Updated September 2019 with info from my new book.
As international entrepreneur you can reduce taxes to zero %.
That’s right. 
This can be achieved by anybody, yet nobody seems to understand this (anybody but US citizens, because the United States taxes based on citizenship – but serious savings are possible).
In any case, it is about time someone wrote this article.*
Down below we will first discuss a few fundamentals, then have a small case study and then discuss some risks.
Keep reading, it might be the most profitable 5 minutes of your life…
Fundamental 1. Residency.
If you are a non-American you are taxed based where you are resident. This roughly means that you pay taxes based on where you live and where your economic life takes place. Rules determining when you are considered resident differ from country to country.
But the most important facts for you now are: there are countries that don’t have taxes and there are countries that don’t tax income that is generated abroad.
Choose one of those as your new country of residence. The rules for obtaining residency may vary greatly, they may require getting a job, making an investment or starting a company. In any case you will have contribute to the economy of the country you move into (they probably already have useless pricks enough).
Becoming a non-resident
More importantly for now is how to become a non-resident from a high taxed country. This can be relatively easy, or very hard, depending on where you currently live and how you make your money.
You see, your existence in the Western world is as being in the grasp of a giant veracious octopus, sweeping its tentacles and sucking them onto everything of value. The more business ties you have with a country, the more work it will be to become a non-resident.
What do I mean with business ties?
In my case, after I found a job in Dubai, it took me 15 minutes to declare non-residency. I took a plane and stopped paying taxes. Setting up a business after I had already left, meant that I do not have to worry about taxes right from the start (or reporting, audits, permits or bookkeeping, for that matter).
It is a different case when you currently own assets like a bricks and mortar business or real estate in a high taxed jurisdiction. Even immaterial assets like intellectual property can produce a tax liability. Most governments will assume that value was created using the benefits they provided…
…and they just hate to see you go…
Get some advice from an expert on valuations and exit taxes if this applies to you BEFORE moving you or your business offshore. Because most countries will force you to make some sort of final settlement.
Some notes:
- Some countries will require you to proof that you have become resident of a new country before they release their sucking tentacles. If this applies to you, make sure your case is clear and you do not end up in a dispute. Western governments are bankrupt and out for blood. At the same time they are not almighty and you do have opportunities if you have an international mindset.
Make sure you have a solid case, and fear not, my brave lad. Many have navigated these waters before you. With astonishing success… - It might be a wise idea to get set up a company AFTER you have left. It will save you the trouble. This way, there are cases that you don’t even have to go through the trouble of establishing residency.
- Once you are an establishment non-resident you remain free of all taxes until you decide to go back. And…
Make sure you cut all ties to your current jurisdiction as swiftly as possible.
Onwards!
Fundamental 2. A Tax Free Business
There are countries that don’t have any form of taxes for (offshore) corporations (Dubai, Seychelles, BVI, Cayman Islands, and much more). But governments look at facts. So setting up a company in a low tax jurisdiction alone is not enough to stop paying taxes.
One important factor can be where the company has its permanent establishment. This is the fixed place of business which generally gives rise to income or value added tax liability.
That is why you can NOT just set up a company in the Cayman Islands while living in Europe and not pay taxes.
The good thing is that when you are traveling around, or living in a no-tax or territorial income tax country, you are unlikely to run into these permanent establishment issues.
You will realize that suddenly nobody really cares anymore what you do. Nobody tells you what to do, what forms to fill and how to live.
An interesting experience and a good feeling. To say the least…
More detailed info on where you or your company are actually taxed read Where To Pay Taxes (opens in a new tab).
“Case Study”
To make this a bit more lively for you I will explain how this will work for a particular business model (there are much more possibilities). Let’s say you are a consultant, designer, IT specialist, marketing guru, writer.
You are working from your laptop.
Doing basically any business that allows you to send invoices for work done over distance.
You make sure that you become resident in a jurisdiction with no taxes (like Dubai or Cayman Islands) or with a territorial based tax system (like Panama, Costa Rica, Philippines, Malaysia, Hong Kong, Nicaragua) and you work while you are on the road.
You can set up a company in an offshore jurisdiction of choice and you open up an international bank account. You invoice your client and pay yourself a salary. There will be no VAT, no dividend tax, no income tax, no capital gains tax. Nothing.
There are also jurisdictions that don’t oblige you to file annual accounts. So you can save yourself some trouble there.
In certain cases, you don’t even have to register a business. You can send an invoice in your own name.
So there is zero paperwork and there are no taxes.
How does that sound?
Thought so…
Reduce Taxes: Possible Difficulties
Now this set up can be done very easy, but there are a couple of things you have to take in mind:
- Some clients might look strange at having to wire funds to a bank in an exotic country. They might also have to wire funds via correspondent banks, which might add to the learning curve. Make sure they are fine with it.
- For a a lot of quite essential financial products like bank accounts you might need to provide a proof of residence like a utility bill. This can be difficult when you are not living anywhere. Take this into account while making plans.
- We discussed only one simple set up. When your business requires things like hiring staff or renting an office space, you could run into challenges when you have an offshore company and you need for a more solid solution.
- Getting a merchant account or an account with the well known payment providers can be difficult when you are using an offshore account, but it is certainly possible.
- There are so many variables and every individual has a different situation. So it is difficult to get the right information that applies specifically to your situation. You do need to try to understand the basic principles yourself.
Well, there you have it.
The first introduction into how you can pay less taxes while becoming a digital nomad or an international entrepreneur.
If you want to understand the full details of taxation for people like yourself, I created a well-researched, well-liked and affordable book called The Tax-Free Digital Nomad.
Why not US citizens? If you prove you’ve been away for a year, then you don’t own taxes on the first 100k or so earned abroad.
