It all boils down to Portugal or Cyprus. Or doesn't it? Opinions please

Tax and legal
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Hey everyone!

Before I share my situation, let me start by wishing you all a very happy new year and lots of tax avoidance :smiley:

I’m from Belgium and looking to start my adventure somewhere in 2019. My source of income is a webshop with CBD products which serves Belgian and Dutch customers. Shipping is handled through fulfilment. I’m in my first months, but when I gain a little more confidence and monthly profits exceed 2000€, I would like to leave. That is, if I can decide on a strategy.

My goal is to travel a lot, but I also need a place to call home. I need a place to put my green egg, some cast iron skillets and a good pair of speakers, a hideout where I can relax for half of the year and invite some friends or family.

Since I plan to leave on a budget, I need a place with low cost of living and cheap travel options to my home country and the places I want to visit. I really enjoy Czech Republic and Poland and would also like to explore The Ukraine and Russia. Prague or Budapest would be ideal as they have both 25€ Ryanair flights or 20€ Flixbus rides to Belgium all year round, but Czech Republic or Hungary are not really known for their good tax regimes.

I’m looking to spend no more than 10% on all taxes (income tax, corporate tax, dividend tax, social security contributions) in total. This is very important to me. I’m not looking to make these drastic changes and still end up paying 20%, my structure has to be very efficient.

After reading on digital nomad / PT websites for weeks, it all boils down to two options. Those options are Portugal and Cyprus. Malta is not an option for me since I don’t want to spend 183 days a year there. Also CBD products are not legal in Malta and this is a problem when I need to resupply my shipper, since I do the packaging and labeling at home.

Portugal is definitely my favorite. It’s not really close to the places I want to visit, BUT both Porto and Lisbon have 25€ flights to Belgium (family) or Budapest (ideal starting point for travelling) all year round. Also I really love Portugal and would be very happy if I could live there. If I would decide on Portugal, it would be as an NHR or non-habitual resident, paying myself dividends from a company in for example Bulgaria. This way I would pay zero tax and only social security contributions on the minimum wage (about 2500€ a year). Too bad there’s also downsides: living close to those 2 cities is pretty expensive (400-500 range, not that much cheaper as an appartment in Belgium) and CBD products are also not legal in Portugal. This means I’d have to resupply from another country and travel there every month or two months. It’s an obstacle I’m willing to take (although I might misjudge and regret this in the future) since Portugal is very liberal in its drug policies and this will probably change very soon. But there’s another problem that might be more difficult to overcome: to avoid paying tax in Portugal, the majority of managers of my foreign company should live outside of Portugal. This means I would have to assign two managers (this could probably be friends in Belgium, no problem so far) on a contract and probably pay them (this would be a problem)?

Cyprus on the other hand would be A LOT easier to set up. If I register as self-employed (without setting up a company) I’d invoice 8500€ that way each year to pay the minimum social security contributions required (about 1250€ a year) while I get the rest tax free in dividends from my company in for example Bulgaria. Another plus is CBD products are legal in Cyprus, so I could resupply my shipper from there. HOWEVER, and this a big however, Cyprus is EU but not a Schengen country so I’m not sure if my products will be stopped by customs or not. I can’t find a clear answer on it either. I’d say within Europe packages don’t get opened by customs, but I experienced a lot of problems with shipments from Switzerland. Then again Switzerland is a special one, it’s Schengen but technically it’s not Europe although they do have a lot of bilateral agreements. If anyone can provide a clear answer on the (free) movement of goods from (south) Cyprus to Belgium, I’d really appreciate it! One downside about Cyprus is that I’m not really excited about it. I do like Greece but I never visited Cyprus or bothered to look it up. Also, it’s an island and I might feel ‘trapped’ there, since flights are very expensive (±200€) and I wouldn’t have the budget for that every month. Technically I wouldn’t have to spend more than 2 months in Cyprus each year, but my budget does’t really allow to rent one empty place there just to register as self-employed and another one in a country where I actually want to live.

Phew, I think I said it all :smile: The reason I went in such detail is because I’m looking for general advice. I might be overthinking some things or taking others too lightly. Experienced nomads / travellers can probably point out a thing or two and I’d be very happy to hear as much advice/opinions as you can throw my way.

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Hi Freek,

Happy New year! :slight_smile:

That was really elaborate and I enjoyed reading all this research.

I just wanted to add that packages from EU Schengen countries do not indeed get opened or go through any customs procedure when the destination is a non-Schengen EU country (my experience is with Romania).

Speaking of which, did the Romanian taxation and legislation put you off from Ro?

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If I understand correctly to relocate to Portugal you’d set up a company elsewhere and pay yourself minimum wage in Portugal, is that correct?

