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Old 16-09-2020, 04:01   #1
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Is my boat's flag state relevant to my tax residency?

Hello everyone,


next year I finally want to move on a boat for a few years. To make some money on the site, I'm going to do some webdesign, for which I would register a company in Estonia, with an e-residency.
(For those that have never heard of it, Estonia has this great program, where every foreigner can sign up for an e-residency and use most of their government services entirely online, including running a company, filing your tax returns etc, perfect if you're working without a permanent residence and saves a lot on bureaucracy)


Now in contrast to the Americans here, whom are (to my understanding) taxed on all their income regardless of where they live, I (as a German) wouldn't have to pay taxes or file a tax return on my Estonian company in Germany, when I don't live in Germany anymore. Obviously this would save me a lot of hassle and bureaucracy.


I wouldn't be living in Germany anymore and also wouldn't stay in one country long enough to have to register there.


So the question now is, could I still sail under a German flag or would that require me to pay taxes again in Germany? (The flag would be possible without a residence, by designating another person that still lives there)


For me to have to pay taxes in Germany one of the following has to be true:
- be more than 183 days total in Germany
- be more than 3 months continuously in Germany
- be registered at an address in Germany
- have my "center of living" in Germany


I can avoid all of these, but I'm not sure how a German flagged boat would factor into that. Considering for example that beyond 12nm, all German laws apply aboard. For example if I where to cross the atlantic, would that count towards the 183 days?


I know that large cruise ships etc, usually register their boats, where they don't have to pay taxes for their crew, but I don't know how the flag state on a liveaboard boat would affects the owners personal tax residency.


If there are any legal experts or people with personal experiences (also not just germans, I'm sure other countries have similar laws) I would be very thankful for any advice!


- Tim
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Old 16-09-2020, 07:30   #2
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Re: Is my boat's flag state relevant to my tax residency?

Shouldn’t you be asking a German tax lawyer or accountant? You’d be crazy to make financial plans based on tax advice from random sailors on an Internet forum, most of whom have never paid German taxes........
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Old 18-09-2020, 07:56   #3
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Re: Is my boat's flag state relevant to my tax residency?

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Shouldn’t you be asking a German tax lawyer or accountant? You’d be crazy to make financial plans based on tax advice from random sailors on an Internet forum, most of whom have never paid German taxes........

Well I don't think it's unreasonable to ask that question here. I mean there's a lot of discussions here about VAT tax and other taxes on boats. Also compare that to questions like, "How do I fix a hole in my hull?" "How do I set up my electrical system?" "How do I remove the poison from a lionfish, before cooking?". Getting the wrong advice on any of these questions would be a lot more disastrous than getting a wrong tax advice, but I don't think that people that ask these questions here, get the same kind of replies.


Considering there are sailors from all over the world here, there could certainly be people that have gone through this process before, and there might very well be a tax lawyer on this forum.


Of course I wouldn't blindly believe an answer like: "I belive you're good to go". But maybe somebody knows something like: "Here is a link, to the law that deals with that" "Here is an article written by a tax attorney about this situation" "Here is an email I have received, from my accountant/tax office, about this situation"


If I'm not getting any good information here, than obviously that's perfectly fine, but I don't think, there's anything wrong with asking and this may very well be interesting to other people as well.
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Old 18-09-2020, 19:49   #4
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Re: Is my boat's flag state relevant to my tax residency?

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Originally Posted by Tim_M2 View Post
Hello everyone,


next year I finally want to move on a boat for a few years. To make some money on the site, I'm going to do some webdesign, for which I would register a company in Estonia, with an e-residency.
(For those that have never heard of it, Estonia has this great program, where every foreigner can sign up for an e-residency and use most of their government services entirely online, including running a company, filing your tax returns etc, perfect if you're working without a permanent residence and saves a lot on bureaucracy)


Now in contrast to the Americans here, whom are (to my understanding) taxed on all their income regardless of where they live, I (as a German) wouldn't have to pay taxes or file a tax return on my Estonian company in Germany, when I don't live in Germany anymore. Obviously this would save me a lot of hassle and bureaucracy.


I wouldn't be living in Germany anymore and also wouldn't stay in one country long enough to have to register there.


So the question now is, could I still sail under a German flag or would that require me to pay taxes again in Germany? (The flag would be possible without a residence, by designating another person that still lives there)


For me to have to pay taxes in Germany one of the following has to be true:
- be more than 183 days total in Germany
- be more than 3 months continuously in Germany
- be registered at an address in Germany
- have my "center of living" in Germany


I can avoid all of these, but I'm not sure how a German flagged boat would factor into that. Considering for example that beyond 12nm, all German laws apply aboard. For example if I where to cross the atlantic, would that count towards the 183 days?


I know that large cruise ships etc, usually register their boats, where they don't have to pay taxes for their crew, but I don't know how the flag state on a liveaboard boat would affects the owners personal tax residency.


