Freelancing: Traveling & Taxes


4

I'm a German citizen, but have been living in various EU and non-EU countries. I usually do remote freelance work. Since I don't live in Germany, I don't see the point why I should pay the high taxes there and am considering to incorporate in another country, e.g. Cyprus (EU member state, 10% profit tax).

What I'm now wondering about, is, what are the pitfalls: do I have to pay taxes somewhere else other than in Cyprus? I don't expect to stay in a country longer than 3-6 months before moving on to the next. My job gives me the possibility to work from anywhere, only requiring a laptop and Internet. Therefor I'm not really a resident anywhere. At least for now. One day I might get sick of traveling, though. But for now it is like that.

My money would basically sit in a bank account in Cyprus, but I would have to move some money to Germany once in a while, because I have a private pension fund there. But it's very little. Other than that I would only need the cash I take out of the ATM in whichever country I currently am.

Tax Travel Offshore

asked Jul 4 '11 at 19:21
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Znq
164 points

1 Answer


6

Welcome to the joke called European Union. Ideally is all easy and unified, you can move between countries, work everywhere, live where you like. In practice, that's a mess and governments actively discourage that.

Let's start with the theory

  • you pay corporation tax in the country where the company is incorporated. So if your company is in Cyprus you pay corporate tax in Cyprus. Other countries with favourable corporate tax are Ireland and UK.
  • your company will pay you a salary and (possibly) dividends. You will pay income tax on them in the country you are resident.
  • if you spend a considerable amount of days (usually more than 183 days, but it may change from country to country) in a country different from your residency, you need to pay income taxes in that country as well. You then will deduct the amount paid from the income taxes in your country of residence, if the 2 countries have double-taxation agreements (most if not all the EU countries have them in place)
  • even if you change country every month, you need to choose a country where you want to be resident. You need to register there, have a stable address, a national insurance number (or equivalent) and a bank account (to receive your salaries and dividends)

Now let's talk about what happens in practice

  • even if various verdicts from the EU court have clearly stated that it is illegal to discriminate foreign companies, many european governments discriminate, discourage and actively persecute nationals who own or work through foreign companies. Two examples I know are the italian "esterovestizione" law, and the german AStG (Au├č├čensteuergesetz) which try to punish nationals owning foreign companies (by subjecting them to additional taxation). Both laws are vague and subjet to different interpretations, thing that makes the situation even worse.
  • in general, don't try to create a company in country A if you plan to work and live mostly in country B. In the most favourable case country B will tell you that you need to pay also corporate tax in country B (and register there, and have an office, and have an accountant...); in other case, that will be simply considered illegal. Again that varies from country to country.
  • as a German citizen, if you end up working in Germany for a German customer, you might have problem (in case you are resident in Cyprus and with a company in Cyprus). That's not illegal but, if tax authorities notice you, it's pretty sure they will try to get you (for both income and VAT) because Cyprus is a country often used for "tax engineering".

My suggestion :

  • If you are really flexible in your movements, set up the company in the same country you are resident. So if you set up business in Cyprus, register there as resident (if it's part of EU and you are EU citizen they can't refuse you the residency), rent a flat and set up a national insurance number and a bank account. It will be also much easier to do your tax returns since you will need only one accountant.
  • When you travel for business, be sure that you don't stay in another country for more than 183 days. Many people will say "oh well, how can the tax authorities know that I spent more than tot days there?" Wrong question. That's not how tax authorities work in many countries (again, the examples of Italy and Germany are appropriate here). If they have the doubt, they will send you the tax bill, fines and possibly try to block your money in the country, and then will be your responsibility to prove that you spent less than 183 days there.
  • Open a private pension plan in the country you are resident. The money in your pension plan in Germany won't go away (at least I hope! that's what happens in UK anyway). They will just sit there until you reach pension age, and you will be able to contribute again when and if you are back to Germany.
answered Jul 4 '11 at 21:14
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Filippo Diotalevi
2,573 points
  • Awesome answer. Thanks a lot for taking so much time to compile it. Very appreciated. – Znq 9 years ago

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