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Andrew Henderson

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Do I have to move to claim offshore tax benefits?

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Dateline: Tbilisi, Georgia

A while back I was talking to a good friend from Germany. I asked her what would happen if somebody decided to run for office in Germany on the promise that they would cut taxes. Her answer? They would be laughed right out of the country.

No German in their right mind would ever even consider electing someone who wanted to lower taxes because they know that all the goodies would go with them. While the US isn’t as good at handing out the goodies, most people there are content to sit around their backyard with their neighbors talking about how fortunate they are to be able to buy the barbecue they’re using to grill up the hamburgers with their tax refund from the government.

Unfortunately, those people fail to understand economics and don’t realize that the money the government “gave them” was really their money to begin with… just returned to them, interest-free. If you aren’t one of these people and you aren’t content with high taxes or the “perks” of living in the US and dealing with its tax system, YOU need to fix the situation.

I say this because I’ve had a lot of people asking me lately about Trump’s tax plan and whether or not the US will be a place where you’ll be treated best under his presidency. I tend not to believe all the hype. I’m open to the possibility and would welcome any positive changes, but I don’t think that you’ll see a country like the US turn on a dime and slash the tax code in a way a small country like Georgia was able to do.

Have you seen the US tax code? It’s the length of 27 Bibles!

I know Trump wants to reduce the highest income tax bracket from 40% to 33%. I know he says he’ll cut the business tax rate from 35% to 15% and eliminate the corporate alternative minimum tax. But I can’t help but be a little skeptical. Bush was hailed as the great tax reformer and all he did was reduce the tax rate by a little over four percent!

If 35% was seen as a real accomplishment, I doubt you’ll ever see the US — even under Trump — achieve a tax system even remotely similar to the systems in Eastern Europe where income is taxed at rates as low as nine percent. What might happen under Trump is that taxes will get a little better and it might get a little easier to run a business from a distance. But I don’t think it’s going to be so great that I’ll start telling people to move back to the US.

If it is that great, then go for it; but don’t act now on mere speculation of what one president might achieve. The reality is that there are still far better options out there and you are the only one who can choose to take them. You have to ask yourself, “Are you a Nomad Capitalist or are you a Patriot willing to stick around and deal with the bother?”

Because the reality is that you will have to deal with a lot of bother. If you’re going to live in the US full time, you’re going to pay taxes. It’s as simple as that.

However, some people insist on making things a little less simple. I usually work with people who are either already traveling or are ready to get out from under the system and move abroad to avoid the taxes. Every once in awhile, however, I have a client who really is content to live in the US. They don’t want to move and they don’t want the nomad life, but they don’t want the taxes either.

While you can’t totally eliminate your taxes while living in the US, there are ways to reduce your tax burden and stay put. So let’s take a look at each approach — whether you’re already traveling, are willing to travel, or want to remain in the US — and you can decide if it’s worth it for you to become a Nomad Capitalist or stay put and hope the tax situation gets better under President Trump.

The oblivious traveler: Taxes as an afterthought

As mentioned, there are a couple of different questions people commonly ask me when it comes to reducing tax. The first goes along the lines of, “Holy cow! I became a digital nomad and I’m already living and traveling all over the world and I have no home and I’m certainly not living in X home country, so why should I have to pay tax there?

Unfortunately, that is a very naive saying because there is actually a procedure to officially leave most countries. In the US you simply have to be in a foreign country or countries for at least 330 days of the year in order to qualify for the Foreign Earned Income Exclusion (FEIE), but in many other countries, it’s becoming much harder to claim tax non-resident status. You may be traveling and living everywhere but your home country, but if you don’t make a conscious effort to become tax non-resident, you may be stuck with a surprising tax bill anyway.

If you’re among those who are already traveling and have thought, “Oh, by the way, shoot! What about tax?”, don’t delay figuring things out.

The deliberate traveler: Traveling to save on taxes

On the flip side, there are people who are successfully running businesses — most were already successful before they ever had the desire to leave the US — and who are now seriously considering leaving in order to reduce their tax burden.

I work with so many people like this. Guys from Australia, Canada and the US (especially California and similar tax crazy jurisdictions) where they’re paying huge tax. Some of these guys are paying 50% in tax. They run successful affiliate marketing companies, they’re coaches, they’re consultants, they have Amazon FBA businesses, they’re doing all kinds of different things and they’re making the money and saying “Holy cow! Is the government really entitled to all of this wealth that I created?”

