I wanted to take a break from the usual type of article to discuss an highly important, yet often ignore part of your online business: taxes.
I often write huge guides on my site about topics that are of interest to me. And taxes one of them.
Most people working a 9-5 will moan and bitch about paying taxes come tax season, but pay those taxes they nevertheless will. Each and every year.
Because if you don’t, the tax man will hurt you bad (I know a bit about this…more on this later).
But what if I told you that it’s possible to reduce your taxes to zero (or at the very least, significantly) if you earn money online.
If you make an online income, you have the unique position of being location independent. That is, you can move anywhere in the world and still work. Living in different countries while working online is often referred to as a ‘Digital Nomad.’
Now the strategies discussed here are not for everyone out there, but for those willing to become a digital nomad and who have an online income, these strategies can save you a lot of money in taxes.
This article specifically applies to North Americans. If you are from Europe or elsewhere, some of these principals will apply, but for the exacts, some of this may not apply to you.
Now this article applies specifically to the following people:
- You don’t live in your passport country (or are willing to leave it)
- You make money online, mostly from US-sources (Adsense, Amazon, Affiliate Networks, e-commerce, US clients you freelance for)
If you are a digital nomad and DO NOT live in your home country, one of the biggest issues you’ll face is how to accept and receive your online earnings and how to deal with your taxes (specifically, how not to legally pay taxes).
Disclaimer: I am in no way a certified tax lawyer or accountant. I’ve done LOTS AND LOTS of research, consulted tax experts; and, as I’m in this position, have done what this article explains
If you are living the life of a citizen of nowhere (also called a Digital Nomad) and spending significant time in third world countries, you may find it difficult to open bank accounts, wire money and generally, receive your online earnings.
You can, of course, use your banking facilities in your home country AND pay taxes — even if you don’t live at home.
Or you be a non-resident of your home country — a digital nomad who lives abroad — and legally NOT pay taxes (or much less).
This article also applies to Americans, Canadians, and Europeans, but the exact details on how much you pay for your personal taxes depends specifically on your passport country. US Citizens, for example, are especially screwed when it comes to taxes. There are some tax structures that can save significant amounts for American digital nomads. Europeans can use some of what I’m talking about, but again, you’ll have to look at what your status for non-residency and taxes are.
But if you have bank accounts in your home country, this can be problematic as that tax man could claim you are in fact a resident based on you having an active bank account.
It’s the situation you really, really don’t want to find yourself in.
My Tax Story
Last year, I received a sudden letter from Canada’s taxman (the CRA…canadian equivalent to the American IRS) stating that I was being assessed for 2011 to 2014 and I owed thousands of dollars (in the five figures).
You see back when I emigrated to Thailand back in 2011, but I did NOT properly file my taxes when leaving the country to move to Thailand, nor did I make a note on the tax forms that I was leaving the country.
I had a business bank account (Canadian business) and a personal bank account in Canada. I received money from Adsense / Amazon and other affiliate programs into my business bank account.
Now at this time, I did not properly structure my tax setup before leaving. I just left Canada. And left my taxes too.
This has resulted in the Canadian tax agency going back and assessing my income since 2011 to 2014 and coming up with an arbitrary value that I should pay.
The thing is, I was not living or working in Canada and, by all measures, not a taxable resident of Canada.
This I’ve had to deal with the mess (which is not easy and has taken months, calls with tax lawyers, accountants, arguing with the tax authorities and more).
It’s a harsh lesson for you to learn: set up your tax structure so you don’t have the tax man coming after you. It’s one that I wish I learned years ago. Had I used the advice I’m giving you now, I would not be in a tax situation.
How to Set Up a Tax-Free Structure as a Non-Resident
One of the benefits of being a digital nomad is that you may very well be able to structure your tax setup so you don’t pay taxes anywhere.
Is this possible, or legal?
Yes, depending on your home country. Americans have it the worst with Draconian tax laws that extend to your global income, even if you are a Non-Resident of the US.
