Best Country for Trading (Tax efficiency)

[schweiz]

However, there is an interesting option for those who would like to grow their balance without paying any tax on it (or very little, depending on how you view it). If your company's annual turnover and assets are less than approximately €3 million, then your corporate body may qualify for a special tax status provided the company's annual turnover and assets will stay below €9 million. In other words, if you form a company and put €25,000 into it and you start trading, then you can likely request this status. Once the revenue (not profit) reaches approx. €9 million in a single year or the asset reaches or exceeds €9 million then the company must pay the regular 9%+2% corporate tax rate.

"annual turnover and assets will stay below €9 million"
I trade the ES. How is the revenu/turnover calculated? Is it the notional amount of the traded contracts? Let's say I trade 1,000 contracts a year when ES is at 2600. This results in 1000*50*2600 equals 130 million. If that is the case 9 million turnover will be reached in notime.
Or is it the amount of money that grows you account? Let's say 1million growth after commissions. So start the year with 500K and end the year with 1500K?

I think turnover and revenu are two different things.

Can you open a lot of small companies to stay below the maximum levels that are accepted and stay in the lowest taxation level?

 

[alexanderhu]

"annual turnover and assets will stay below €9 million"
I trade the ES. How is the revenu/turnover calculated? Is it the notional amount of the traded contracts? Let's say I trade 1,000 contracts a year when ES is at 2600. This results in 1000*50*2600 equals 130 million. If that is the case 9 million turnover will be reached in notime.
Or is it the amount of money that grows you account? Let's say 1million growth after commissions. So start the year with 500K and end the year with 1500K?

I think turnover and revenu are two different things.

Can you open a lot of small companies to stay below the maximum levels that are accepted and stay in the lowest taxation level?

I made a mistake there. The company's annual revenue must stay below €9 million a year and the net assets should stay below this amount as well. Based on my knowledge, the way revenue is calculated in this case is by adding the profits together and the sum you get is the revenue that counts for the calculation of the eligibility for this tax scheme. In other words, if you close 10 positions in €100 profit each and you close 5 positions in €50 loss each, then the company's revenue is 10x€100=€1,000. If you make let's say €1,000 in a year but you lose all of it on the last day of the tax year, then your company's revenue in this tax scheme may still be €1,000. Bear in mind that revenue alone doesn't obligates your company to pay any tax in this tax scheme, only withdrawals does. As long as your company's assets and revenue stays below €9 million each year, you may use this tax scheme considering you meet the other eligibility criteria prescribed by the law, such us the company has less than 50 employees, the company's account year is the calendar year and it is ending with December 31, the company had less than approx. €3 million revenue in the previous tax year, etc.

You can have as many companies with this tax status as you want but the €9 million annual revenue limit and the €9 million asset threshold must be met commutatively. In other words if you have any other company then you have to deduct that company's turnover and assets from the limit and threshold respectively. So this limit and threshold is like a global limitation once you have a company with this status.

 

[schweiz]

Thanks!
So opening more companies will not help.

 

[alexanderhu]

Thanks!
So opening more companies will not help.

Help in what? If your positions makes a profit of more than €9 million a year or you would start with company with over €3 million, then just trade on your name and pay the 15% personal income tax on your name. Still, I'm not sure you understood my explanation. Your nominal trading volume does not equal to the company revenue. When I'm talking about profit in the case of this tax scheme, I'm not talking about the net income which is the profit minus the losses (if there is any).

 

[schweiz]

Help in what? If your positions makes a profit of more than €9 million a year or you would start with company with over €3 million, then just trade on your name and pay the 15% personal income tax on your name. Still, I'm not sure you understood my explanation. Your nominal trading volume does not equal to the company revenue. When I'm talking about profit in the case of this tax scheme, I'm not talking about the net income which is the profit minus the losses (if there is any).

I did perfectly understand what you mean. Whether you have 1 company or 25 will make no difference as the 9 million counts for all of the companies.
My question was: if you have 5 companies, can you for each company make 9 million net income.
Your answer was: no.

 

[alexanderhu]

I did perfectly understand what you mean. Whether you have 1 company or 25 will make no difference as the 9 million counts for all of the companies.
My question was: if you have 5 companies, can you for each company make 9 million net income.
Your answer was: no.

The only reason why you'd need to open more companies with this scheme to extend the limits offered by this tax treatment, is because your company has profitable trades worth more than €9 million (not net income!). For the sake of simplicity, let's assume that 50% of the trades are losing trades and 50% are winning trades and each trades' profit or loss is the same amount, then your net profit may be €4.5 million while your revenue may stand at €9 million. At this point you may no longer qualify for this tax treatment. If this would be the case, then I highly recommend to either pay 15% on your own name or to pay the regular 9%+2% corporate tax, or find a city in Hungary where the trade tax is 0% (there are some within 40kms of Budapest) and pay the 9% only.

There is another big difference between these three options in terms of payments on account or in other words advance tax payments towards the final tax liability.

- If you trade on your own name then you pay the 15% personal income tax if your broker is located in the EU (or in one of the very few countries prescribed by the law, i.e. the US) and you have to pay by May in the following year.
- If you trade on your own name with a broker in an offshore country then you have to pay 15% the by May in the following year, plus 19.5% social charge but max. ~€2,000 per tax year is payable of the social charge in a single tax year.
- If your company opts for the regular corporate tax model, then it has to transfer advanced corporate tax payments quarterly or monthly based on the previous tax year's profit. If your company paid less than ~€16,000 corporate tax in the previous tax year, then it has to pay quarterly installments. Let's say the corporate tax liability was €10,000 in the first tax year so the company must pay €2,500 each quarter as an advance payment in the second tax year. If the corporate tax suffered was more than ~€16,000 in the previous year, then the company must transfer the advance payments on a monthly basis. Assuming the company paid €24,000 of corporate tax the previous year, this year it will have to pay €2,000 each month as an advance tax payment.
- If your company opts for the alternative corporate tax scheme that we were talking about, then it still must transfer advanced corporate tax payments from the second tax year but assuming that you take only a small portion of your profit out of the company, the effective tax suffered by your company may be significantly smaller and therefore the advanced tax payments from the next year may be much smaller as well but this depends on your and your company's individual circumstances.

