Best Country for Trading (Tax efficiency)

[comagnum]

One way to beat the taxes is to build up a good sided Roth IRA. You pay no taxes on your gains! This is considered by many financial experts as the best thing we have going for us in the U.S. to keep our hard earned money. Younger people - the earlier you start the better off you will be when you get older. Not having to pay any taxes on your trading account gives you another big edge.

Having a server in the Cayman Islands, Dubai, or wherever will not give you immunity from paying taxes in the U.S. unless maybe you are a corporation.

 

[dw31583]

Yes, social security is only for individuals. I should have specified this. It would mean around 27.5% extra taxation above the normal taxrate. That's what I wanted to tell. So individual taxation would be around 35% in total.

At this moment corporate tax in Hungary is 10% and 19%. 9% is a proposition for 2017. The measure would only benefit midsized Hungarian and foreign-owned companies with more than €2m in revenue. So the trader should make at least 2million euro profit a year. Probably not for ET traders.

But at 9% the money has to stay in the company. If you take the money out you pay again 15%. So $100 profit will be net in your hands only $77.35, on condition that the 9% will be voted, and the trader makes at least 2million euro profit a year. So total tax is 22.65%. Add cost of running the company...and risk of tax problems in your native country.

In many European countries there is also a law that says that the owner of a company can be taxed in his native country at fullrate because it is interpreted as tax fraude. This means that if a trader (or his wife or children) is owner of a company in a low taxation country he can have huge problems as he can bet taxed at much higher rates. Maybe not the case for US citizens.

Bulgaria is a much better solution. 10% flat rate. Cash out is best thru salary as it is flat 10% too and social security is limited to below EURO 2400 a year. Salaries are deductible in company.

About the servers. Why do traders still pay taxes in the US, or anywhere else? If it is so simple as you tell they just have to put servers in Dubai and pay nothing anymore. But reality is different. And reality counts.

Ohh I see.

People pay taxes in most countries on their foreign sourced income because those countries applies a so called residential world wide taxation which means that if you're a resident then you pay taxes on all your income no matter where they're sourced from. However there are countries, such as Malaysia, Panama, Singapore, Hong Kong, etc. where residents pay taxes only on their domestic income and they don't pay any tax on their foreign sourced income. Consequently if you're not trading but an automated program does and it is located outside your country while you're living in a country which doesn't tax your foreign sourced income then the trading income that was generated by the program is tax-free.

Btw you're wrong about Hungary. It's meaningless to talk about 2016 since it's over in a couple of days. However from 2017 the corporate tax rate is flat 9% no matter how much you make. Consequently you'd pay $9,000 / every $100,000 profit. Let's say you make $200,000, it means that your company has to pay $18,000 in corporate tax. Then you have $182,000 left in your entity. Then you may distribute $70,000 as a dividend. Then you gonna have $112,000 left in your company and you have to pay an additional 15% income tax on your dividend.

Hungary and Bulgaria are pretty much tax havens.

 

[dw31583]

One way to beat the taxes is to build up a good sided Roth IRA. You pay no taxes on your gains! This is considered by many financial experts as the best thing we have going for us in the U.S. to keep our hard earned money. Younger people - the earlier you start the better off you will be when you get older. Not having to pay any taxes on your trading account gives you another big edge.

Having a server in the Cayman Islands, Dubai, or wherever will not give you immunity from paying taxes in the U.S. unless maybe you are a corporation.

We're not talking about the US here. If your a US citizen then you're... well, you got it. Everyone else may move to a low tax country/tax haven.

Btw Roth IRA is not good for trading. In fact none of these tax-free accounts are good for trading. Roth IRA, IRA and 401k are also useless for trading. These are good for investments only. Most people doesn't know this but once you start trading on these accounts and you make some hefty profits that gets noticed by the IRS then you'll pay taxes twice! Not kidding, literally twice. You gonna pay regular income tax on your trading income within the IRA account plus you gonna pay income tax at the time of withdrawal. So these accounts are useless for trading.

You may invest into hedge funds but only by using a blocker corporation because if you invest directly into tax neutral (llc, llp, lp) trading entities from these accounts then it's still considered trading income.

 

[comagnum]

Roth IRA, IRA and 401k are also useless for trading.
____________________________________________________________________________
Yes, you can trade in a Roth IRA. I trade futures and equities in mine. A Roth IRA is perfect for trading. I am not a big fan of 401Ks but I do have one. I can trade equities and most leveraged ETFs in my 401K but there is no margin. You only pay taxes on a 401K when you withdrawal - you do pay a penalty for early withdrawals. You do not pay tax twice on a 401K, no matter how much you gains are.

