Best Country for Trading (Tax efficiency)

[Maverick2608]

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.

If the aim is compound interest, I would highlight Sweden once again:

- 0.5% tax on capital invested. If your long-term return is 12%, 0.5% of capital corresponds to an effective tax rate of 4%. You do not even have to file a tax return.
- You don’t have to stay in Sweden 186 days. You can spend 120 days in Spain, 120 days in Italy and 125 days in Sweden.
- Free healthcare including a very modest capped co-payment on medicine.
- Free schools.
- Free universities.
- Your children will be paid by the state while they study at university.
- No wealth tax.
- No death tax.
- No gift tax.
- No excise tax on cars.
- You can live one trip over a bridge away from Copenhagen which has been rated the world’s best city to live in.
- Beautiful Swedish girls.

 

[Maverick2608]

... they check the 186 days rules really

I can't find this 186 days rule? If you spend 165 days in Monaco, 100 days in Italy and 100 days in Spain, why would that be a problem?

 

[alexanderhu]

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.

It all comes down to personal preferences. What you implied is tax fraud. I don't think it's worth it for two reasons: Hungary charges 15% PIT, Bulgaria charges 10% PIT. One is Central Europe, safer than Germany or France and the other one is Eastern Europe, not that safe. I don't think it's worth the risk to cheat on your taxes when you could pay little legally. Claiming to be living in Bulgaria which is not a party of the schengen zone (so your travels can be checked easily because there is a border unlike in Hungary which is a part of the schengen zone) and paying your taxes there while being a tax resident in presumably another EU country is something I'd categorize as unnecessarily risky. Furthermore, if that 5% is that important for you (which I totally understand!) then there would be other options for you to pay zero percent, legally, within the EU, without conditions and you could live there full time in perfect safety. Estonia is a good example for this but not the only one. The corporate tax rate is 0% on retained profits without conditions and there is a 20% tax at the time of profit distribution. If your company makes €100 and you distribute €10 then it has to pay €2 and you receive a net dividend of €8 and there is no further personal tax liability on the dividend assuming that you live full time there. Estonia is remarkably safe, just like Hungary and even though Estonia is Eastern Europe, they're really advanced.

[I'm not saying that you're cheating on your taxes because whether that is the case or not, you will obviously not share that fact with us and you really shouldn't. What I'm saying is that based on your post, I think that you may not pay your taxes to the jurisdiction where you actually should but I can be totally wrong about this. Should this be the case, I'd strongly recommend to look for other options such as Hungary or Estonia, or in other words to find a place where you would actually like to live and pay little taxes.]

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.

I would like to hear about that Spanish option as well so please Kindly share some information about it if you have any. I talked with 2 tax advisors from Madrid last year and both confirmed me that as a trader, I would have to pay regular income taxes, in other words, up to 45% marginal plus social security. Companies in some circumstances enjoy a lower 15% corporate tax year in their first two tax years then it is the regular 25%. Dividend tax is 25% as well. Indeed Madrid doesn't charge any wealth tax but it's not a new thing, it's been like this ever since Spain decided to introduce the wealth again because in the past it has been totally abolished and if I remember it correctly, it was reintroduced after the financial crises but I'm not sure about this.

 

[alexanderhu]

If the aim is compound interest, I would highlight Sweden once again:

- 0.5% tax on capital invested. If your long-term return is 12%, 0.5% of capital corresponds to an effective tax rate of 4%. You do not even have to file a tax return.
- You don’t have to stay in Sweden 186 days. You can spend 120 days in Spain, 120 days in Italy and 125 days in Sweden.
- Free healthcare including a very modest capped co-payment on medicine.
- Free schools.
- Free universities.
- Your children will be paid by the state while they study at university.
- No wealth tax.
- No death tax.
- No gift tax.
- No excise tax on cars.
- You can live one trip over a bridge away from Copenhagen which has been rated the world’s best city to live in.
- Beautiful Swedish girls.