 

[schweiz]

The only reason why you'd need to open more companies with this scheme to extend the limits offered by this tax treatment, is because your company has profitable trades worth more than €9 million (not net income!). For the sake of simplicity, let's assume that 50% of the trades are losing trades and 50% are winning trades and each trades' profit or loss is the same amount, then your net profit may be €4.5 million while your revenue may stand at €9 million. At this point you may no longer qualify for this tax treatment. If this would be the case, then I highly recommend to either pay 15% on your own name or to pay the regular 9%+2% corporate tax, or find a city in Hungary where the trade tax is 0% (there are some within 40kms of Budapest) and pay the 9% only.

There is another big difference between these three options in terms of payments on account or in other words advance tax payments towards the final tax liability.

- If you trade on your own name then you pay the 15% personal income tax if your broker is located in the EU (or in one of the very few countries prescribed by the law, i.e. the US) and you have to pay by May in the following year.
- If you trade on your own name with a broker in an offshore country then you have to pay 15% the by May in the following year, plus 19.5% social charge but max. ~€2,000 per tax year is payable of the social charge in a single tax year.
- If your company opts for the regular corporate tax model, then it has to transfer advanced corporate tax payments quarterly or monthly based on the previous tax year's profit. If your company paid less than ~€16,000 corporate tax in the previous tax year, then it has to pay quarterly installments. Let's say the corporate tax liability was €10,000 in the first tax year so the company must pay €2,500 each quarter as an advance payment in the second tax year. If the corporate tax suffered was more than ~€16,000 in the previous year, then the company must transfer the advance payments on a monthly basis. Assuming the company paid €24,000 of corporate tax the previous year, this year it will have to pay €2,000 each month as an advance tax payment.
- If your company opts for the alternative corporate tax scheme that we were talking about, then it still must transfer advanced corporate tax payments from the second tax year but assuming that you take only a small portion of your profit out of the company, the effective tax suffered by your company may be significantly smaller and therefore the advanced tax payments from the next year may be much smaller as well but this depends on your and your company's individual circumstances.

Much too complicated. I prefer a flat fee and no limiting conditions on turnover, income, and other things. Just a flat fee on the net profit with deduction of the losses. Keep it simple.

 

[alexanderhu]

Much too complicated. I prefer a flat fee and no limiting conditions on turnover, income, and other things. Just a flat fee on the net profit with deduction of the losses. Keep it simple.

Well, it may be useful for someone whose assets are less than €3 million at the beginning and who doesn't make €9 million worth of profitable trades in a tax year and who doesn't want to pay any tax on the retained profits. With your wealth, you should seek professional advice, they'll be able to help you out to find the right place to live where you pay the least possible taxes. I guess they'll tell you to buy a nice flat in Monaco and just stay there. For other persons who don't yet make over €9 million, this is a remarkably simple, affordable and good way to make compound interest work in their favor.

 

[schweiz]

Well, it may be useful for someone whose assets are less than €3 million at the beginning and who doesn't make €9 million worth of profitable trades in a tax year and who doesn't want to pay any tax on the retained profits. With your wealth, you should seek professional advice, they'll be able to help you out to find the right place to live where you pay the least possible taxes. I guess they'll tell you to buy a nice flat in Monaco and just stay there. For other persons who don't yet make over €9 million, this is a remarkably simple, affordable and good way to make compound interest work in their favor.

I found my personal solution already years ago.It is a remarkably simple, affordable and good way to make compound interest work in my favor. I took professional advice combined with own research. Even for people who make not millions there are better solutions. Only requirement is moving physically. So offshore with fake addresses, mailboxes, etc... does not work as you will get caught sooner or later.

1 option that is financially better then Hungary is Bulgaria. 10% flat fee. Bulgaria does even never check if you really live there. They are already happy that you pay taxes. No additional rules, no languages requirements... Only problem is corruption/criminality. But there are ways to protect you against that too.
Bulgaria is not my option, but Monaco is not my option too.
Monaco is a good option for dreamers who read about it in all kinds of glamorous magazines, and have no clue about reality. It is too expensive, too much rules, they check the 186 days rules really, to have a reasonable living space you pay fortunes, overcrowded in summer and abandoned in winter... And for most ET members it is never realistic as you should make real money, not pocket money. Living cost in Monaco is at least 200K a year. So to save money you should already save 200K in taxes just to cover your living expenses, and then you even make no profit from moving there. Most people never make enough profit for that as you should make between 700K and 1 million a year minimum.

 

[luisHK]

Gibraltar seems to wok fine, and easily for EU citizens, I'd consider it a better choice than Bulgaria.

On a side note and as an update, Madrid province recently removed its wealth tax (Inpuesto sobre el Patrimonio). Not sure it will stay that way for long as it is the only Spanish province to have done so, and it is still not a very friendly place for active traders who bank serious coin, but it looks much better than only 1 year ago for well off folks living mostly of passive income.

About Spain someone a while ago posted links to a law office there specializing in some tax friendly set up, fwiw I sent them 2 messages through their website but received no answer. Probably better emailing them, but several pro traders points they mentioned on their website from my research were more plans than laws.