Taxes are based on residency (unless you are American, but more on that later) but in come cases (like the US) also based on your citizenship.
However, there are some legal tax structures that you can use to minimize your tax payments — sometimes to the point where you pay 0 taxes.
Taxes are even more confusing if you are a Digital Nomad / Internet Marketer type who earns their money online and who does NOT live in their passport country.
Typically to take advantage of special tax structures so you DO NOT pay taxes (or much-reduced taxes), you can’t be a resident of both your passport country and the country you earn your income from (if it’s different from your passport country — for example, a Canadian who makes money online in the US but lives there WILL be under the gun for taxes).
Yes, this strategy requires you to pack up and leave your passport country.
Yes, you can, in fact, make a US sourced income as a non-us entrepreneur with the likes of Amazon FBA, Affiliate Marketing, Google Adsense (you know, the Internet Marketing stuff) without paying any taxes in the US and your home country.
Even better, as I’ll show you later on in the article, you can even create a US LLC company (as a non-US person) to do business with the US to accomplish this. For example, you can be a Canadian with a US company, or British with a US company, or Indian with a US company.
Corollary: if you are American, it IS possible to structure your earnings so you pay significantly less tax on your US sourced income, but there are a number of additional steps you’ll need to take to reduce taxes…and you may still have to pay taxes. So the ZERO tax part may or may not apply to US citizens, depending on where you live, how much money you make, and how you set up your tax structure.
Now, I’ve spent literally dozens of hours doing the research, talking to international tax experts, looking at location independent blogs, reading forums and generally sorting through the BS and the truth.
Here’s what I’ve found actually works and it’s what I’ve done for myself.
So f you are a digital nomad or internet marketer, you’ll probably want to look at one of these setups for yourself to legally avoid paying taxes. Some of the setups may be more suitable for you depending on your passport country.
Flag Theory 101
Did I just make this shit up?
No. These strategies are actually a set of well-known tax avoidance rules that digital nomads have been following for years. It’s part of the Perpetual Traveler theory or ‘Flag Theory‘.
The idea is to separate each area of legal jurisdiction affecting you into different countries — with you occupying each one in some way. Because each country has limited claim over your person in each of those jurisdictions, you can essentially use the geopolitical landscape to your advantage, picking and choosing the tax laws that best suit you (ideally, no tax).
Flag Theory has you plant ‘flags’ on different countries:
- Passport and citizenship – you gain a second residency/citizenship in a country that won’t tax any money earned OUTSIDE of the country borders. For example, a country like Belize or Monaco.
- Legal Residence – you reside in a country that won’t level tax (i.e. a tax haven or tax-friendly country)
- Asset haven — you keep your money (your financials) in a country with low tax; this is usually done as an offshore shore holding company with an offshore bank account
- Playgrounds – you spend significant amounts of time & money in a country with a high quality of life and one with lower consumption tax WITHOUT triggering tax status (by staying under 6 months or hopping around to multiple countries
This is not just some ‘theory’ — there are thousands of digital nomads who do this successfully and don’t pay taxes — and completely legally at that. This is not some tax fraud scheme but a way of life you can, if your source of income can sustain it, set you free from the tax man.
The Basic Steps of Becoming a Citizen of Nowhere
Breaking down Flag Theory into actionable strategies comes down to this.
- Leave your passport country to become a non-resident. If you live in Canada, for example, you’ll need to officially LEAVE Canada and sever the ties that would have the Canada revenue agency consider you a tax resident (property, bank accounts, you don’t work there, etc). What exactly it takes to become a non-resident of your passport country varies from country to country — but you’ll need to see how to do it and go about implementing this first.
- Move to a country with lower tax laws or laxer tax laws OR make a point to to jump around to various countries, making sure to stay in each one LESS than what the country would deem you as a tax resident
- Establish an offshore entity to handle your financials. This is an offshore company you incorporate with a bank account that you can access. This is where you get paid from you online business activities and where from where you then pay yourself a salary. If you ever change your current country of residency, it doesn’t matter as long as you have your offshore financial entity to receive and disburse your money.