If there are any legal experts or people with personal experiences (also not just germans, I'm sure other countries have similar laws) I would be very thankful for any advice!


- Tim

Your small pleasure boat’s registration country has nothing to do with your personal tax residency or anything else to do with your human self, including the laws that apply to you. Wherever you and your boat are, regardless of its registration, you are bound by the laws of that country. Your boat’s registration country certainly does not convey any residency benefits for you in the country of the registration.

If you have no permanent country residency due to moving from one country to another then you can declare a tax residency in whichever country you maintain your financial assets - in your case that would be Estonia, right?

Do talk with a German tax accountant to get the right advice regarding terminating your German tax residence and ensuring that you won’t have any future German liabilities.

One last thing to consider: with no country of residence for some period of time what will that mean for your ability to claim any future superannuation/retirement/old age pension benefits in Germany or elsewhere once you no longer want to live and travel abroad?
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Old 30-09-2020, 07:36   #5
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Re: Is my boat's flag state relevant to my tax residency?

Rules vary by country.
Australia (and others) have a "where do you LIVE (and intend to live)"

If that answer is not clearly a location, then they default to home, and you must pay.

"Intend to" is to get around the "working holiday" angle.

Best to have a home somewhere fixed, with bills in your name.
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Old 30-09-2020, 09:05   #6
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Re: Is my boat's flag state relevant to my tax residency?

E.g. in Spain you become a tax resident when you have passed over X number of days in a year here (I think 186 days or something similar). Then you are a Spanish tax resident for them and they do not care where your boat is flagged. The boat is yours, the car is yours and you owe tax on them.


They just come to your boat and ask you to pay it. You can be any nationality and the boat can be any flag.


b.
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Old 30-09-2020, 09:22   #7
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Re: Is my boat's flag state relevant to my tax residency?

That is almost true.....American are not obligated to pay state or federal income tax as long as we are out of the country for not less than 250 days. However, Americans are still obligated to file federal income taxes every year even if the amount is (0) zero.
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Old 30-09-2020, 09:44   #8
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Re: Is my boat's flag state relevant to my tax residency?

Income taxation generally become liable to the country in which the income is earned. If you perform services on board your boat, while in the territory of a nation that nation's taxation laws apply. Ditto as to if you trade in goods aboard your boat. And as you have specified the laws of one's citizenship apply as to taxation, e.g. Germany, of which laws there are often exemptions that apply if you reside out of your country of citizenship. Note that some countries will deem a transaction with a person or business residing in their country as having been done in that country even if you reside outside because the party in the country that participated with the transaction benefited from your service. The party with which you transact with is typically liable and obligated to withhold taxes on any compensation they pay to you for services that benefit them. Our firm routinely withholds taxes on payments made to independent contractors / consultants both domestic and foreign. The taxes are paid to the Federal and State governments in the USA and to foreign countries and the contractor is provided a notice of payment on their behalf and the government is provide informational reporting of the income earned by the independent contractor / consultant. The independent contractor / consultant is then subject to having to file taxation reports / returns with such government and can seek refund or may owe more than we have withheld. All very standard and routine matters. And yes it is a pain in the ass for the contractor / consultant to have to file the taxes associated with the jurisdiction. For example, an English Doctor that consults for our California based biotechnology company has to file a California and a USA Federal tax return each year and we withhold the statutory percentage from his compensation for both the State and the Federal government. In this instance, there is no City taxation on the income he receives so he does not need to also file a City tax return.

It should be added that, if you do not reside in any country, you will not be entitled to use the advantages of double tax treaties. Hence, you will not be able to reduce any withholding taxes you need to pay or which were withheld and paid on your behalf by your customer / clients.

Note that if your customer / client does not withhold the taxes from the payments to you and if they do not report and pay forward the withheld taxation, they will be held liable and be subject to the taxation that was due and will also be subject to hefty penalties, fines and even criminal penalties. That is why they will cover the exposure and perform their taxation duties as to compensating you. Do Not Evade Such Taxation That is Due. Your webdesign client is required to report payments made to you and withhold tax payments particularly when you [or your e-firm] is a foreign national.

An article of interest:

Living in international waters: endless adventure without taxes

There are two types of floating tax havens, namely, residential ships (Section 2) and private yachts (Section 3). These two types of floating tax havens are discussed below in more detail. At the end of this article, concluding remarks are provided (see Section 4).

https://nomoretax.eu/living-in-inter...without-taxes/

By way of example, as to the rules for withholdings to payment of foreign nationals and companies by the USA Internal Revenue Service reference their frequently asked questions. Almost every country on earth has very similar rules and practices in this regard. You can run but you can not hide when it comes to taxes. https://www.irs.gov/businesses/inter...asked-question

Another matter: You may well be subject to obtaining business licenses in the jurisdictions you do business in, that be both where your boat is residing and / or where your client is based.

