We have written a lot on Tax Free Today about creating companies abroad and we have examined a variety of interesting jurisdictions for doing it.
However, many wonder (and with good reason) if it is really necessary to set up a company or be registered as a freelancer in order to be able to start working.
Shouldn’t it be possible for perpetual tourists, those who don’t register or pay taxes anywhere, to start working for themselves without registering as a freelancer or setting up a company?
This is a perfectly reasonable question and we are going to answer it in this article. In fact, there are certain business models and activities that allow you to do just that: work and offer your services without registering anywhere.
However, there are also many other cases where registering a company essential, since you couldn’t comply otherwise with the necessary requirements for serving your clients or accessing the payment gateways and bank accounts that you need.
There is a reason why there are not many articles on this topic: there is a big conflict of interest. After all, registering companies and keeping accounts generates costs and these costs generate commissions and bonuses.
Be that as it may, the reality is that there are many cases where the recommendation to create a company or to register has legitimate reasons behind it. These structures give a business state legitimacy, which can facilitate many things. Moreover, if the jurisdiction is well-chosen, this has significant advantages, as you don’t pay taxes, nor does it entail many costs, procedures or paperwork.
Among the advantages of registering a capital company we have the limitation of liability, the protection of assets, the better reputation, the access to certain payment tools… For those who prefer it, there is also, of course, the option of deciding on a partnership like the US LLC or the British LP.
Whether it is a one-person company or a capital company, both have something in common which is the fact that they have an official register.
Offering your services without being registered anywhere (as a company or a freelancer) leads to problems that don’t always have a solution.
So we return to what we were saying at the start: depending on the business model that you have it will or will not be possible to offer your services, projects or solutions without first setting up a company and registering.
Now we are going to examine more closely these challenges and the possible solutions.
Which businesses can an individual set up without registering a company or commercial activity?
While there are certain business models that also work without registering, it is generally recommended to register or set up a company. Many of the problems, described below, that individuals who are not registered on a commercial register face don’t have an easy solution.
It is important to add in advance that this option is, initially, only interesting for the following business models. We have not taken the entire private asset management sector into consideration (this logically can be directly carried out as an individual):
- Freelancers who work with companies but charge less than €250 for each job.
- People who offer their services to individuals or offshore companies
- Sale of digital products
- Affiliate marketing
- Multilevel marketing
All of the businesses that include the sale of physical products in the EU are vetted for individuals who haven’t been registered, at least legally, because it is not possible to obtain the required VAT number in this way. Furthermore, it is difficult to receive large sums (banks quickly start creating problems) or to register in platforms like Amazon FBA.
The typical online marketing sectors like affiliate marketing or the sale of digital products are viable up to a certain point. Everything depends on how much or how little the affiliate platforms collaborate (generally they require a tax identification number).
The situation is similar in the case of platforms selling digital products like Digistore24.com or payment platforms like Paypal. Even so, there are interesting ways to use these services.
Those who have it easiest for working without registering as freelancers or companies are services providers who only work with individual clients or with offshore companies.
In these cases we won’t come across any problems like the recognition of bills (neither of them have anything to deduct) or the fake freelancer (you don’t work for any company); you only have to focus on making your business grow.
Also included in this group are those that do multilevel marketing since companies that distribute payments are usually situated in tax havens.
It is important to stress that this is only valid for those people who have deregistered in their country of origin and are not subject to fiscal laws and taxes anywhere, that is to say, for permanent travellers.
You can have a property or a residence, but it shouldn’t generate any fiscal obligations. If a fiscal obligation exists, the individual must register, at least officially, as a freelancer in their country of residence or register a company somewhere in the world.
Challenges and solutions for entrepreneurs who do not have a permanent residence.
There are various problems that people without a fixed residence face. We set them out below and we explain possible solutions.
How to obtain a postal address
While you are still a resident without a fixed address or a registered company, you must have some type of physical address. After all, it is something that every platform, bank or even client will ask you for.
Luckily, having an address doesn’t generally make you a taxpayer in any country and, as a result, there are various ways to deal with this challenge.
Using the address of relatives or friends as your own is very simple, but it can be risky if we do it in our country of origin. The Treasury might suppose that we have a business there especially if we regularly receive emails through this address.
I must warn those who think that they can keep using their old tax identification number or their business account that this can create problems.
Even if you have officially deregistered your business, if you keep using your old tax identification number or company account, the Treasury could interpret this to mean that you still have a registered business in your country of origin.
Only use private accounts directly in your name and, although it might seem tempting, give up your old tax identification number.
You don’t need to worry about these problems if the address of your friends or relatives is overseas (outside of your country of origin). In this case, if you can, it is recommendable not to choose an EU country for various reasons, above all because of the VAT and Internet regulation in the EU.
By having an address in the EU, you expose yourself unnecessarily to problems related to privacy and the protection of data.
If you don’t know anyone in a country that complies with the requirements, there are various virtual mailboxes and offices that you could use. Depending on what you need, it might be important for you to have more than a simple postbox. At the end of the day, many banks and service providers only work with real addresses.
