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Andrew Henderson wrote the #1 best-selling book that redefines life as a diversified,
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Running an online business just got a lot harder for tax reasons

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Dateline: Kuala Lumpur, Malaysia Running an online business is a great way to generate location independent income; money you can earn from anywhere on earth. That makes online businesses one of the top choices for perpetual travelers like myself who want an income that will follow them anywhere, even if they choose to leave personal or economic oppression in their home country. However, if your online business is tethered to a bankrupt western country, there are bound to be challenges. Earlier this year, I was chatting with several of my closest friends who have run internet businesses responsible for nearly $200 million in sales over the last few years. And each of these internet experts predicted that the tools needed to run an e-commerce business will continue to get harder for those running a business in countries like the United States. Case in point: while obtaining a merchant account in places like The Land of the Free, the UK, and Australia is getting easier thanks to services like Stripe, the regulations and reporting requirements involved are getting a lot more difficult. We recently put together a comprehensive list of offshore merchant account providers for our Nomad Society Members, but the reality is that certain businesses will always have a hard time getting a merchant account almost anywhere. That’s because the US government and other entities have imposed so many regulations on banks and financial services companies that the banks don’t want to touch anything “controversial”. And that includes a lot of internet businesses they see as high-risk. Politicians use laws like Obamacare to sneakily hide requirements for your bank to report business sales to the IRS automatically. That means more form filling for you. But the same politicians use their lobbying power to force banks to make life hard to their enemies, including those who go offshore and run internet businesses that can easily be made immune to paying tax anywhere. Basically, western governments are so desperate for money that even as they arrogantly tell you, “if you don’t like it, then leave”, they are making it increasingly difficult for you to run a business offshore if you still have ties at home. That is why cutting ties with the US and western Europe will become increasingly important in the coming years. You will have to make a choice: do I want to be economically free, or do I want to live on some suburban street lined with tract houses? This issue doesn’t just impact the USSA, though. Starting in 2015, the European Union is rolling out a whole host of regulations requiring all kinds of merchants, including online businesses, to collect the Value Added Tax in a much more complicated way. Just as Obamacare foisted billions of dollars in compliance costs on US businesses, this new VAT directive will require businesses to know exactly where their customers are coming from so they can be taxed accordingly. That may be easy when you’re selling hot dogs in Bruges’ “Markt”, but it is a lot less easy when you sell digital products online. Think about it: if you live in Seattle, for instance, you could easily get around paying Washington sales tax on your US purchases by getting a private mailbox in sales tax-free Oregon and having any high-dollar online purchases sent there. After all, there’s nothing wrong with having a mailbox or virtual office in another city. Online retailers like Amazon can only tax you based on where the package is being shipped. This new EU VAT directive aims to eliminate such a loophole in order to bring more money in to pay for… well, for what exactly I don’t know. But the European politicians need more money. What they’re doing in Europe is actually telling business owners, “you have to KNOW – with certainty – where your customers are coming from”. Businesses will no longer be able to let their customers use loopholes to pay lower VAT rates, such as by using a Luxembourg company to purchase products and services at 15% VAT versus the 27% rate in Hungary. This is yet another way “first world” countries are trying to do an end-run around tax havens by telling businesses that it doesn’t matter where they set up shop… it matters where the customers are. Somehow, Hungary believes it is entitled to collect 27% VAT on a product or service a business in lower-tax Luxembourg creates. It’s insane. You may recall last year that the United States wanted all online purchases to have sales tax applied in order to stop greedy shoppers from buying stuff from online merchants based in low-population states like New Hampshire in order to cut out the taxman on 99% of purchases. As we speak, more and more online purchases in the US are subject to sales tax at the local level, with small online merchants being responsible for complying with hundreds of sets of sales tax laws. I just spoke with one of our contacts at Infusionsoft – which is based in Arizona – the other day, and he told me they’re on the hook for filing sales tax reports in 22 different states and a number of local jurisdictions. All because someone “came” to Arizona and bought their software. In today’s tax-happy environment, the government doesn’t care that your business is located in low-tax Arizona or Luxembourg. They want their cut just for existing. The new EU rules will require merchants to keep data such as IP addresses, mobile phone SIM card data, and the landline phone number of their customers for ten years to make sure they are in full compliance. I can imagine how bureaucrats will react during an audit to the breaking news that most people don’t have a landline phone number anymore. But that’s the point: the idea of trying to circumvent tax havens and my Five Magic Words is only natural to bankrupt governments. They need their latest hit, and they are perfectly willing to put your business through the ringer and cost you thousands of dollars a year to make you help them. If you run a business in the western world, you are nothing more than a slave to whatever cockamamy idea they can dream up next. You could fill a room with drunken baboons and come up with better ways to turn an economy around. However, if you have a western citizenship, own a western company, or bank in the western world, you will continue to be subject to all of it. That’s why not only going offshore, but planting flags in your personal life is so important. If you want to protect yourself against these challenges as best as possible, you should at least have an offshore company, offshore merchant account, and a residency overseas. These are the first steps to keeping yourself out of “the system”.


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