Also, note that in order to work in a country, one typically is required to have attained a specific work permit visa. Each country has its own specific rules and procedures for attaining the work visa and you will need to research such for each country you visit and perform work activities within. Loads of complexities. As an example reference the work visas website of the US Secretary of State, https://travel.state.gov/content/tra...ker-visas.html Foreign countries have similar sites, you being a webdesigner should be able to locate the relevant ones.] "Generally, a citizen of a foreign country who wishes to enter the United States must first obtain a visa, either a nonimmigrant visa for temporary stay, or an immigrant visa for permanent residence. Temporary worker visas are for persons who want to enter the United States for employment lasting a fixed period of time, and are not considered permanent or indefinite. Each of these visas requires the prospective employer to first file a petition with U.S. Citizenship and Immigration Services (USCIS). An approved petition is required to apply for a work visa."
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Old 30-09-2020, 12:20   #9
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Re: Is my boat's flag state relevant to my tax residency?

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Income taxation generally become liable to the country in which the income is earned. If you perform services on board your boat, while in the territory of a nation that nation's taxation laws apply.

...

Another matter: You may well be subject to obtaining business licenses in the jurisdictions you do business in, that be both where your boat is residing and / or where your client is based.

Also, note that in order to work in a country, one typically is required to have attained a specific work permit visa. Each country has its own specific rules and procedures for attaining the work visa and you will need to research such for each country you visit and perform work activities within. Loads of complexities. As an example reference the work visas website of the US Secretary of State, https://travel.state.gov/content/tra...ker-visas.html Foreign countries have similar sites, you being a webdesigner should be able to locate the relevant ones.] "Generally, a citizen of a foreign country who wishes to enter the United States must first obtain a visa, either a nonimmigrant visa for temporary stay, or an immigrant visa for permanent residence. Temporary worker visas are for persons who want to enter the United States for employment lasting a fixed period of time, and are not considered permanent or indefinite. Each of these visas requires the prospective employer to first file a petition with U.S. Citizenship and Immigration Services (USCIS). An approved petition is required to apply for a work visa."

Hmmm, does all this mean that someone working on their boat making video content, for which they are paid in some combination of ad revenue from a foreign corporation and direct payment by individuals via another foreign corporation, should be obtaining work visas in the countries they pass through?
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Old 30-09-2020, 13:20   #10
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Re: Is my boat's flag state relevant to my tax residency?

Interesting premise.

I am presently in a similar situation, where I am declaring myself a non-resident of my home country, but am living on the boat, which is registered in that same country.

I'll be reading with interest.

Cheers.
Paul.
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Old 30-09-2020, 14:08   #11
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Re: Is my boat's flag state relevant to my tax residency?

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Interesting premise.



I am presently in a similar situation, where I am declaring myself a non-resident of my home country, but am living on the boat, which is registered in that same country.



I'll be reading with interest.



Cheers.

Paul.

Do you declare a tax residency somewhere?

We’ll have our (passive) income while cruising coming from one country, so even though we won’t be resident there anymore (Covid willing) we will keep our tax residency there for a much lower rate for tax withholding at source.

If no tax residency, doesn’t that mean you pay more tax on your income?
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Old 30-09-2020, 14:42   #12
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Re: Is my boat's flag state relevant to my tax residency?

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Hmmm, does all this mean that someone working on their boat making video content, for which they are paid in some combination of ad revenue from a foreign corporation and direct payment by individuals via another foreign corporation, should be obtaining work visas in the countries they pass through?
Review the specific terms of your visa when entering a country as to what you are allowed to do in country.

By way of example the Schengen countries.

The Schengen "work visa" does not exist. You can get a Schengen visa for other purposes, as tourism, visiting family and friends, business, medical purposes etc. However, you cannot get a Schengen visa to work in Europe. You are not permitted to work while holding a Schengen visa for other purposes, as well.

Still, you can work in the Schengen Area if you hold a National (D) Visa for employment purposes issued by one of the 26 European countries part of the Schengen Zone.

Europe Employment Visa
Each of the Schengen member countries has its own visa policies, which policies differ from one country to the other. The employment visa programs in the European countries have been established to cover the labor needs of the respective countries and fill job shortages.

Therefore, employment visa criteria and requirements, as well as the application process, depend a lot on the labor needs of each country.

Who needs a visa to work in Europe?
Citizens of the USA, Australia, Canada, Israel, Japan, New Zealand, Switzerland, as well as EU citizens do not need to apply for a work visa to Europe. However, upon arriving at the country where they will be working, they have to apply for their residence and work permit.

Citizens of other countries must apply and get an employment visa before entering the Schengen territories for work purposes.
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Old 30-09-2020, 14:47   #13
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Re: Is my boat's flag state relevant to my tax residency?

