Tax Tips & Global Optimization Lifehacks

The Basics

Only 2 countries in the world tax citizens globally, regardless of where they live and where their income comes from. Those countries are Eritrea and the United States. The good news is that if you’re living outside of the USA, there’s some strategies that can help.

FEIE tax deduction for US persons

FEIE lets you earn about $125,000 of income tax-free, a limit that will continue growing each year. Getting acquainted with the details of this tax benefit can be very beneficial, since some states use the same logic for state taxes. See IRS Form 2555. You can qualify in one of two ways: by becoming a resident of another country, the bona fide residency test, or by simply spending less than 35 days in the USA in a 12-month period, the physical presence test (technically 330 days in foreign countries, but the difference is often minor). With the first option, you can spend up to 6 months in the United States and still be eligible for the tax deduction. For the second option, the 12-month period does not need to be a calendar year, it uses a sliding window.

  • Example 1: You live in Portugal from August 1 2022 to March 1 2024. You are eligible for FEIE for the 2023 tax year with the bona fide residency test
  • Example 2: You left the USA on January 29th 2022 and spent the rest of the year in Asia. You are eligible for FEIE for the 2022 tax year with the physical presence test
  • Example 3: You were in Asia and Europe from January 1 2022 to April 1 2024, except for the 6-month period between December 1 2022 and May 1 2023. You can still qualify for the (pro-rated) FEIE deduction using the period between January 1 and December 31 for the 2022 tax year, and the period between April 1 2023 and April 1 2024 for the 2023 tax year.

Avoiding the 15.3% US self employment tax

The common answer to avoiding US self employment tax is to use an S-corp. That’s nice, but it doesn’t fully solve the situation because you still have to pay FICA taxes on the base wages from the S-corp, so you only save about 40% of self employment taxes on your income. A better answer if you are location independent (or living abroad) is a corporate structure that is not an LLC, S-Corp, or C-Corp. What’s the mystery corporate structure you should use? A foreign corporation outside the USA. As you may have heard, the US treats companies like people, and while you may have a US passport, a foreign company does not and is not liable for the same taxation that US citizens are. This is why the term “offshore” is often thought of with a tax connotation. There are some newer laws related to these Controlled Foreign Corportations (CFCs) like the GILTI tax requirement, but removing the need to pay self employment tax entirely is better than the usual alternative of filing as an S-Corp. At the end of the day, if you are employed by a foreign company (even if you own 100% of the foreign company), the foreign company doesn’t have to pay US FICA and social security taxes, and this is true of any foreign company. If you worked in the UK, you wouldn’t pay US social security taxes with your income, but rather UK social security taxes. Yes, being employed by a foreign company will reduce your US social security payments when you retire, but if this is not a concern for you, then a foreign corporation is your best bet. If you limit your salary to within the FEIE deduction limit (about $125,000 and growing each year), you can effectively pay 0% tax as a digital nomad (unless you become a tax-paying resident in another country of course). The big question is which country to incorporate in, and for this there is no simple one-size-fits-all answer. That’s where the resources list below can help.

Tax Learning Resources - For US Persons

Tax Learning Resources - Any Country

  • Offshore Citizen is similar to Nomad Capitalist (next link), but not necessarily as focused on high-end entrepreneurs. There is a Youtube channel and a website.
  • Nomad Capitalist, focused on global tax optimization for 7-figure and 8-figure entrepreneurs, but with ideas applicable to anyone. Have heard bad things about this guy and his content, so take all his info with some salt. There is a Youtube channel and a website. There is even a podcast on the website.
  • Wandering Investor, focused on foreign real estate, including options that provide residency or citizenship paths. His website’s blog posts have a lot of videos.
  • Global Wealth Protection by Bobby Casey, a former entrepreneur turned global tax optimization expert. Helpful in setting up foreign corporation structures for digital nomads and entrepreneurs. Apparently often sets up companies in Antigua.
  • This site is focused on Paraguay tax residency for nomads
  • Speak German? Staatenlos is the foremost German-language tax globalization and self sovereignty site that I know of. They also have a Portuguese spin-off of their site.
  • Not a US person? Using a LLC is a common approach to creating a company and getting access to the US banking system. James Baker has a lot of good videos about foreign-owned LLCs.
  • This website is another international tax consultant that has some good articles
  • OECD information on tax residency in many countries. Very useful reference resource. The “183-day rule” is often inaccurate and sometimes not applicable at all (see Mexico).
  • Special Economics Zones often have tax rules that are different from the rest of the country. This amazing map tries to compile the thousands of zones around the world.
  • Similar to the above OECD page, Deloitte has tax summaries on many countries for corporate and individual taxes as do other big 4 auditing firms including PWC and EY.
  • A possibly interesting forums site, but I haven’t explored it much.
  • Tax news from Thomsonreuters from around the world. EY has their own tax alerts page.

Visa, Passport, Flag Theory, and Self Sovereignty Resources

Digital Nomad Visa Information

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