talking to an advisor that's the takeaway there. 

 

So, what I will do now is I will stop sharing and we can get into our Q and A. So please don't be shy. If you have any questions, feel free to write them. There's a chat box down below for those who are on zoom. That is a, I'm also streaming this on Facebook, but for those in zoom, please have a look in the chat box below and feel free to type your questions. 

 

Question, if we're working from abroad, sorry, I'm just going to scroll. If you’re working both in the us and abroad, how do you file? And that's a great question, Camille. Thanks for asking that. So, it depends definitely you are, once you are a US person, as we explained in one of the earliest slides, so you were a US citizen, you're a green card holder. Oh, you triggered substantial presence. You need to file and pay your taxes on your worldwide income. So, in that sense, it makes no difference whether you were in Seattle or Singapore, you need to file and pay your taxes. So that's on the slide. That is a constant, that won't change how you can do it. If it is that there are a number of software solutions that are available in terms of the mechanics of doing it. There are one of the biggest software providers is Intuit. I don't work for them, but they are just a, it's a fact there, the biggest one in a market, we have a number of software solutions. 

 

If you are, if you're situation is more domestic and lower income, there is TurboTax, which, which works well for that target demographic. If you have more complex structures and you're an ex-pat and you work in a broad and you were making money overseas into it also has because they are trying to make money. They have more complex software solutions that deal with forms that TurboTax does not have. But of course, you know, we are an advisor. So we do suggest that you seek an advisor, not just who understands the US side of things, but the jurisdiction in which the other jurisdiction, which you are exposed with guests means to the other point, if you're not in the US all the time, you must be somewhere else. You need to pay attention to the rules in the other country, in which you are working, because you may be exposed to Tax in that jurisdictions. Most countries follow a 183-day rule. So, if you are in their country for more than 183 days within their tax year, some countries follow a calendar year. Some are in a different fiscal year than you may be required to file and pay taxes in that country as well. And we always advise them. We strongly suggest that you speak to an advisor who not just understands the US side, which is super important, but the other jurisdiction in which you were exposed, what would you do if you have a home in another country? Again, that that is is pretty common right now, where you are bonafide resident is what we call it. So, it's not as you were just traveling outside in the U S but you may be a bonafide, a resident of another jurisdiction, then chances are, depending on the jurisdiction, it is you are required to pay taxes in other jurisdictions as well. Let's say in Singapore, if you have a boat to find a resident of Singapore, as in your home there, you have to pay your rent. Oh, you actually on a home or you pay rent, you are required to pay taxes in any income that you earn there. As the case may be, then you're required to file and pay taxes in Singapore as well. 

 

But once you are working with a tax advisor who knows what he or she is doing, don't worry. You're not going to be paying tax twice because even without invoking a treaty. So, some countries do have a treaty in play. So, for example, the, you know, most of European countries, Mexico and Canada, you know, South America, most Co many Caribbean islands as well. So, there's a treaty in play, but you don't need to involve the treaty to make sure you are not double taxed, because there's a system of foreign tax credits. So, the us will say, well, okay, regardless, you need to file and pay taxes. That's a given. But, you know, we would respect the fact that you are already paying taxes in another jurisdiction. So, let's see you living in Singapore, Hong Kong, and you made a hundred dollars a year and Singapore says, well, just pay me $10 in taxes in the U S is what my tax bill is $20. What do you do is you, you report to the us have already paid 10 to Singapore, Hong Kong there from just playing there? The difference, which is an extra 10 to the US. So, in other words, typically you only pay the higher of the two. 

 

Taxes its very rare to pay a tax twice. It can happen where we see you're going to happen on a relatively often is when you are still domicile in the state, in the US and that can happen, you know, 50 different States, 50 different rules. But if it so happens that you are still tax on your income from a S in a state than depending on that situation, there may be double Tax because whereas the federal government in a US recognized as foreign tax credits, unfortunately the States do not. So, the states will recognize the money you paid to the foreign jurisdiction. But in short, just to summarize you as an EXPAT, you will be filing a pay tax in the US. The question becomes, what about the other jurisdiction in which you live? If you're a born, if I have a resident you should be following and pay your taxes, unless you are fortunate enough to live in one of those tax-free jurisdictions. I was talking to a client this morning in a Dubai. Obviously, she lives in a tax-free jurisdiction, but if your living in Singapore with my clients in Singapore or in Asia, then you know, you're going to be F finally in paying in taxes there as well. So, you, when you look in the other jurisdiction in which you live, and then you balance it to, to make sure you minimize the, the tax burden across both jurisdictions and you not taxed twice. So those are the things. 