Believe it or not, some of these smart businessmen actually want to reinvest in their businesses. They are left with the question that if they’re making half a million and they only keep $300 of it, what if they could have put $200 of it back in? What if they had more money to reinvest?

Some guys just say “I’m tired of paying”, others say “Imagine what I could do!” And others want to have a family and are looking at leaving the US for five or ten years (or maybe forever) just so they can pocket more of their money in order to kickstart their family finances while they travel.

The beautiful thing is that when you travel it’s almost like the government pays you — especially in the US where they give you an exemption. From one perspective, the FEIE is basically the US government’s way of paying you to travel. In fact, for many people, the exemption and tax savings basically pay for the entire lifestyle.

The Homebody: Taking travel out of the equation

Despite the tax advantages of traveling, there are other people who simply say “You know what, I’m already making the money and I don’t want to move to Panama or Malaysia or Thailand. I don’t want to move to Europe. I don’t want to travel around. I don’t want to be a nomad. I don’t want to have bases. I don’t want any of that. I just want to stay in my home country.”

Now, this can be for many justifiable reason. Perhaps you have family you want to be close to. Perhaps a close relative is ill and you need to support them. However, if you’re just afraid of the world, that’s not a justifiable reason to stay put. Get out there and do what I suggest: give yourself six months to a year to try out the expat/nomad life. If you hate it, come back. You can spare twelve months (and that will get you the tax benefits too).

But give it a try. Find somewhere that you like and give yourself the chance to see if you really just prefer living in your home country. You’ve got to push yourself past the fear. That’s part of why I like to act as an accountability coach when I work with folks because it’s not just about knowing what to do, but actually doing it.

Nevertheless, if you’re dead set on staying, here’s the answer to the question: It depends. Big companies like Google and Starbucks have operations all around the world and manage to pay very little tax at home. Reducing your taxes is possible, but it’s getting harder and harder to pull off.

Google, for instance, is a multi-billion dollar company and yet they’re still being raided by numerous countries’ tax divisions. Just this May, Google offices were raided in France under the guise of a tax fraud investigation. In reality, the French government felt Google wasn’t paying enough tax and got suspicious. If you don’t mind dealing with these types of suspicious governments, here’s how the strategy works:

The Strategy: Tax benefits without travel

What these companies do is they use a sophisticated strategy where they allocate different monies where different people who work for them are located. Basically, a US company doesn’t have to pay US corporate income tax on profits generated offshore if those profits remain offshore.

Companies like Google also invest a lot of money offshore. Foreign cash is used to acquire foreign companies and develop new projects outside of the United States. As a result, that money can stay outside of the US tax system where it is treated more fairly and can potentially earn superior returns. You can learn more about the details of these strategies here.

In theory, these strategies could work for you. I have helped people with strategies like this with my tax lawyers. However you go about it, you want to have professionals doing this. You want both a tax lawyer in your home country, as well as a guy like me who knows the laws of different countries because it can get really dicey. Just having a tax guy in your home country isn’t going to cut it. You need international and domestic professionals.

What you will have to accept, though, is that you’re never going to pay zero tax if you choose to live full time in your home country. If you’re living there and you’re doing work there and you need to be paid for that work there, you will be taxed in your home country. The challenge most people face is that they have not found a way to manage their company remotely. And where the management is, the taxes follow.

Are there legal ways to get around that and adjust your tax burden? Sure. But there are risks, it’s getting more difficult and it’s getting more dicey. That doesn’t mean that you won’t win in the end. You can be audited and still win and there are different ways to set it up so that you will win. But the question is, do you want the stress?

My Advice

Quite frankly, my advice to people who don’t want to pay tax is to leave their country. Go out and find any other country in the world. I don’t care where you live, but chances are there’s something just as good.

I always say that Chile is the mirror image of California, just a different hemisphere. It’s roughly the same size and shape and it’s got beaches, skiing, wines and basically everything else you would find in California. There’s a place that you can find that’s right for you.

If you’re only interested in staying home, I highly recommend you get help because it’s very, very situation dependent and somewhat subjective. I wouldn’t suggest going it alone. You can’t just run an entire company and expect to pay zero tax. It also depends a lot on the type of business you run. If you run a swimming pool cleaning company, you don’t have a lot of options. If you run a company that’s online and your staff and customers are all over the world, then there’s something to talk about.

In all honesty, it’s better if you, the owner, leave. There are certainly ways around it, but the best option is to leave. Either way, if you’re interested in my help, schedule an appointment.


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