Indeed one can be a non-resident of their country of citizenship and can become a resident of another country. One must review the details for the countries of relevance as to your tax status and obligations as to reporting and tax payments. Devil is in the details, no two countries are alike.
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Old 30-09-2020, 14:54   #14
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Re: Is my boat's flag state relevant to my tax residency?

What Documents are Required When Applying for a Business Schengen Visa?
The following documents are required for a Business Schengen visa application:

Visa application form. Fully completed and signed.
Two recently taken photos must be attached. Both photos must be taken within the last three months, according to the Schengen visa photo requirements.
A valid passport. It should valid for at least three more months beyond the date you plan to leave Schengen area. Older passports with visas on them (if you have any).
Round trip reservation or itinerary It must include dates and flight numbers specifying entry and exit from the Schengen area. You can use the visa consultation services like this one. These guys can handle most of your business visa mandatory requirements such as flight itineraries, hotel reservations along with free consultation over email.
Travel insurance policy. A document that proves you have travel health insurance for the whole Schengen territory, with a minimum coverage of 30,000 euros in case of any medical emergency as illnesses, accidents and even repatriation in case of death.
Proof of accommodation. A document that shows where you will be accommodated throughout your stay in Schengen. This could be a hotel booking, a rental agreement, or a letter of invitation from a host at whose house you will be staying.
Proof of financial means. Evidence that you have enough money to support yourself financially during your Business trip in Europe. This can be one of the following:
Bank account statement – that shows you have enough money in your account for the trip. The statement shall be no older than 3 months.
Sponsorship Letter – by another person that confirms they will be financially supporting your trip to the Schengen. In order for this letter to be valid, it must be accompanied by a bank statement of the sponsor, no older than three months.
A combination of your bank account statement and a letter of sponsorship.
Proof of paid visa fee.
Cover letter. Explaining the purpose of the visit to the Schengen country.
A short profile of the applicants working place.

Letter from employer. Meticulously describing the purpose of the travel as well as the itinerary of the days spend within the Schengen zone.

Invitation letter. Written by the partner company in the Schengen zone, faxed also to the corresponding consulate. This letter has to appear as an invitation to attend meetings or other relevant events matching trade, industry or work.


Proof of financial means. It must be stated either in the employer’s letter or the partner company’s invitation that one of both parties will be covering the applicant’s travel expenses during his/her stay in the Schengen Zone.

If there were previous trade relations between the two companies proof of such an event.

For employees:
Employment contract.
Current bank statement of the latest 6 months.
Leave permission from the employer.
Income Tax Return (ITR) form or Certificate of Income Tax deducted at the source of salary.

For the self-employed:
A copy of your business license.
Company bank statement of the latest 6 months.
Income Tax Return (ITR).
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Old 30-09-2020, 15:18   #15
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Re: Is my boat's flag state relevant to my tax residency?

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Hmmm, does all this mean that someone working on their boat making video content, for which they are paid in some combination of ad revenue from a foreign corporation and direct payment by individuals via another foreign corporation, should be obtaining work visas in the countries they pass through?
The foreign corporations making the payments should be withholding tax on the revenue they share with you and reporting such as payments for royalties or services to non-resident aliens with their countries. Very routine.

By way of example: For a US company or person paying a foreign person the ordinary withholding and reporting arrangement is:

https://www.irs.gov/individuals/inte...t%20from%20tax

Amounts subject to reporting on Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, are amounts paid to foreign persons (including persons presumed to be foreign) that are subject to Non-Resident Alien NRA Withholding, even if no amount is deducted and withheld from the payment because the income was exempt from tax under a U.S. tax treaty or the Internal Revenue Code.

There is a difference between a "withholding requirement" and a "reporting requirement" under NRA withholding.

A withholding requirement relates to an amount required to be deducted and withheld from the payment of income paid to a foreign person.
A reporting requirement involves the filing of an information return, Form 1042-S, reporting the amounts paid, withheld, and deposited.

Effectively Connected Income
Effectively Connected Income is income that is effectively connected with the conduct of a trade or business in the United States and is not subject to NRA withholding.

Income Not Effectively Connected (FDAP)
A payment is subject to NRA withholding if it is U.S. source income and it is either FDAP or certain gains. This income is also known as Income Not Effectively Connected. Refer to the Fixed, Determinable, Annual, Periodical (FDAP) Income page for more information.

Specific Types of Income
This section discusses the specific types of income that are subject to NRA withholding. The income codes contained in this section correspond to the income codes used on Form 1042-S.

You must withhold tax at the statutory rates shown below unless a reduced rate or exemption under a tax treaty applies. For U.S. source gross income that is not effectively connected with a U.S. trade or business, the rate of withholding is usually 30%. Generally, you must withhold the tax at the time you pay the income to the foreign person.

See reference linked above for the various rates on specialty income.
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