If that is the special savings or whatever it's called account, then you're wrong. That is for investors, not for traders. I have confirmed this with Swedish advisors and if you trade on it then you should pay regular income tax. Same goes for Netherlands' 1.2% wealth tax on investments. It is useless for traders who open and close positions frequently. Same goes for Switzerland as well. Furthermore, bear in mind that in many countries you become a tax resident the very day you rent or buy an apartment whether you live there or not. The rules are generally way more complex than a simple 183 days stay.

 

[schweiz]

What you implied is tax fraud.

NO, if you are domiciliated in Bulgaria it is 100% legal.
You mix up legal and not legal yourself by referencing to the Schengen border. If you do everything legally there is no problem when they check you going in or out. So your argument is only valid for those who want to fraude.

It all comes down to personal preferences.

Indeed, that's the correct answer. So my first step was: in which country do I really wish to live?
Then:

• cost of living
• taxation
• distance from my native country (for visits)
  
• ...

 

[schweiz]

Furthermore, bear in mind that in many countries you become a tax resident the very day you rent or buy an apartment whether you live there or not.

Wrong. Because then thousands of people owning a flat/house in Spain, Portugal, Italy, Greece, Turkey... would be tax resident overthere. And I know personally that this is not true.


https://europa.eu/youreurope/citizens/work/taxes/income-taxes-abroad/index_en.htm
Each country has its own definition of tax residence, yet:

• you will usually be considered tax-resident in the country where you spend more than 6 months a year
• you will normally remain tax-resident in your home country if you spend less than 6 months a year in another EU country.
  

 

[Maverick2608]

If that is the special savings or whatever it's called account, then you're wrong. That is for investors, not for traders. I have confirmed this with Swedish advisors and if you trade on it then you should pay regular income tax. Same goes for Netherlands' 1.2% wealth tax on investments. It is useless for traders who open and close positions frequently. Same goes for Switzerland as well. Furthermore, bear in mind that in many countries you become a tax resident the very day you rent or buy an apartment whether you live there or not. The rules are generally way more complex than a simple 183 days stay.

I specifically quoted "to make compound interest work" and repeated it in the first line to underscore that it is mainly an option for investors. However not for the reasons you mention.

It is absolutely wrong that you have to pay regular income tax if you trade on the account. You can trade all you want. However, you cannot short, invest in CFDs, etc. and you have to trade through brokers/banks who offer this account in Sweden. For these reasons it is not well suited for traders. However, I stress once again, you will not pay regular income tax if you "trade on it." If your Swedish advisors have told you that, they are wrong.

The tax treaty between two countries will decide to which country you have to pay taxes. For that reason you will normally pay tax in Sweden even if you spend more time in other countries as long as you spend the highest number of days in Sweden.

Sweden is different compared to most other countries in that they do not tax active traders at the regular income tax rate. In Sweden outside of the ISK you will pay the 30% capital gains rate irrespective of the amount of trading. Your remarks on Switzerland and the Netherlands are correct.

 

[schweiz]

I can't find this 186 days rule? If you spend 165 days in Monaco, 100 days in Italy and 100 days in Spain, why would that be a problem?

https://europa.eu/youreurope/citizens/work/taxes/income-taxes-abroad/index_en.htm
Each country has its own definition of tax residence, yet:

• you will usually be considered tax-resident in the country where you spend more than 6 months a year
• you will normally remain tax-resident in your home country if you spend less than 6 months a year in another EU country.

Monaco requires the 183 days rule. And they check it. I know people who got caught already. It can be very expensive.
If you spent nowhere 183 days you will be taxed in your native country where you have your domicile. If you don't have your domicile there you will need to have it somewhere else, and then you pay there. Running around and never stay 183 days in a country will never work.