- Spend your money in tax-friendly countries as you will (lower VAT, low taxes, high quality of living, lower cost of living)
- If 1,2,3 are done correctly then your Passport country, your offshore holding company, and your country of residence are all different countries
The key here is that you have 3 things going on:
- Your not living in your passport country and considered a NON-resident (nontax resident) as such
- You reside in a country with low taxes, no taxes OR you stay in each country below the threshold where the country considers you a tax resident (usually less than 180 days of the year)
- You have an offshore bank account that’s not in your passport country or your residency country
This setup works because, in your passport country, you are not a resident and thus not obligated to pay taxes on your global income (the US being a notable exception).
You also have NO money going into any personal accounts in your passport country, so there is no proof of income and the taxman at home can’t seize your money, even if they wanted to.
You are also residing in countries with low tax rates (so if you do pay personal tax, it’s at a lower rate) or you are jumping around such that you never qualify as a tax-paying resident in any of the places you stay. So no (or little) personal taxes need to be paid.
And finally, your bank account is in another country that you are not a resident; as such, it only exists as a non-tax entity and it’s free from both your passport and your residency country’s grip.
And yes, this is all fully legal as long as you set this up right.
Now, again EVERY passport country has different treatment of its citizens and how it deems tax residency. So without a doubt, depending on your home country, what you can and can’t do to initiate flag theory will vary. For example, US citizens may, if they truly want to be free, need to give up their US citizenship. Other countries like Canada, UK, Australia, and Norway don’t require as extreme measures, but it can be challenging to become a ‘non-resident’ of those countries, even after you leave them.
Here’s how to go about this.
Step 1: Becoming a Non-Resident of Your Passport Country
The first thing you’ll need to do is to become a non-resident from your home country.
For some countries like Canada, Australia, Norway, and the UK, this is not easy to do — even if you no longer live there.
The US has it worse — you must surrender your passport (i.e. give up your citizenship) to become a tax ‘nonresident.’
The main issue is that the ‘residency test’, depending on your home country, is holistic in nature. It’s often not enough to just ‘leave’ the country to be considered a nonresident.
Many countries look at the following things and holistically use these to determine your ties to the country:
- bank accounts/credit cards
- owned property
- dependents / spouse
- drivers license
- time spent in the country in the tax year
- income source
Typically most countries do use an 180 days per year test help determine your tax residency. That is, if you stay in the country for more than 180 days per year, you ARE liable to pay taxes for that year. However, if you are in the country for LESS than 180 days per year, you still may be deemed a resident, based on other factors.
You’ll have to look very closely at your countries’ tax laws to see how you can sever the ties. In some cases, this may be selling all property, giving up your bank accounts, car. And you’ll need to leave the country (and not work in the country).
Step 2: Finding a Tax-Friendly Residency Country
Look, again, this is not legal advice. I’ve done a lot of research and I’ve lived in one of these countries.
Assuming you are leaving your passport country and looking to reside in another country, you’ll need to first FIND the place you want to live, or if not live, spend significant chunks or the year there.
A few things that digital nomads look for:
- low cost of living (geo-arbitrage)
- good internet
- decent banking services
- a high quality of life
You’ll find quite a bit of discourse as to the best places and it’s hard to nail the perfect country down as different countries will suit different people better, depending on their needs.
Now if you want to live in a country permanently and pay 0 taxes, there are only two option:
- Be are resident in a 0 tax country or
- Be a resident of a territorial tax country that only taxes income earned within the country and makes sure you earn no income from within the country.
Now, the ideal country to live in as a Digital Nomad is a country with 0 personal taxes on income not earned in that country. However,
The No Tax Countries
Some of the standout ‘no-tax’ countries (as a resident). While you may not pay income tax here by being a resident in some of these countries, you may pay in other areas.