Of course, a virtual office is more expensive than a post box. However, depending on the conditions, it will always have a scan and re-send service included.
Tax Free Today can help you through its network of associates with this service and offer addresses with a scanning service almost anywhere in the world. We can also help you obtain local telephone numbers.
Some of the most interesting addresses outside of the EU are New Zealand, Canada or Singapore.
Of course, if you have a property or you have rented a home anywhere, you can also use this address; although, you must be aware of the possible tax obligations that this could entail. In any case, you will have tax problems in very few places for using a holiday home besides your country of origin,
The rental house or property is one of the strategies that we spoke about in our articles about KYC procedures and legal conformity for obtaining the nearly always necessary energy bill.
Even as an individual without a company, it is unlikely that you can sort things out for yourself without opening bank accounts. Unless, of course, you had already created the suitable structure before you deregistered.
Verification of bills
In the B2B services sector, at least in continental Europe, the problem is that your clients generally won’t be able to deduct your bills. Even if they have done it, during a tax audit, they might be told that these are fake bills and their acceptance might be denied.
In general, you can be on the safe side by using bills for small amounts that don’t go over €250 (the quantity depends on the country where the company that you are billing is).
If you bill this type of client more, you run the risk of them being able to deduct your services as business expenses. This is likely to happen with bills of €1.000 or more.
In different countries there are different customs.
In some places even the lowest bill can cause problems; in the USA or the UK, as long as you can prove that the payment was made, you generally won’t have any problems, not even with larger bills.
As you see, you can also work with (B2B) companies without registering as a freelancer or creating a company, although your clients will need to be in the appropriate country.
In general, the private sector (B2C) does not pose any problems, since nothing is written off for individuals. The bill must have a consecutive bill number, but it doesn’t require a tax identification number. And this is in case your individual client asks you for a bill.
However, bear in mind that not having a company or being registered as a freelancer could lower the reputation of your business.
For many, it suggests that you can’t have been very successful and that you therefore don’t have the luxury of being able to have any kind of company. This, of course, can have negative repercussions on your business.
Tax identification number (or VAT identification number)
If you are not officially registered as a freelancer, you won’ be able to obtain a tax identification number or a VAT identification number. This means that if you don’t register, you won’t be able to carry out any kind of business activity with countries in the EU.
Remember that for trading in the EU you have to charge VAT and you would therefore have to register a company or register your activity.
The use of your old Tax Identification Number is at best risky and, in any case, not at all recommendable.
One way to avoid the VAT problem in the EU would be to work with a personal address from outside of the EU. If you bill companies with an EU address, but you don’t have the VAT identification number, your client would have to pay the VAT through the reverse charge system.
You could only avoid this if you have an address outside of the EU, because in this case the other company could charge you without VAT.
Not only would you have this problem if you are working as an individual without registering your activity, but also if you are a freelancer working under the special regime for small companies, or if you are a company within the EU that hasn’t been assigned a VAT identification number.
In the digital products sector, as of 2019, digital products only have to include VAT above a threshold of 10,000 euros, rather than from the first euro. In this way, you can easily sell without being immediately suspected of evading taxes on sales.
If you are working without a company or registration you won’t be able to register for the one-stop scheme (MOSS), so the best thing would be to use platforms like Digistore24.com that take care of processing the VAT for you.
With regards to payments, we need to differentiate between marketplaces like Digistore and Clickbank, and classic payment providers like Paypal and Stripe.
If you don’t have a registered business, many of these platforms will make it difficult for you to create an account, or to receive payments at least That said, Digistore and PayPal in particular offer a fairly simple solution to the problem, which also functions with higher sums.
Digistore24.com takes care of complying (in your name) with the EU rules regarding VAT.
Whenever you register as an individual or a company in the EU, Digistore will ask you for a tax identification number without which it couldn’t transfer to your account the money obtained through its platform.
However, what many people don’t know is that that they don’t ask you for a tax identification number if the company or the person is registered outside of the European Union.
So instead of registering as a company, you register as an individual with an address outside of the EU, and in this way you will be able to receive payments through Digistore without any problems.
Currently, Digistore doesn’t verify the data provided, nor does it require you to provide proof of your address or the existence of your business.
The main advantage of Digistore (the processing of the VAT) can become a disadvantage for those who wouldn’t be obliged to charge VAT.
If you don’t want to work with VAT and you need a provider to charge payments by card (supposing that they can’t make bank transfers to you), the classic payment providers are your best option.
However, it is very difficult to find a provider besides PayPal that doesn’t require you to register your business.
On the other hand, PayPal offers private accounts that are incredibly effective when used correctly. In fact, the majority of offshore entrepreneurs, in jurisdictions where PayPal doesn’t give the option of creating business accounts, use exactly the same model. They create a private account on PayPal and they use it to charge clients.
With PayPal you can create multiple private accounts, but only one per country. It is fundamental that these are always private accounts and never business accounts whose verification requirements can’t be complied with if you don’t register your activity.
The truth is that, unlike what many think, you can even receive and send large sums of money through private accounts on PayPal, as long as you have registered in the appropriate countries.
So you can even receive sums of over $3,000 a month with a PayPal account registered in the suitable country.