 

Okay, next question. What do you do if you're a digital nomad with the U S based on business, are you obligated to pay taxes to each country? You travel plus the United States? And that depends, right? It depends on the nature of your business. If you are US exposed, obviously you've got to be paying tax when you will come. That is non-negotiable unless, you know, there is no way to reduce the other to eliminate that really, unless you are willing to think about Puerto Rico or are you willing to give up you US passport or a green card, but that aside the USI is non-negotiable. 

What, if you are traveling around, you need to the same steps that I explained in answering Camille's question will need to be that in this case as well. You mean, you need to look at this country in which you are traveling to and figure out whether you are triggering. Tax a nexus. What we call a nexus, which is a taxable presence in that jurisdiction. If it, if your presence there does triggered nexus and you are taxable than yes, the correct thing to do is file and pay taxes. Now, before COVID-19 a lot of this has before and after before the pandemic, you know, people would do a visa runs and they would move around and you, and you can cook. You can see I've met perpetual nomads, people that they live in a yard S, they've done well. They've exited from what of the deal they were in the live on a yacht, or they just travel around at the lift from hotel to hotel. You know, they live that lifestyle. It is possible. And in a scenario like that, where you are constantly moving, but you, you S expose are you filing a ping in the U S only, but not in any other jurisdiction. Now we live in the post pandemic reality. So, people or more moving more slowly than that'd be for in that case, you to look at the jurisdiction. As I mentioned earlier, most jurisdictions tend to be one 83 days, but other jurisdictions may say, well, you know, one of the three days to become a tax resident. But if you are working in our country, we want to tax you. And we've seen a recent case in Bali, Indonesia, where again, it's been around for a while, but for whatever reason and his politics in that. But the point is someone was deemed to be working online and doing whatever they're doing online. And they were quite visible in promoting their business online. While working from Bali as a, a us citizen, as a result, they were detained on a number of issues. One of which is my understanding is that they were deemed to be working because Indonesia is one of those jurisdictions, which is a very poor, which is a very, very particular, if it is you entered Indonesia, you have to check on that, on that arrival form. Why are you there? Their definition of a tourist is very, very strict. It's unlike the US. You can, you can enter the U S as a tourist before COVID-19 of course, and you can attend business meetings. You can do a seminar, whatever the case may be. If you enter Indonesia, you see you and entering as a tourist, you cannot attend any business meetings. You should not be working. So, this person was deemed to have been working. And the guy that was one of the issues that they had a Singapore is like that. If it is you and to Singapore as a tourist, why are you in an office? 

Why are you sitting behind a desk? And, you know, there have been issues around that. So, it really depends on the jurisdiction. You just make sure that once you are in a given jurisdiction, do you understand the immigration rules and you have to sign the tax rules. And we are in unprecedented times, countries, nationalism is at a high unemployment numbers are raising. So, the politicians and locals, of course, and understandably so very protective of jobs. And they are, if you don't want to break the rules, because more so than ever before, there is a greater chance of being held to account that, that that's the point is if you need to do it, your taxes pay your taxes. 

 

And the next question, does Europe tax US pensions and rental income from the US as well, Europe is what, 28, its quite a number of countries. It's not one homogenous jurisdiction. In addition to which within Europe you can have more than one tax status. So, for example, you know, this is an aside, but I think it’s related to your question. So, we have, I maintain on blog. I have over a thousand articles, which are freely available on the website. HTJ our Tax, which talk about jurisdictions. And I think it was yesterday. We put up an article about five European countries because Europe is not really synonymous with tax efficiency is one of the highest taxing jurisdictions in the world. Again, put painting on a broad brush, but carved out within Europe you do have opportunities for tax planning once you get the right advice. 

 

So, and I think in my article I spoke about Ireland or UK, Italy, Spain and Portugal. And I see mentioned Portugal so let's do those five countries HTJ and our tax on it. I also put up a video every day, a on my LinkedIn and my, of the, the social media, where we talk about opportunities for, for being smart, when it comes to your taxes. But anyway, when those five countries and others' as well, I think in Belgium, France, and Switzerland, they will, they will have, but let's talk about Spain and Portugal. You can be in Spain, you can be in Portugal and as a foreigner or a nomad living in Spain or Portugal or a one of the other European countries, I mentioned you can make an election with the tax authority to treat your income in a specific way where they will only tax your domestic income. So, any in this case, Portugal all you need the money arising from in some sort of income producing activity in Portugal will be subject to Portugal tax the rest, the rest we will not. So, stub that you earn in the US is not subject to tax same in Spain, but there are exceptions is a very, very nuanced. And this is where having professional advice comes in. If it's rental income from the US it will be subject to taxes in Portugal. But if it is securities income, or if it is pension income, the answer is yes, it will be subject to tax both in the us and in Portugal now up until I think it was around March, 2020, the pension income would not have been subject to taxes in, in, in Portugal, but there were some complaints within the EU, from the Northern European countries, there are complaints of Brussels and they put pressure in Portugal to amend that part of their tax rule. 