- Cayman Islands
- The Bahamas
- The Britsh Virgin Islands
- Costa Rica
If you have to pay taxes, then you might as well pay low taxes. These are all low tax countries that offer a pretty good lifestyle for digital nomad types. They are popular with expats and digital nomads.
- Costa Rica
The Tax Lax Countries
Another option (a gray area) is to live in a country where the tax laws are laxer. These are usually third world countries where you can live permanently (or semi-permanently) as a tourist by doing visa runs. Because of your perpetual tourist status (you are not ‘officially’ working or living in the country), you don’t pay taxes.
Some of the popular options are:
I’ve lived here for fives years a While technically, you are considered a tax resident if you live in the country for more than 6 months, the truth is that most foreigners ‘living’ in Thailand are not tax residents. As long as you are working online or under the table, there is pretty much no tax or any enforcement of it.
A digital nomad paradise. Similar to Thailand.
The No Country Method
One little loophole you’ll see mentioned a lot is the citizen of nowhere theory. That is that as most countries deem tax residency tied to how long you stay in a country (usually for 6 months of the year or longer being the cutoff), it’s technically possible to hop between multiple countries, never staying long enough to be deemed a tax resident. If you jump between two – 3 countries, staying less than 6 months of the year in each AND your passport country considers you a non-resident, then technically you can get away without paying taxes anywhere.
The problem with this approach is often a) how to set up a banking structure for your business to facilitate this lifestyle and b) how to ensure your passport country does not demand you pay taxes on your worldwide income (some countries assume if you don’t pay tax somewhere in the world, then you need to pay it at home).
The Best Country?
The truth is that you’ll find a lot of opinions as to the best. Very popular with digital nomads is Thailand — it’s possible to eke out a non-tax existence there AS LONG as you don’t have any tax issues back home (i.e. your passport country doesn’t start demanding you pay taxes on income earned outside the country).
Assuming you have found a good country to live in as a digital nomad, the last thing is to choose an offshore banking solution. This is important because this will be the nexus of your online business.
3) Best Offshore Banking Solutions for Digital Nomads
Assuming you’ve LEFT your passport country and you are living as a resident in a low-tax country (or jumping around as resident of nowhere), the next solution is to set up an offshore entity to handle your finances. This is an offshore holding company that you own with a bank account attached to it.
As this offshore company will be receiving your earnings, you need to choose a location with great banking facilities.
There is no point in having a bank in a country where it’s impossible to wire money out of or one that you can’t link your Adsense account to, or wire payments from the US.
As such, you want to find a country with good banking relationships with the rest of the world and one that’s supported by major payment processing companies.
Again, be sure you actually consult proper tax lawyers and such. I don’t want you to take this as legal advice. These are the solutions I have personally found that work for me as a Canadian non-resident who lives abroad (Thailand).
Estonian e-Residency with Estonian Corporation
Estonia created a new program back in 2014 called the e-residency program. It’s extremely popular with digital nomad/internet marketer types who don’t live in their passport country and who want to be able to run a location independent business from any country in the world.
I myself applied for and received an Estonian e-residency card. I have not yet opened an Estonian corporation, however, as I found a more suitable setup for what I want to do (more on this later).
For many of you though, the Estonian e-residency program may be the ideal solution for running a location independent business.
For digital nomads/internet marketers, this structure works like this:
- You have an Estonian corporation with an Estonian business bank account
- You don’t live in the EU or in Estonia (a non-resident)
- You don’t do business in Estonia or the EU
- You don’t have any employees in Estonia
Why would you want to consider this structure?
Well, let’s use my example as a digital nomad living in Thailand but earning an online income.
In the past, I was using my CANADIAN banking details to receive online earnings. But this is risky (it puts you in the gray zone of having to explain to the taxman why you have money coming into your account). Technically, you can have bank accounts and receive money into them as a Canadian while still not being a taxable resident, but it’s safer just not to.