 

[luisHK]

I would like to hear about that Spanish option as well so please Kindly share some information about it if you have any. I talked with 2 tax advisors from Madrid last year and both confirmed me that as a trader, I would have to pay regular income taxes, in other words, up to 45% marginal plus social security. Companies in some circumstances enjoy a lower 15% corporate tax year in their first two tax years then it is the regular 25%. Dividend tax is 25% as well. Indeed Madrid doesn't charge any wealth tax but it's not a new thing, it's been like this ever since Spain decided to introduce the wealth again because in the past it has been totally abolished and if I remember it correctly, it was reintroduced after the financial crises but I'm not sure about this.

Check the thread below, there is a link to the spanish advisor, my understanding reading on the topic when i checked was there was a lot of wishful thinking in their interpretation, planned rather than implemented changes to the Beckham law. Tried to contact them but with no avail.
I'd understood the wealth tax in Madrid was also reintroduced during the financial crisis, but with a higher threshold, from memory 2 million euro for 2017 or 2018 and somewhat lower rates than in other parts of Spain. Understood while looking for updates it had been decided only recently to cancel it altogether for 2019. Big difference for me as at the moment most of my income is passive. Reading tax treaties, dividends and interests from some low tax markets where i have non negligible investments are 10 and 15% from the spanish side. Not bad, especially for a Madrid fan.

If you are looking for a low tax set up in the EU, again, check out Gibraltar, there are several set ups possible, you basically don't need any if u plan to live there and trade afaik, and there are only short stay requirements under the cat 2 investor program, but again if you are a EU citizen, plan to live in Gib and get your income from trading financial markets, 2 law firms I got feedback from confirm it would be tax free.
We went there last summer to check the place (second time for me in Gib, and a few more times in nearby Costa del Sol), not that bad of a place , wife and daughter who speak much better english than spanish keen on moving there this year, but I'll probably give it pass because sports wise there is not much for kids, whereas one of the most successful schools in western Europe for daughter is just outside Madrid, so it is another plus.

https://www.elitetrader.com/et/threads/trading-for-a-living-taxes-in-eu.318391/page-10

You can jump to halfway through the thread, to read more direct feedback from lawyers there :
https://www.elitetrader.com/et/threads/gibraltar.319989/page-4

To make it faster here are the links to the Beckham law related website :

https://www.spectrum-ifa.com/financial-advisers-in-spain/spanish-tax-201/the-beckham-law-in-spain/
https://www.spectrum-ifa.com/beckham-law-2018/

 

[luisHK]

Indeed Madrid doesn't charge any wealth tax but it's not a new thing, it's been like this ever since Spain decided to introduce the wealth again because in the past it has been totally abolished and if I remember it correctly, it was reintroduced after the financial crises but I'm not sure about this.

Well, it seems I misunderstood the issue... my spanish sure getting rusty, reading the link below (checking the graph, actually) it seems Madrid collected nothing in 2016 as part of the wealth tax, 2000 000 seems to be the threshold above which one has to make specific declarations. A bit embarrassed here, coz i'd read more than one link about the topic, brain seems to work slower than it used to, good reason to avoid active trading... I might as well have completely misunderstood the spanish discussions about Beckham law...

https://cincodias.elpais.com/cincodias/2018/01/02/midinero/1514908504_332640.html

I even read the link below a few months back and understood there was still a wealth tax to be paid over 2mil, whereas it is written in bold characters:

la Comunidad de Madrid mantiene la bonificación del 100% de la cuota establecida inicialmente en la Ley 3/2008, de 29 de diciembre de medidas Fiscales y Administrativas,

yet the following of the sentence above concerning the 2million euro is not clear to my spanish skills and i'm not sure the link has changed over the last 6 months, although it doesn't look like it has :

"por lo que la obligación de presentar declaración en los ejercicios citados anteriormente corresponde únicamente al segundo supuesto, es decir, a aquellas personas cuyo valor de bienes o derechos sea superior a 2.000.000 de euros."

http://www.madrid.org/cs/Satellite?cid=1142348890631&language=es&pagename=Contribuyente/Page/CONT_contenidoFinal