My business setup 🖋
Written in December, 2021

ðŸŽĨ Video version:

📖 Text version:

Let's talk about everyone's favorite subject. Taxes.

In the beginning of 2021, so less than a year ago I went full time with my own business.

I thought I knew what taxes were.

I thought that you simply paid a percentage of your income to the government. And that it was called income tax.

Oh boy, how stupid.

Table of contents 📜

1. A huge grain of salt 🧂
2. Types of taxes ðŸ’ļ
3. How they trick you ðŸŠĪ
4. The only tax that matters ⭐ïļ
5. Different setups ⚙ïļ
6. Running simulations 🧎
7. The intangibles ðŸ–Ī
8. Closing thoughts 💭

1. A huge grain of salt 🧂

Before we begin, A MASSIVE DISCLAIMER.

I am the first to admit when I am not confident and don't have the authority to talk about a subject.

This is one of those subjects.

I am sure that I am missing information and there could possibly be mistakes in this blog post.

However, so many people ask me about my business setup.

And I see so many people fall into traps.

This is my research on the subject.

You do your own.

2. Types of taxes ðŸ’ļ

Let's start with the obvious. That wasn't obvious to me.

There are many different types of taxes!

I used to think that income tax was the only tax we pay.

If you are employed you mainly have to care about income tax.

Basically just know what you take home from your salary. Contract says X, you receive Y after taxes. That's it. Your employer typically handles everything.

If you are self employed or run a business it's different.

Then you have many different types of taxes:
- Corporate Tax
- Social Contributions
- Dividend Tax
- Income Tax
- Capital Gains Tax
- And many more. But let's keep things simple. These are the main ones for a small indie internet entrepreneur.

Let's have a look at each one.

🇊🇚 EU VAT:
Your business sells something. If you are selling to an EU person (not a company) you have to add tax. Typically it ranges from 19% to %25.

You can either pre-charge the customer or pay it yourself. This is quite complicated so I won't go into detail.

💞 Corporate tax:
Congratulations, even after charging VAT, your business made a profit! Now have to pay a percentage of those profits to the government your business is based in.

Typically, it ranges from 10% to 30%. But you have some odd tax havens like Hong Kong, The Bahamas, etc

Funny how it's almost always islands.

âĪïļ Social Contributions:
Nice! You are making a healthy profit even after corporate tax. Now you can withdraw a monthly salary.

Remember, you are an employee of your company. The money is still in your business bank account. Not yours.

A salary is taxed on both sides. The employer and the employee. In our case we are both.

In the Western world, social contributions will amount to 30% if you take both sides into account. So if you want to withdraw $1k/mo you'll have to pay an extra $300/mo in taxes.

You could live on savings and not have a salary but most accountants will advise you to withdraw at least a small amount. Otherwise it may look suspicious.

ðŸĪŦ Dividend tax:
Now this is where things get interesting. And this is where my mind was blown.

Let's say we did $100K in profit. Paid $25K in corporate tax. And our salary amounted to $25K for the year.

That means that we have an extra $50K sitting in our business bank account at the end of the year. How can we take this out?

One way would be through a salary. But with 30% in social contributions and income tax on top of that, it would be a blood bath. In that way, we would end up paying almost 50% of our money in taxes!

What we want to do is take the rest of the money out as dividends. Dividends is when a company distributes some or all of it's profits to the shareholders. Wink wink, you are the only shareholder of your company.

Dividend tax typically ranges around 20%. But there are countries where it's almost zero. Or zero.

And other countries don't tax dividends coming from foreign companies.

These are some of the loopholes of the rich. More later.

🊜 Income tax:
The one we are all familiar with.

You were taxed on your sales with VAT. You were taxed on your profits with corporate tax. You were taxed on your salary on both sides with social contributions. And the rest of the money you took out with dividend tax.

Now it's time to tax your income. Again.

Typically this is around %30 to %40 for the highest bracket.

But many times dividend income is exempt from income tax.

Again, dividends are one of the loopholes of the rich.

ðŸĒ Capital gains tax:
Last one, I promise.

After years of blood, sweat and tears you decide to sell your business.

I'm sure you get it by now, you'll get taxed.

Typically this is around %20 to %40.

The same applies for any asset you sell.

It could shares of a business, stocks, bonds, etc

Crypto is still unregulated in many countries so it's zero in those countries for now.

3. How they trick you ðŸ’ļ

As you can see, taxes are quite complicated.

It is not a flat percentage that you pay and you are done.