The trick is to open a private PayPal account in Western countries that belong to the OECD, do the whole verification process and, of course, link it to a local bank account.
By doing this, PayPal not only has full functionality, but it also has far higher limits on the amount of money that can be received.
Luckily, having a private PayPal account doesn’t make you a tax resident, nor does it require you to pay income tax in the country where you have registered the account.
So if you can, open bank accounts in different countries (especially those of the OECD) and link them to private PayPal accounts. The number of countries you can do it in depends on the sums that you receive.
It is advisable to start receiving small sums in each account and then increase them gradually. In the end, the time will come when you can receive €30,000 a month through each PayPal account.
For greater security it is better to pretend that you are connecting from the corresponding country by using a VPN (like expressVPN, which allows you to configure all of the interesting countries) when you start a session on PayPal.
It is even better if the bank allows you to connect directly with PayPal. There are various German online banks with online banking applications that you can link directly to PayPal.
In this way you don’t need any more verifications from PayPal.
However, the linking to PayPal generally only works with banks, not with digital wallet services or with the typical fintechs. Therefore, you will have to go through the hassle of manually opening local accounts in Western countries.
Some interesting options:
- TD Bank in USA
- Barclays in England
- Santander in Spain
- ABN Amro in Holland (the fintech Bunq.com also seems feasible through Paypal’s support link)
- Postbank in Switzerland
- N26 in Germany
In general, you would have to be able to link a private PayPal account to every bank account that you have in a Western country. These accounts shouldn’t be difficult to verify, since the KYC procedure (identification of the client) is quite simple here. It is a question or testing out as you go along.
Of course, you can also try with non-Western countries, but the KYC requirements will often be higher, meaning that they could ask you for some piece of information or number that you don’t have.
In any case, with this solution you have more than enough for the first years of business. Without a doubt, once you are making over the 100,000 euros a year, you should think about registering a company to avoid problems.
Using bank accounts as an individual
The main inconvenience at a banking level tends to be that the terms and conditions of most banks exclude private accounts for commercial use. Therefore, if you carry out business payments through private accounts, the bank can block your account at any time.
Whether this happens or not depends entirely on the bank, but also on the strategy that you use.
For example, European online banks are generally not concerned with taxes, as long as these stay within reasonable limits.
If your income is only a few thousand euros a month from European countries, it is highly unlikely that anything will happen. However, if you receive large quantities of money from large, untrustworthy jurisdictions, the account could be quickly canceled.
The total of the transfers should be less than €9.999, since above this amount a manual verification of each operation is carried out. Furthermore, you have to abstain from asking for credits or any other type of communication that might give the bank reason to examine your account more closely.
If possible, the payer should declare the higher sums as if they were loans or refunds of loans.
It is safer in this case to use the PayPal model that we talked about above. For the bank, the payments received from PayPal are seen as transfers from their own private accounts and not as external revenue.
Even if you were transferring €30,000 a month from your PayPal account to the private bank account linked to it, you wouldn’t have any problems.
To minimise the risk, it is advisable to have various bank accounts linked with PayPal. Although you can’t have more than one PayPal per country, you can link up as many local bank accounts as you want.
If one of these becomes compromised, you would still have the others to spare. Apart from certain additional costs, it is worth having various accounts.
While most of the problems of not being registered as a company that have been mentioned so far have a solution, the use of sales platforms is, ultimately, the main problem you face if you don’t want to register.
This is due to the fact that these kinds of platforms only admit registered people and companies who can identify themselves with a tax identification number or something similar.
Amazon FBA, for example, not only has the problem that it asks you for a VAT number, but also has the peculiar feature that it only authorises residents in certain countries depending on the market regions. This wouldn’t pose a problem if it require you to verify your business, since, as nomads without a fixed tax residency, we would have our address anywhere in the world.
It is possible to register successfully on affiliate platforms where data is not verified. However, on Amazon FBA and many other platforms, this is complicated and it will be even more so in the future due to the increasing pressure exerted by governments on those who run these sales platforms to make companies that use them have to verify their data in order to register.
So, should I just register a company?
As you see, depending on your business model you will have more or less freedom when working by charging your clients for your work directly as an individual, without registering a company.
In spite of everything described so far, in general, I would advise you to register a company, if only to limit the liability, or also if you need, as is often the case, to have access to company accounts and concrete charging methods or if, for any reason, your clients ask about this extra matter of reputation.
If your business is going well, I don’t really see any reason not to register a company, because at the end of the day, even the best options for registering your company will only cost you between $,1,500 and $5,000 a year.
Nevertheless, if you are starting out you can see that, as long as the business model allows you to, you have many options for selling without worrying about registering as a freelancer or a company.
The good thing about the problems with selling without having a registered company is that, in general, they don’t become really serious unless you reach a certain level of income. A possible limit that you can work easily below without registering companies is $3,000 net income a month.
In any case, you now know that the answer to whether it is obligatory to create a company does not necessarily have to be yes, at least if you reside in the appropriate country and have the appropriate business model.
As always, if you need us to help you by looking at your case in more detail, you can book a consultation.