In Thailand, the banking system is difficult to use. It’s hard to get one without having a company + work permit in Thailand. And it’s hard to send money out of Thailand via wire transfers.
You can set up a bank account on a tourist visa and you can wire money to that account from outside of Thailand, but for sending money out of Thailand it’s not a good setup. You also deal with currency conversion fees, Thailand may not be well supported with payment processors, etc.
This is why you want to ‘bank’ in a place where it’s easy to send and receive money.
Estonia is one such place.
Estonian e-Residency is basically a program that you can sign up for which grants you access to Estonia’s banking and financial systems as a non-Estonian.
Upon approval of your e-Residency, you can pick up a special Estonian ID card from an Estonian embassy closest to you (they have branches all around the world at this point).
The e-residency card functions as legal identification in Estonian (and now the entire EU). The card can be used to digitally sign documents, within Estonia, such as legal documents, banking documents, and more.
The real benefit of the e-residency program is that you can create a legal Estonian corporation, gain a business bank account, and use the EU financial systems (i.e. a bank in Estonia) to handle your financials (receive and process payments you get).
If you gain residency (a 5-minute application and about a month of waiting to get approval), you can then use your e-residency card to create an Estonian Corporation.
What about taxes and being a non-resident?
Estonia has a very interesting corporate tax system where you pay 0% corporate tax as long as you don’t divest the profits. Basically, you pay no taxes for whatever your corporation makes as long as you keep the profits in the company.
However, you can pay yourself an employee salary and IF you are a non-resident (not living or working in Estonia), you don’t pay personal taxes on that salary.
So say your company has earned $10,000 in profits (say the balance you have in your Estonian business account). You pay yourself $2000 as a salary and if you are a non-resident of Estonia (say you live in Thailand), you pay 0 on the $2000 salary.
You are accountable for paying taxes on your salary in the country of your residence. But if you are a resident of a country where there are no taxes or you don’t stay long enough in any country (usually 6 months) to be counted as a tax resident, then technically you pay no taxes.
Afer you’ve pulled out your $2000 salary, you would have $8000 to your corporation. If you were to pull out the full amount, say all $8000 in one go, you would pay 20 percent flat tax which is $1600. This would leave you with $6400 ‘left’.
So you will still pay taxes on your corporate profits, but not until you pull out the money. As long as you leave the money in the corporation, you pay 0%.
Benefits of an Estonian Company as an Internet Marketer
If you are like me and earning money online through Advertising, Adsense, Media.net, Amazon, and the like, an Estonian company will allow you to do all that through the company.
For digital nomads who don’t want to use bank accounts and manage companies from within their passport country (a bad idea if you want to keep your status as a non-resident and prevent possible tax issues), Estonian e-residency (and being able to create an Estonian company and get a business bank account) is a great solution.
The real advantage here, besides keeping your money offshore, is that you can focus on running your online business while using the EU banking system to process your payments and some turn-key accounting solutions that manage all your invoicing and tax booking for you.
You can with an Estonian Bank Account (attached to your Estonian Company):
- Set up a multi-currency business bank account with one of the major banks (Swedbank, LHV)
- Receive wire transfer payments from various affiliate/ad networks (CJ, Media.net, ShareASale)
- Create a PayPal account directly linked to your Estonian bank account
- Use major payment processors and withdrawal to your bank account (Stripe, Payoneer, Paypal)
- Create an Adsense Account linked to bank account
- Send international wire transfers remotely with your Estonian ID card from your computer
How to Create and Estonian Company?
There are easy and affordable services that will:
- incorporate a new Estonian company for you
- help create a bank account (you may have to fly to Estonia to open the account in person though as of 2017
- manage your invoicing, accounting for tax purposes (they can take care of all the bookkeeping for you)
- provide virtual office space (real company address, mail forwarding, telephone forwarding)
So basically, you can focus on running your business while having full access to a well-established banking system. And you don’t have to manage the day to day details for taxation.