And that's exactly how they get you.

How they got me:

Italy was famously showing off their 90% income tax exemption for foreign residents that decided to relocate to Italy.

After quitting my job, I decided to stay in Italy because I qualified for it.

I thought I would hardly be paying any taxes.

Oh boy.. how wrong was I!

All in all, with my self employed minimalist setup I was paying 30% to 40% of my income in taxes.

Yes. My income tax was low indeed. But other taxes like social contributions were through the roof.

How they might get you:

You'll hear many countries, accountants, lawyers and entrepreneurs sell you a dream of 0% tax or extremely low tax.

Don't be naive! It's not the whole picture.

Either it's an individual tax rate and others will be through the roof.

Or it's a complicated setup that puts you at risk and is not worth it to achieve those 0% tax rates.

Let's talk about the only thing that matters.

4. The only tax that matters ⭐ïļ

All in all, it's a shitshow.

There are a million different ways to structure a business. And a million different ways to receive the money.

You could have a business. Or be self employed.

You could take out everything as a salary. As dividends. Or keep everything in the business.

At the end of the day, here is what matters for me. And in my opinion to anyone building a lifestyle business.

It's called "effective tax rate":
It's a simple question. If you make, let's say, $100K in profit and want to take out everything, how much will you end up paying in taxes? And how much will end up in your pocket?

Simple. Yet effective. No pun intended.

PS. Many people feel like taking out all of your profits is a weakness. I feel it's exactly the opposite.

5. Different setups ⚙ïļ

So now I had a metric. At last I was getting somewhere.

But there are so many ways to set things up!

You could be self employed. Or own a business and be an employee.

You could take out everything as a salary. Or as dividends. Or just leave everything in the business.

The list goes on. So let's go even deeper...

🐛 ðŸ•ģ Deep into the wormhole:

I read a few books on the subject of taxes this year, but there was one that stood out.

It's called "Nomad Capitalist" and it's all about becoming a global citizen and "going where you're treated best".

The thesis of the book and the philosophy behind it is interesting. You shouldn't just live where you were born out of inertia and momentum. You can choose and pick where you want to live.

And not just live. Bank. Trade. Pay taxes. Enjoy life. Etc.

The author of the book and many other "experts" in the field usually suggest the "Trifecta method".

Trifecta method:

- Incorporate in a country with 0% corporate tax
- Bank in a country with great banks
- Register to pay taxes in a country that does not tax dividends and/or income from foreign companies at all
- Take out your profits as dividends
- Live in that country the minimum amount to qualify as a tax resident and travel the rest of the year

- You "legally" pay 0% taxes.

While in theory it makes sense, these setups are typically overkill and end up making more harm than good.


- Can cost more than what you are saving.
- You need to be on your toes constantly.
- Regulations like "CFC rules" and others could backfire and you could end up paying everything you "saved" retroactively.

CFC rules: When is a foreign company truly a foreign company?

If you have a business in Hong Kong but you are the only shareholder and operating from Portugal, the Portuguese government might try to say that your company is not really a foreign company. And try tax you.

Governments are not stupid. They know the loopholes. And they try to close them as soon as possible. And sometimes they ask for tax money retroactively. For all the years you thought you were saving money.

It's literally a cat and mouse game. Do you wanna play that game? Depends on how much you are saving.

My final conclusion:
After (literally) months of research, I reached the boring conclusion that for small online companies, the simplest setups win.

ðŸĒ Register a simple limited company and be an employee. This way you can make use of dividends.

I'm sure you get this by now. Salaries and income are taxed like crazy in almost every single country in the world.

🏝 Onshore is the new offshore. Gone are the days were you could just travel the world and live nowhere to avoid taxes.

And gone are the days when you could just spin up a shell company in Panama and pay zero corporate tax.

I think it even says this in the book: "Once upon a time you had to move your assets. Now you have to move your ass".

📉 Low tax is the new no tax. Trying to get your taxes to zero is overkill. Extremely difficult. And not worth the hassle.

It's overcomplicated, expensive and risky and it's what experts preach so you buy their services. Similar to most industries. Like fitness, business, you name it.

ðŸĶ You can still bank and invest in other markets and countries.

And you can open bank accounts and store your money anywhere you like.

7. Running simulations 🧎

Ok, so now you have our main metric: "Effective tax rate".

And you have your simple setup: "Registering a business and yourself properly in a low tax country".

Now let's run some simulations.