 

So if you are, and I'm talking about those who are in Portugal at the NHR or the non-habitual residence status, so you US income, that's a business as usual, but if you have, if you apply for a new, you get NHS status, only a Portugal source of income would be subject to tax your US income now, but there are exceptions. One of which is securities income, but rental income would be subject to Portugal taxes and your pension income as of March last year, your pension income, we'll also be subject to Taxes and Portugal if you grandfathered in. So, if you had an NHL status prior to the changing the rules last year, Know, you will be subject to even the pensions will be tats in Portugal. So, depends on when you got any char. So again, Europe very general, but I think these are the right questions to us as a us person. Just take it as a, given that you will be subject to taxes when you were letting come, regardless of where you reside. So, the question becomes I, yes, I have US taxes to worry about, but I also have taxes in the other jurisdictions that I'm exposed to. How can I plan? How can I execute things in a way that minimizes my tax burden across the board? And sometimes we have to do calculations that look at well, you know, by taking certain actions in Leslie Singapore to reduce your Singapore income, you may actually be increasing your taxes in the us and vice versa by taking by adopting and leveraging certain strategies to reduce your US taxability come, you may inadvertently increase your Singapore income. So it’s not as is not. They can be looked at in isolation. You ask in the right question, my US side, I need to look at, but also the other jurisdictions in which are unexposed, I need to look at both simultaneously a two to do any of the questions. Please feel free to write them in the box below. 

 

Okay. 

 

Scrolling, scrolling 

 

Do you have another question? Okay. Well in that case, I get off easy this evening. Last week when we did this, I, you know, we just have to draw a line because of questions are coming in fast and furious. I'm having an easy night so or easy morning depending on which is we're in the urine. So, thank you for giving me a break. If you have any further questions, feel free to reach out to me. Easiest way is probably LinkedIn. Just look from me on LinkedIn. I posted a video every day with free tax tips so look for it. Ghana, someone who is just asked to go in Ghana, sorry. I, we have limited exposure with Africa. I deal with South Africa pretty often right now. So, in Africa and Dubai and a lot Madagascar a service, but not Ghana, but I can introduce you to someone in Ghana who does Ghana in tax. So just to just shoot me a message or email or the, my, my email and stuff is as above, when you scroll up in the, in the chatbot below. So, we pause the video is daily where the tax tips we have over a thousand articles, free of charge and interesting jurisdictions that is updated as regularly as we can. And do you feel free to reach out if you just want a free zoom consult to talk about your situation? 

 

And of course, we do these webinars at this time. We probably doing them every week. I'm doing again tomorrow and next week. My email is help@htj.tax so shoot me an email, feel free to follow connected with me on LinkedIn. We also on Instagram or on Facebook, or even Tik-tok, somebody who maintains Tik-tok, Twitter as well. 

 

We always put tax tips are always trying to keep it on the edge of what's going on, I'm not a one person show. I have a great team around me and not just of other tax professionals, but marketing who keeps all these different platforms up to date. So, I'll get we with somebody saying that there are other questions 

 

I've been asked a week. Just feel free to do that. If you have another question, feel free to just type it in below. I'll give you a minute to compose. Otherwise just feel free to shoot me an email. 

 

Okay. Yeah. Just, just do, you can type your question below, otherwise you can just shoot me an email that I replied to you later on. If you have shy and you, you don't want to discuss it right now. 

 

Okay. All right. My US company was open in New Mexico last year. I'm still waiting for the tax ID. I'm not done any business. Should I worry about filing anything for 2020? It really? So, someone has an LLC in a, in a state. Does it matter what the state is a really in the U S and they're asking about tax filings. They are in, in the us and LLC from a tax perspective, it is a special entity because it's actually for tax purposes, it is disregarded. So is what we call a pass-through entity. So, if it is, you are the only member and she doesn't have a shareholder does not have shareholders like a sequel. So, if you weren't the only member of an LLC to a single member, LLC, and the business activity will be reported on your shed, you will see. So, the LLC itself, assuming that it is the LLC doesn't pay taxes, unless you make a special election with the, with the IRS, with a federal government, for her to be treated him as a C Corp, as an S Corp are treated at a different way. The default is that is treated as transparent. I know it sounds bizarre, but it's the IRS sees through it and it's reflected on your personal tax return. So, in other words, if you have an LLC, any activity or no activity, whatever the case may be, it's reflected on your personal tax return is not the LLC doesn't follow a return now, or what the LLC does. It finds an annual report to the secretary of state, which is not necessarily giving financials. But what it seeks to do is inform as a secretary of state, that the LRC is still an operation and it is in good standing, but from a, so that's not a tax return is not a tax report. The tax return from an LLC, unless you make an election is on your personal tax return. Next question, as a non-resident alien at NRA, okay. Open a single-member LLC in the us coaching and training what's asked to do I need to paint. So, if you are providing a service and you are an NRA, you are not, US exposed to a passport and a green cotton, a substantial presence. 