Estonia is NOT a tax haven. But when used as a proper tax structure, it can save you a lot of headaches. And for digital nomads who need a stable banking system to handle their US payments and get access to their money, it’s a great solution.
You’ll still have to pay corporate taxes (20%), but you won’t pay until you pull out the money. And you can pay yourself an employee salary that may or may not be tax-free, depending on your residency status.
Hong Kong Corporation + Bank Account
Another option I do see some digital nomads go with is to create a Hong Kong corporation and open a business bank account there. This takes
Hong Kong is an international financial hub, so it’s a great place to do banking.
You can send and receive payments to your bank account and HK is supported by major payment processors.
I specifically looked into this as I was considering this as a possible solution to move my banking from Canada to an offshore HK account.
However, as of 2017, it’s not longer easy to open up a business bank account. You can incorporate pretty easy, but the chances of you opening a bank account with a bank is slim right now. Opening an account also involves an in-person visit.
A HK company has a lot of drawbacks:
- You must maintain a company secretary in HK (which adds to your maintenance fees)
- You must maintain a virtual office space (more maintenance fees you pay for)
- You have annual audited financial statements (more fees and must be done every year by an accountant)
- Your company is subject to the HK 16.5% tax UNLESS the company does not earn income in HK. If the company does not, it must apply for an exclusion from that tax — a process that must be done every few years (and could be rejected, subjecting your company to a huge tax bill)
Besides the maintenance fees you keep paying (and these really add up — expect to spend a few thousand a year at least), there is the potential tax bill you may end up paying. Technically, if you are a non-resident of HK and your corporation does no business in HK, your corporation does not pay taxes.
However, you have to fill out a form every few years to be granted a non-tax status and you may be asked to prove this. If you don’t or the status is denied, you’ll be paying tax.
As such, HK is not a good option for digital nomads unless you really, really need some sort of presence there (such as to access the China market).
At this point, the only reason I would incorporate in Hong Kong would be if I was exporting products from China to North America and I needed easy access to China’s banking (and potentially needed to actually go into China physically to source products). Singapore, at this time, is a better option.
Unless you need to deal with China, for banking or materials, Singapore, at this time, is a better option than HK.
Another banking-friendly country. You can incorporate and open a bank account there, but you will still likely pay taxes on corporate earnings — this is NOT a tax haven.
Singapore is a renowned financial hub and quite friendly to non-residents looking to set up an offshore company. It’s very easy to incorporate there and you can set up a business bank account if you go through the right hoops (unlike HK where it’s virtually impossible to set up bank account right now as a non-resident).
However, there’s quite a bit of paperwork involved in setting up your company in Singapore AND the fees for incorporating and maintaining the company are quite steep — more expensive than most other countries.
However, if you are willing to spend the money to setup up an offshore company in Singapore, you have global banking access from a very reputable country. If you need a presence in Asia (say you import or export from SEA to North America), Singapore may be the best option for you as a digital nomad.
I do know that quite a few digital nomads have made Singapore their financial home (while not living there or being a resident). Right now, it’s probably a better solution than HK if you are looking for a country to host your offshore company.
Right now, it’s probably a better solution than HK if you are looking for a country to host your offshore company, though the fees are more expensive for running and maintaining an offshore company there.
This country is gaining a reputation for being one of the freest countries in the world for business right now. It’s easy to setup an offshore company with a bank account as a non-resident, tax laws are very friendly for corporations (going with the Estonian way of only charging taxes when you remove profits) at 15% (and may be dropping). Income tax is a flat 20 percent and one can file taxes online (like Estonia).
If you want an alternative to Estonia and a presence in Europe (i.e. to better access the European market), Georgia might be one to consider.
Wyoming LLC + Belize IBS / BVA (The Best)
So what’s the best solution, one that gives you 0 taxes and maximum banking flexibility?
What if I told you that you can have your cake and eat it too by incorporating in the US.
Yes, that US — the same US with draconian laws.