This is what simulations looked like for me:
- Took my candidate setups and countries. Assumed I'll make $100,000 in profit, because that's what I'm projecting and it's a nice round number.

And I want to take out all the money. You can customize it to your needs.

Variables to play with:
- Self employed vs Business owner
- Amount of profits
- Amount of profits you want to withdraw
- Country you are registered in
- Country your business is registered in

And take in mind the following:
- Bookkeeping and legal fees
- All the taxes we talked about and all the rest
- Anything you may be missing, ask your accountant

You may be surprised:

- Regarding business setups, if you have a very small business, it might be better staying self employed. Sometimes bookkeeping fees cancel out the money you save.

- Regarding 0% tax setups, unless you have a huge business, it will be more expensive. Bookkeeping and legal fees will be through the roof and risk will be real. And if you are a big business they will be after your ass.

- Sometimes it's not even worth changing anything. So much fuss to save $5,000 per year. Or $10,000/year. Maybe that's 1 client for you. Or 10 customers. Not worth it.

These were my simulations:

Simple setups:
- Italy
- Greece
- UK
- Cyprus
- Portugal
- Malta

Complicated setups:
- Business in Estonia & tax residency in Malta
- Business in Estonia & tax residency in Cyprus
- Business in UK & tax residency in Malta
- Business in UK & tax residency in Cyprus
- Same with Singapore, etc, etc, etc
- Same with Portugal, etc, etc, etc

After running these simulations and double checking them with accountants, I reached these conclusions.

Rough figures. I can't find the doc with my final numbers.

My results:
- Italy: I make $100K, I keep $60K
- Greece: I make $100K, I keep $60K
- UK: I make $100K, I keep $60K
- Portugal: I make $100K, I keep $60K
- Cyprus: I make $100K, I keep $85K
- Complicated structures: Fuck that

7. The intangibles ðŸ–Ī

We talked about effective tax rate as the most important metric.

And explained how registering a business and yourself properly in a low tax country is the 80/20 of tax optimization for a small internet business. In my opinion of course.

How do you pick which country to relocate to? You need to add your constaints.

These were mine:
ðŸ’ŧ Supports Stripe
🇊🇚 EU so no visa runs & it's close to family
ðŸ’ļ Tax friendly
âĪïļ Safe
ðŸ—Ģ Ideally I speak the native language
ðŸ‘Ļ‍⚖ïļ Ideally don't have to spend 6 months per year there

ðŸ’ŧ Supports Stripe:

A technological constraint.

I have dealt with other payment processors in the past and honestly Stripe is a non negotiable for me. This constraint actually really narrowed things down.

Cyprus recently introduced Stripe.

🇊🇚 EU so no visa runs & it's close to family:

I don't want to deal with visas. Or be far away from family.

My family lives in Greece and the UK. Both of which are literally one direct flight away from Cyprus.

ðŸ’ļ Tax friendly:

These were my options:

- Stay in Italy, UK, etc and pay 40% effective tax
- Move to Cyprus and keep 15% effective tax
- Move to Romania, Bulgaria etc and pay 10% effective tax
- Create a crazy structure and pay 0% tax (in theory)

I decided to go with Cyprus. Taxes are low enough.

And regarding banks, just bank abroad.

And it fits my other constraints.

âĪïļ Safe:

Self explanatory.

I wanna chill, not spend months every year in a dangerous place in order to save money.

Cyprus is incredibly safe.

ðŸ—Ģ Ideally I speak the native language:

One thing that I have realized is that it's scary living in a country where you don't speak the language.

Not for every day stuff. But for legal stuff.

I cannot even count the times I felt hopeless in Italy, when my accountant would throw an Italian document my way and ask me to sign it and pay X thousands of euros.

Honestly, it truly made me feel like the immigrant I was.

I wanna travel and live everywhere. But for my legal base I want a country where I speak the native language fluently and understand the culture.

I wanna be able to look at my accountant, lawyer, landlord, etc in the eye and say:

"No, this is what I want. I know how things are done."

ðŸ‘Ļ‍⚖ïļ Ideally don't have to spend 6 months per year there:

Most countries require you to stay 6 months and one day in the country in order to qualify as a tax resident.

Cyprus requires 2 months. That's perfect.

Two months go by quickly on a beautiful meditarranean island.

And the rest of the year I can travel. Amazing.

8. Closing thoughts 💭

Remember that it's easier to double your business than halve your taxes.

So don't go crazy on overoptimizing your taxes.

It might not even be worth it.