Hi A,
Off course you are completely correct. US Citizens can reduce taxes by moving abroad.
But the way described here can only correctly be used by non-us citizens, because US citizens will always have a filing requirement with the IRS. For the rest of the world: you are out as soon as you have gotten out. And only required to pay taxes when the circumstances demand it (depends on where you decide to live).
What you described is this:
American living abroad and receiving an income from a foreign based company. This can be exempt for income tax for up to 100.800 USD (2015) per year. http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion
Have a nice day.
[…] Check here to read an alternative on how you become a digtal nomad and not pay taxes anymore. […]
In addition, I found the following article that has great information especially for US citizens:
http://hodgen.com/how-digital-nomads-can-avoid-paying-social-security-tax/
As an American citizen, I’m considered “itinerant” when I don’t have a tax home (which would be the usual case for most American digital nomads, who move from place to place often). This means my country doesn’t seem to care or want proof of residency anywhere else in the world, for me to get my foreign earned income exclusion. In fact, the IRS states that you just have to be out of the US for 330 days — you can be on vacation for as much as that time as you like, it doesn’t matter. (Though obviously you are earning income.) At least I can’t *find* anything that states the IRS wants proof of residency anywhere… obviously I’ll be keeping plane tickets, hotel and apt receipts.
The thing I’d like to know is which countries actually want foreigners to get work permits (with associated residency) to telecommute, even if as a foreigner, I stay within the limit of an approved tourist stay and am working only with clients in my homeland. So for instance, Europe. I’m reading some countries may still want you to have a work permit, even if you stay under 90 days and are just telecommuting. True? Can anyone tell me which countries these might be?
Don’t you think it’s a bit strange that the US would be the only country in the world with citizenship based laws, especially since other countries model their entire legal framework on US law?
Anyhow, it used to be easy under Norwegian laws. You just declared foreign residency, and that was it, no more taxes. Now it’s different. You can’t have a place of residence there, can only spend a maximum of 61 days per year in Norway for 3 consecutive calendar years, every day started counts as a full day. Demands are absolute, so if you get stuck because of life threatening illness or some of your close relatives die and you want to go in the funeral, tough luck, stay out or start over. Then there’s 15% withholding tax for pensioners or disability insurance, even if you’re emigrated (but still a citizen).
Hi there, thank you for commenting.
Yes I think it is strange and absurd that the US taxes based on citizenship. Ok, Eritrea does it also, so they are not the only one.
https://en.wikipedia.org/wiki/International_taxation#Individuals
And I am not sure which countries you are referring to. The US, like most former British colonies uses common law. Which is fundamentally different from civil law used by all countries in continental Europe.
Thank you for explaining. I understand the Norwegian situation. Scandinavian countries have very similar arrangements and some other European countries as well (like Spain). However, I think that the specific examples you mention are pretty rare and the fast majority of people that move away will never experience something like that (nor should they worry about it).
A withholding tax on Norwegian sourced income / benefits is not that strange. But I have never heard of a withholding tax based on citizenship…
Note that I am writing for people that are between 30 and 40 years away from their pension. And could live and save all those years tax free and build their own pension outside of Europe’s stalling collectivist economies.
One doesn’t need a government to arrange a pension. In fact, a lot of Europeans are realising that these mandatory government pension plans are not so solid after all. My dad’s pension has not been indexed for the last 5 years (=means purchasing power lowered). And this week the news came that Dutch pension funds will lose 140 Billion this year. Great.
Anyway, thanks for dropping by and have a nice day!
Nice blog/hustle! I agree stuff about the US legal system and pension system were a little beside the point, just wanted to fill out some of the more obscure details. The Philippines has a legal system that’s pretty much a blue copy of the US legal system according to a US attourney friend of mine who lives there – but the post isn’t tailored towards people trying to move away from tropical paradises but rather to them, so I digress.
The three calendar years are very real for norskis moving abroad to quit paying taxes, though (and as you mentioned, plenty of countries have similar rules). Many people have been caught off guard with the severity of the 61 day absolute limit if they try to max out their yearly stay, but that depends on your situation. If you’re an expat with little interest in staying there, no problem. If you have an interest in staying in your home country, you need to be aware.
But even if you have no problem with the terms, then there’s the rather long time before you can actually stop paying taxes, which again is non-negotiable. So if you’re a Norwegian citizen who starts thinking about this now in autumn 2015, get your shit together and sell your apartment/house/move out/register abroad in 2016, then the first tax year you didn’t have to pay taxes would be 2020.
One thing I tell nomads is that they ought to “act like nomads” if they want to optimize their situation. The good news is that being a nomad is becoming more acceptable.
For example, when I first visited China, I was horrified that mobile phones had a special prefix that “gave them away”. ‘How do mobile workers get clients?’, I thought. Those were the days when people weren’t as kind to Regus offices, co-working spaces, and nomad living.
The same is true with offshore bank accounts, etc. “Send the money to HSBC Hong Kong” isn’t as exotic as it once was. Especially if you’re selling B2B (IE: if you’re a consultant or sell products to companies or enterprise), few people will care. With B2C, you have paypal, merchant accounts, etc. that look the same as any onshore solution.
Be honest with your customers and seek out people that accept that honesty… that you’re a nomad.
Hi, do you recommend any professional person who could help or advice in this process?
Yes, you can find him here: Consult.
Great article, thanks! As a digital nomad, say you want to make some income as a trader(stocks/futures/forex etc.) in the US markets. A UK citizen but no longer a resident there and being nomadic. So already would have bank accounts etc. set up there, the bank account address would be with a relative etc. and can continue to transact from there. Is this possible to do with no taxes in the UK or the US? Setting up in a tax friendly country can be quite expensive I’d imagine as often it requires investing a large sum of money in those countries to acquire such priveleges?