Since CBD products are not legal in Portugal, and that’s unlikely to change as the only party supporting legalization has only about 8-10% of seats in parliament, not to mention a very socially conservative president who would veto any recreational law and very likely to do another 5 year term, how do you intend to have a company involved in CBD products with an employee in Portugal?

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Hi Mario,

I’m glad you enjoyed it :smiley:

No, I actually like Romania, but it never really popped up as a low tax jurisdiction. Is there any way to only pay the minimum in social security contributions and no tax on dividends from abroad?

Did you ever try sending packages the other way, from Romania to a Schengen country?

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A non habitual resident only pays tax on his local income in Portugal, not on dividends from abroad IF certain conditions are met (although you’d still have to pay the same social security contributions as someone who makes minimum wage). One of the conditions is that the effective management or mind of management of the company you receive dividends from has to be located outside of Portugal. Right now I’m self employed in Belgium, but would move the bookkeeping to Bulgaria because of lower administration costs. I have no employees at all, the shipper I use (in Belgium) is a fulfilment company that does this for many webshops. So I was wondering if I could just assign friends as managers of my Bulgarian company to comply with this effective management rule, or maybe it’s more complicated and I have to pay them a certain wage.

With the current legal status I can’t resupply my shipper from Portugal and I’d have to do this from Belgium for example. It sure is an obstacle, but I wouldn’t mind travelling there a few days each month to resupply and visit family. Joao Goulao, the national drug adviser and also the person responsible for decriminalization of drugs in Portugal is closely watching the situation in Canada and thinks it’s the best solution. I think Portugal will be one of the first countries to legalize. So maybe I could resupply from Portugal in the future, but as explained above, legality of CDB is really not my main issue as I can keep the products out of Portugal, if I have to assign managers and pay them to escape taxes in Portugal however, it’s just not a valid option for me.

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@belgiantourist I really don’t have any experience with taxes in Romania. I did however send goods out of Romania to Germany and there was no special procedure, you wrap it up (they do insist however that the packages are packed in white paper :grin: ) and you hand it over in the post office.

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I thought maybe the Germans would check the package to see there’s no cheap cigarettes inside :smile: At the Hungarian border for example, they are very strict about what you bring from Romania and check everything.

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The prices of cigarettes and alcohol are probably the same as in the rest of the EU, because they look for the same thing when crossing the border from non-EU Serbia :smile:

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I think you underestimate how conservative Portuguese society is and don’t understand why the current advances came into being. The decriminization of drugs as well as the legalization of CBD for medicinal use was based on the argument of reducing pain and rehabilitation instead of punishment for taking drugs. It’s actually a very conservative Catholic way of thinking.

When it comes to recreational use, I don’t see a similar argument that could be made that would appeal to core religious/cultural beliefs and values, so no legalization at least for the next 8 to 10 years, unless everyone else does it before.

As for social security contributions, I wouldnt give much credibility to the article youve read as it makes some incredibly basic mistakes. As an example, wages in Portugal are paid in 14 months, not 12, so minimum wage in a year amounts to 8400 Euros, not about 7000.

And if the idea is to have foreign managers running the business, they will most likely have to be paid, otherwise they’re an obvious front for tax avoidance and Portuguese authorities will not fall for it. Then if authorities consider you’re in fact the one running the business, you may be in serious trouble as you’ll be running a business related to illegal substances from Portuguese soil. The treasury will enjoy freezing your bank accounts.

In summary, you need to make sure everything points to the appointed managers running the day to day of the business and that implies paying them an appropriate wage, you probably won’t get away with paying just minimum wage to the managers, unless you have some kind of bonuses or revenue sharing agreement, something that makes it believable that they’re actually putting some work and being compensated for it

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Hi, I’m Alex and I’m an American living in Budapest since 2015. I have some ideas for you re: living here and conducting your business from here. There are numerous bullet points I would list and discuss with you which are rather tedious to type out here, so feel free to contact me directly at 089qwe@gmail.com.

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Thanks for your elaborate answer. Is there no way to get around the effective management rule? In reality I wouldn’t be doing any work from Portugal. Orders from my webshop go straight to my shipper. If I would resupply from another country, the only task I would be doing in Portugal is answering emails. It doesn’t seem fair I would have to pay tax on all of my income.

What if I was there for only a few weeks a year and work from abroad, would that change anything?

How do all these other NHR’s get around paying taxes? It seems a bit farfetched they all hire two managers and waste money on those wages just to escape taxes?