 

Don't do nothing. You do not set foot on US soil. Then they should be no us tax liability attached to that, LLC. And I repeat once. There is no, there is no next to the United States. You do not set foot any US soil. There should be no US taxes to pay. As I mentioned before, you file your annual report with the secretary of state, a whatever state you incorporated, the LLC, but from a tax perspective, there New taxes to paint. No. And then the question is, well, if you're not in the US, where are you? So, if it is that you were in another country, there, there is a, then you will have nexus with whatever or the jurisdiction urine, because you have to be, unless you are in space or whatever, you must be somewhere. So, you need to check the rules of the jurisdiction in which you operate. And if the rules have the jurisdiction in which you operate me, and most of them would say, you are exercising management and control of a company from within our jurisdiction, even the way it is not incorporated in our jurisdiction. 

 

We deem it to be a company in our jurisdiction at a must follow the tax rolls there. So, the challenge to the question and the ad are a non-resident alien. Don't worry about the, US worry about where you are because the tax rules may pull the LLC into the tax net of whatever jurisdiction you're. In the next question, I will not have a physical presence. So, know nexus with the us and the employees of the U S I will serve companies from the U S in various countries in Latin America. I will also be saving companies and Germany in the UK. What specific Taxes will apply, or if it is, is it depends on weather, you providing a good or a service. If it is that you are providing a service and you have no nexus of the US, I'm in Team Know US TAXES, but your service must be provided from somewhere, looking at the rules to the jurisdiction in which you find yourself. And that's the answer to where you need to be filing and paying in taxes. If it is your providing a physical product, that is quite different. There are certain rules are a physical product. Most people are familiar with direct taxes. So, your personal income taxes, your corporate taxes, but if you providing a physical product and you're shipping it anywhere, you need to be conscious of indirect taxes. So, in Singapore, there will be GST in Europe. There will be VAT in the US sales and use taxes. So, you know that the indirect Taxes will come into play and the indirect taxes are more sensitive to next US than the direct taxes. That's the question I know in New Mexico doesn't require a yearly filing or renew in the LLC. So, in the center is not a state taxes, or when a child of a federal job. This is what applies. If it is that you are a service provider, you're a service provider. So, it depends on the scenario, right? So, this is a scenario. I'm getting your service provider. You're not providing a physical product. You will, you are not US exposed. 

So, no passport, no green card, no physical presence of the US and the AND. And then those circumstances Know federal taxes should be, do no federal taxes in the us. Of course, as I mentioned before, it becomes you need to be somewhere. Are you in Dubai? Are you in a Singapore? Are you in London? Or you are in Paris, are you in Brenda's ideas? In Mexico City or somewhere, and you need to look in the rules this somewhere that you want to see, whether it's a TAXES had been triggered by your nexus there by you are operating a business there, it matters. Not which bank accounts is paid into. It matters not where the company is incorporated. What matters is where you, as the operator at the company, where are you, where are you providing those services from where's management and control being exercised, whereas this substance at the company, and there's some of the substance of the company is in Columbia. If you meet a Jean, you know, and you call it a header, then that company can be taxed as a Colombian company. 

 

Any other questions? Okay. So that looks like, again, you can check on my blog, frequent updates. We, we post a video every single day. We don't miss a day. We have podcasts, we have great articles. Let us know if we can work with you and in any way, otherwise, oops. Non-resident alien from the IRS. Yeah. 

 

Sorry. I'm just looking at yes. You know, so you had an NRA, so you are not a us person. So that is correct. So, any other questions, just let us know. We don't, we, as I mentioned, we deal with, with high-income, who knows, but for those who don't earn that there are within a threshold, we have free resources online, a box for those who are on audible with Amazon in the books are available. You can listen to them for free and, and you can get advice that way as well. 

 

And thank you very much for your time. And I we'll see you at some future point in time. Once flights start reopening, hopefully we can meet in person and we have resumed the physical seminars as opposed to webinars have a good day, morning, evening. Bye.

 

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