 

[dw31583]

Roth IRA, IRA and 401k are also useless for trading.
____________________________________________________________________________
Yes, you can trade in a Roth IRA. I trade futures and equities in mine. A Roth IRA is perfect for trading. I am not a big fan of 401Ks but I do have one. I can trade equities and most leveraged ETFs in my 401K but there is no margin. You only pay taxes on a 401K when you withdrawal - you do pay a penalty for early withdrawals. You do not pay tax twice on a 401K, no matter how much you gains are.

Well, I'm not an expert in US taxes so I can be wrong about that. However back in the day when I was thinking about moving to the US for lifestyle reasons then a US tax advisor told me to forget about trading with these accounts because it makes the profits taxable since these accounts were designed for investments, not for active, leveraged trading.

However you should know that I was enquiring about currency trading and not about stocks or futures so it may be different with FX.

 

[Mtrader]

Well, I'm not an expert in US taxes so I can be wrong about that. However back in the day when I was thinking about moving to the US for lifestyle reasons then a US tax advisor told me to forget about trading with these accounts because it makes the profits taxable since these accounts were designed for investments, not for active, leveraged trading.

However you should know that I was enquiring about currency trading and not about stocks or futures so it may be different with FX.

I have the impression that you are already looking many years, all over the world, for a "good solution", but you still didn't take any action.
I have a friend who is like that too. He talks already +25 years that he should leave his job and do something else. This years he went on pension so now he had to leave. If not he would still be working there.
I don't want to be negative, it is just an observation. And I know now already that you will have a perfect excuse or explanation for that. It's typical for certain type of personalities. Some talk and some do. Maybe you should find a job as a salesman. They always have a good explanation for everything too. Or a lawyer.
Why did you not go to PWC at that time? They would surely have know how the situation exactly was.

 

[swinging tick]

Guys, thanks for advice!

As of now, my trading system is not coded, and even if I do code it, looks like there will be other issues like reliability / security of servers located in tax havens, not to mention possible misunderstanding with tax authorities, as Mtrader pointed out.
(I wonder if HFT and algo guys explored this thing with servers in tax havens, but their issue is being close to stock exchanges)

DW, few pages back you wrote about being perpetual traveler, that you were not sure about tax status of PT day trader. Have you found more info on that?
I wonder how AEOI will change landscape for PTs next year.

Also, out of all Mediterranean countries, which one is the best in terms of taxes for day traders trading thru corporation?
Montenegro and Bulgaria look good, although, being post-communist, they don't have an established record of protecting private property.
Gibraltar and Cyprus look pretty good, which of them is better? or are there any better choices in that region?

What you guys think?

 

[Mtrader]

DW, few pages back you wrote about being perpetual traveler, that you were not sure about tax status of PT day trader. Have you found more info on that?

You should read the European law about that.
In short: If you live nowhere for 6 months, you will be taxed on your ENTIRE WORLDWIDE INCOME in your native country. So no escape possible.
So if you were living in France before you became an eternal traveller, France will tax you as there is no place where you lived for 6 months.

If will look up the link and post it later.

What address will you use for your broker, your bank, your drivers licence, your passport... Travelling around is also very expensive as you need good accomodation, good internet to trade...

People should stop dreaming. Go to a low tax country and all problems are solved. And you can still travel around if you wish.

 

[luisHK]

Of all those places i'd prefer Monaco, which works except if you are french. Gibraltar is in a nice area but it's very very tiny and cramped and it's not a breeze to pass the spanish border (in great contrast with Monaco, where there is no checkpoint to enter France ).

Besides as an independent trader or investor I'd rather move to Dubai than in countries in developing Europe where I wouldn't speak the lingo ( English will do the job well in Dubai )

Don't know Cyprus nor Malta, but if English is widely spoken including for administrative duties (it s the official language in Malta I think) and their airports have good connections (Dubai Airport has probably the best connections of any Airport worldwide, whereas in Gibraltar I'm not sure there is single flight going outside the UK) they might be good bet, as a EU Citizen it's a plus not to go through the hassle of immigration procédures, which are necessary in Dubai and other non EU countries.

 

[dw31583]

I have the impression that you are already looking many years, all over the world, for a "good solution", but you still didn't take any action.
I have a friend who is like that too. He talks already +25 years that he should leave his job and do something else. This years he went on pension so now he had to leave. If not he would still be working there.
I don't want to be negative, it is just an observation. And I know now already that you will have a perfect excuse or explanation for that. It's typical for certain type of personalities. Some talk and some do. Maybe you should find a job as a salesman. They always have a good explanation for everything too. Or a lawyer.
Why did you not go to PWC at that time? They would surely have know how the situation exactly was.

I've paid for their advise. Check this thread from page 34 and you gonna see that I've filled up this thread with information about various countries. I've paid for PWC and for many other advisors as well. I've shared those as well. Well, there's no excuse on my part, check the thread.