EDIT: I overlooked the “you’ll be running a business related to illegal substances from Portuguese soil” part. Are you 100% sure about that part? For example, can’t an American investor own a coffeeshop in Holland? It seems to me you’d have to follow the rules of the country you are selling in.

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I realize that it’s a moot point, but I’m not convinced that there is a 183-day minimum stay applicable to Malta, however you should not spend more than 183 days in any one country other than Malta.

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My understanding is that a company won’t necessarily be deemed as being managed from Portugal only based on you being a resident there—especially given that you will be spending most of the year outside the country.

But you shouldn’t trust the advice of some internet strangers in a forum, you should hire a local lawyer to be sure you’ve got your bases covered. If you send @DumontdosSantos a PM I’m sure he can give you a reasonable quote.

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This is true. There’s no need to spend 183 days there to maintain a tax residency. But if you spend more time in a given other country than you do in Malta, you might run into issues if that other country claims that you are a tax resident there as well.

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It’s always good idea to get advice from a lawyer, though you don’t seem to have understood the point. It’s not being a resident that automatically says you’re running the business from Portugal, it’s having two managers not collecting any money while supposedly running the company. I strongly doubt tax authorities would fall for that. Especially as Portuguese tax authorities regularly brag about being the best in the world at fighting tax evasion as you may know if you regularly read Portuguese newspapers.

Running a business in Portugal myself I can attest to their skill.

The second issue arising from the first one in this specific situation is that if you’re deemed to be the one, in fact, running the business from Portugal, that specific line of business is illegal under Portuguese law so of course they wouldn’t want to collect taxes but instead prosecute it judicially

As a side note, if going ahead with moving to Portugal as a resident it’s wise not to open bank accounts in Portugal as Portuguese banks as any other bank in Europe always have some provision in the general terms saying that if you receive payments provinient from any activity that is or may be considered illegal under Portuguese law they may freeze all your assets or close all your accounts and warn the authorities

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I think personal tax in Spain is lower than in Portugal?
That way, you’re also not doing anything illegal. It takes maybe a few hours to get a NIE number and then you can register for Spanish tax as far as I am informed.
I got the NIE but never got around to register for tax, so I’m sort of in tax limbo right now. It’s gonna bite me in the ass, but that’s irrelevant for this thread! :joy:

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Hey have you considered Bulgaria?

I’ll paste some cool points from another post of mine:

• It’s in Europe, that means that is close, is politically and economically stable, there are no “hard” boarders between nations so the commerce is really simplified.

• Low set-up and management costs: It’s a cheap country and the costs related to other countries are the half (setting up a company is less then 1000€, not comparable at other nations like Spain).
The set up is easy, but it need to be done on the spot, but then everything be managed from abroad.

• Low costs in general: Flying and living here is much cheaper then other places like Malta where it’s expensive because it’s a turistic destination (from Milano -2 ways- you can fly to Bulgaria for 50€).

• Tax reasons: Flat Tax10% on profits, 5% on dividends. Also the burocracy is not intrusive.

• Employee tax: the overall tax on employees are 50% of the NET, where in places like Italy are more then the double (that is true also for the Administrator payroll).

• VAT: another reason why a lot of clients likes it here, is because if you have VAT credit, the state directly transfer it in the company bank account, not like in other places like Italy where you it will be just discounted.

• Digital ecosystem: Sofia is becoming the Silicon Valley of East Europe (everyone here is a programmer!), and the internet ecosystem is well developed (on of the top 20 countries for internet expansion).

This is basically why I choose Bulgaria :slight_smile:

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Yes I have! :smiley:

If I would move to Cyprus, I would probably incorporate in Bulgaria. I actually mailed a couple of accountants this week with questions I have, maybe you know the answer.

If I live in Cyprus, I’m a tax resident there and manage the Bulgarian EOOD from Cyprus, what about the 5% dividend withholding tax? Cyprus does have a double tax treaty with Bulgaria so I assume Bulgaria would not levy this tax? And since Cyprus does not tax it either, would I my dividends tax free?

Same for social security contributions, if I’m already paying them in Cyprus, I shouldn’t pay any in Bulgaria right? So my only costs in Bulgaria would be 10% corporate tax + accounting?

Thanks in advance!

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If you incorporate a company in Bulgaria you will need to pay the 5% dividend tax here, and then, if Cypro is dividend tax free, you will not pay anything more.
For what concerning the social security contributions, if you can prove that you are already paying them in Cyprus, you are not going to pay them another time in Bulgaria.
Your annual costs for a EOOD in Bulgaria are going to be only the accounting and the Legal Company Address, if you haven’t one.
I hope that this solved your doubts, you can write me a PM if you need other infos :slight_smile:

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Maybe you can find this interesting :slight_smile:

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