US tax law is incredibly complicated. I’m not even going to go into the sordid details (and again, I’m not a tax lawyer or accountant, but this comes from my research and the structure I have set up for myself that is working).
There are two kinds of tax schemes that apply to you as an entrepreneur who does not:
- live in the US
- is not a US citizen
- does not qualify as a deemed resident of the US
You have the Passive tax scheme and the Active tax scheme.
Passive Tax Scheme
If you are paid out in certain passive income types (dividend, rent earnings, royalties), you’ll have to pay 30% flat tax rate. This amount is usually withheld automatically by the company or person paying it to you.
However, this scheme likely does not apply to most digital nomads who are entrepreneurs. That is internet marketers who make money via Adsense or affiliate commissions or Amazon FBA’ers or other non-us entrepreneurs who don’t have an actual physical business or employees in the US.
Active Tax Scheme
Paying taxes on money earned in the US through an active business is treated completely differently to the Passive tax scheme given above.
There are only 3 cases here that cover your taxes:
- You pay taxes if and only if you are engaged in a trade or business in the US (ETBUS as it’s called)
- the US only considers you are actively ETBUS if and only if you 1) you have a dependent agent (employee on the ground) working in the US and 2) the employee is doing something the increase your business outside of administrative work.
- You only pay tax if your business works in the US through a fixed place of business
For internet marketers who earn money from freelancing, offering services, selling books, selling products on Amazon via FBA, making money via Ad networks like Amazon or affiliate offers, you do NOT qualify as ETBUS.
The distinction comes down to what’s considered a dependent agent — or in tax terms ‘someone who works for you’ or furthers your own interests and goals for the purpose of your business.
As a freelancer, entrepreneur, or internet marketer you do not have a dependent agent in the US, even if you utilize the services of companies like Google and Amazon to make money with.
What you have in your business are considered independent agents.
Examples of these independent agents are Google Adsense, Amazon Associates, Amazon (FBA), Affiliate networks.
These are NOT your dependent agents. They are in fact, completely independent businesses who are working with you, but independently. These companies have their own goals, their own employees and many other clients, of which you are just one.
They are NOT your employee, but they are effectively helping you and as such, still considered your agent, just not your ‘dependent agent’.
Utilizing an independent agent in your business does not turn them into your dependents.
Is Google your employee? Absolutely not. They are a business with their own goals interests, completely separate from you own.
As a digital nomad who DOES not live in the US, does not have a physical base of operations in the US, is not a US citizen or US resident, and who does not employ a worker in the US working on the business is NOT considered ETBUS.
And whether you pay taxes in the US as a business depends entirely on you being ETBUS.
Having a US LLC and or a US bank account is not considered taxable as long as it’s not engaged in ETBUS.
And to be ETBUS, your company has to qualify for all three cases listed above – a fixed location of operations inside of the US, a dependent agent working on US soil and the dependent agent is furthering your business.
So having a company and bank account in the US is entirely irrelevant when it comes to paying taxes as long as it’s not ETBUS.
Let’s talk about how this structure works.
How the Wyoming LLC structure Works
The US corporation is owned by an offshore holding company (such as Belizian BVA or IBS) with 0 corporate tax. And if you own the Belize company, you pay no personal tax, depending on your residency of course. Your Belizian company won’t pay tax in Belize either, becaause there is 0% corporate tax there for revenues not from Belize.
As a non-US citizen and a non-resident of the US, you can still (easily) incorporate in a corporation-friendly state and use the corporation to open a business bank account, thus gaining access to all the US payment processors. You can then use the corporation to sell products via Amazon FBA, receive payments from Google, Amazon (directly into your US bank account).
You can then use the corporation to sell products via Amazon FBA, receive payments from Google, Amazon (directly into your US bank account).
The money the Wyoming LLC receives is then wired (via transferwise) to your offshore holding company.
The advantage here is that you have complete access to the US banking system and you don’t lose on any conversion fees when paid (by individuals and by companies) since you are paid USD directly and you can withdraw or send that USD to other bank accounts directly as USD or use a currency conversion company like Transferwise to get much better rates.
If you are a digital nomad, you’ll know that conversion fees hurt like hell.
Taking payments from international clients, if you are a freelancer, can really hurt your bottom line. Even trying to access your money from abroad (something you’ll likely be doing if you are a digital nomad making a living online).
For example, being Canadian and living in Thailand as a Digital Nomad has always made it a royal pain in the ass to get my money.
For many years, I did NOT have a Thailand bank account. To get at my money, I would us a Candian ATM card to access my Canadian bank account from a Thailand ATM.
But at a huge cost:
- US Companies pay me USD via wire transfer to my USD Account in Canada.
- I transfer & convert the USD from my USD Account to my other CAD Account (only account I can access in Thailand) – at the bank conversion rate which is NOT good
- I pull out the money from my CAD Account from a Thailand ATM
- bank currency conversion fee used
- 2.5% conversion fee added to converted amount
- $5 for foreign ATM use by CAD bank
- $5 Thailand ATM fee
When it’s all said and done, moving 1000 USD to Thailand, after going through two currency conversions (USD to CAD, then CAD to Thai Baht) and two multiple ATM fees, I have been paying 80 to 90 dollars out of every 1000 USD.
That’s 10% lost.
Why You Want a US Bank Account as a Non-US Internet Marketer / Entrepreneur
If you’ve been making money online for any bit of time, you’ll realize pretty quickly how much easier it is to actually have a US bank account than not — especially when it comes to getting paid and keeping most of that money.
Google Adsense = only pays you in local currency (after converting from USD)
Most Ad networks and affiliate companies are US companies and pay you in US dollars. But some companies (like Adsense) will only pay you in your local currency. It’s possible to get a better rate than the one Adsense uses to convert from USD to your local currency.
Paypal = not friendly for non-US bank accounts
Paypal has some of the shitiest foreign conversion rates out there. If you convert from USD to your local currency, PayPal rolls in a hefty conversion fee into the exchange rate. They impose this fee if you send money via PayPal to another PayPal account in another currency.
However, even worse, if you try to withdraw USD to your local bank account (not in the US), paypal will automatically convert your USD paypal balance into your local currency, imposing on you their shitty exchange rate.
Amazon Associates = no direct deposits (only checks)
Try to get paid by Amazon if you are not in the USD and the only option you have is a check (which, if you don’t live in the US or Canada, may not be easily cashable) or by gift card.
In Canada, I can cash a USD check by Amazon pretty easily. But outside of Canada, it may not be so easy. For example, you can’t cash Amazon checks at an Estonian bank account, if you an Estonian company.
There may be fees imposed by banking institutions for cashing checks — especially international checks — if you can convince the bank to cash the check. Not to mention the long, long waiting times for the money to clear.
Having a US LLC with a US bank account means you can take advantage of Amazon’s EFT service and get the amount deposited directly into your bank account every month. NO fiddling around with trying to cash USD checks outside of the US.
Payoneer is one of the best payment solutions for digital nomads and marketers who earn their money online and who don’t live in the US. Payoneer works by supplying you with their US bank account. You can use this bank information with any online company to receive payments. Payoneer receives the payment on your behalf and credits you with the balance. You can then withdraw that balance to your local bank account via wire transfer or directly access the money from an ATM card they send you.
However, you’ll be forced to eat currency conversion fees with Payoneer because if your balance is in USD, they will convert and sent the balance to whatever local currency of the country your withdrawing bank account is located in.
The Final Word
Tax and residency is a complicated issue.
By no means accept my article as the final word. You should seek legal and qualified tax advice from a professional before making any decisions.
Leaving your home country to become a digital nomad, for lifestyle reasons or for tax reasons, is not a decision for everyone.
But if you earn money online, it may be a decision that can save you significants amount of money — and even more significantly if you start to see a lot of financial success with your online business.
The bottom line is that you should never pay one more cent in taxes than you have to.