Comment by registeredcorn
5 days ago
>Germany says that your company is in Germany because you work from there.
Forgive my ignorance, I have never really thought about this before and I may be missing something very obvious here.
Isn't that kind of true, though? For instance, if I am a citizen of Japan, live there, and run my remote business from there, but the business that I run exclusively makes money from people in Portugal and Brazil, it would be true that my revenue is being generated in those other countries, but in my own life, I am enjoying the benefits and protections of being a Japanese citizen. Right?
It isn't so much that I would want to be taxed in: Portugal, Brazil, and Japan, but rather that, the nature of how I am choosing to operate my business kind of makes the issue my own burden to bare. If I continue to live in Japan for whatever reasons that may tie me there (family, friends, children in school, business isn't stable enough, other commitments, etc.) it seems like there is a kind of debt to pay back some of my earnings to the Japanese government because they have provided me an environment to build and maintain that business within their country even though the profit made is exclusively outside of Japan. That is to say, the government may not have seen the money directly, but they provided me a safe and stable environment in which I was able to run and operate that business; isn't that kind of the fundamental role of government? I.e., to protect the nation and its citizens, so they may do as they will.
Put another way, suppose the top 1,000 richest people in the world all opted to all move to a tiny nation with very low taxes, and continued to run their businesses remotely from that place without being required to contribute anything back to that nation through taxes. That seems wrong to me. It seems good that they would be asked to pay back into the place that they live and reside, regardless of where their revenue is gotten. They have a home, and that home is ultimately defended and it's property rights upheld by the government that recognizes it.
I'd be interested to hear how others see it. Like I said, I haven't really thought about this too much before, and may be missing something more fundamental and obvious.
Isn't that more or less how it works? You pay tax where you live, with the justification being, as you say, that you are benefitting from the social structure there?
The big country that is an exception is the US. Their citizens have to pay tax regardless of them being elsewhere, and the difference is dealt with via various taxation treaties. I imagine the justification is something like "we help our citizens everywhere, so they owe us tax".
> I'd be interested to hear how others see it. Like I said, I haven't really thought about this too much before, and may be missing something more fundamental and obvious.
The big thing that's missing is corporations. They are imaginary entities, with a bunch of rules about what they are allowed to do, how they pay tax, etc. Once you create a corporation (or several), you can move profits around according to various accounting rules, which are often disconnected from how ordinary people interact with an entity. Are you buying coffee from Starbucks on Oxford Street, or Starbucks UK, or Starbucks Luxembourg? Most people don't think about that when they buy a coffee, but the accountants do.
You can also change what kind of tax you are paying. If you have a company, you can pay yourself a salary or a dividend. It's still money either way, but depending on jurisdiction taxed differently.
For Japan in specific, you’ll want to look into JCFC. Not a tax or legal advice, but IIRC it boils down to: if your company (assuming 100% ownership) is paying less taxes than a Japanese company would, and you’re a Japanese tax resident, you would need to pay the difference in Japan. It is probably similar in other jurisdictions that have CFC laws.
Also do read up on permanent establishment rules as well.
Ah, sorry. I was using Japan as an example of "living somewhere very far outside of the EU" to highlight the sense of distance between the two. I have listened to a little bit about how difficult it is to open a business in Japan (as a foreigner, at least) and how stressful tax time can be [1], but I'm not well versed in the specifics of how they do things.
[1] https://youtu.be/XpvTyyfcBaw?t=416
Japan as an example of anything not specific to Japan is problematic.
Almost nothing is handled in a similar means or approach to Japanese standard practices, anywhere else.
Speaking as someone with 30+ years experience in both Japanese and non-Japanese business dealings and having had and being currently in the process of renewing work and residence permission in Japan under a different classification than before, and having visa sponsors who just finished 'Tax Season' there; the system is both at once extremely linear, and somehow opaque, and the actual paperwork is more easily measured in centimeters than in numbers of pages.
However; that being said, the actual costs of taxes and other fees including retaining the services of an administrative scrivener (not quite the same as a paralegal accountant) are very logical and reasonable for the resultant social/infrastructure outcomes.
But, if one is not already fully fluent in Japanese and does not have a driving requirement to reside and do business in Japan; the system is simply not designed for participation from the outside like the EU or US. When foreigners attempt to participate directly, even the Japanese know that the local system is complex in puzzling ways, and the most common comment I have personally observed is, "Why would you voluntarily do this; we all do it because we must, but if you don't have to, WHY?"
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but you still pay your personal income tax in the country that you live in
> For instance, if I am a citizen of Japan, live there, and run my remote business from there, but the business that I run exclusively makes money from people in Portugal and Brazil, it would be true that my revenue is being generated in those other countries
That really depends on the nature of your business. If you're hosting a web application in Japan then I'd argue you're still doing business in Japan. Same if you're a contractor for companies or individuals abroad. A grey area is if you host an application abroad. You technically do business abroad, but it's unlikely anybody will come after you for tax.
You clearly owe tax abroad if you operate legal entities that are incorporated abroad. Then we enter the vast and diverse field of how to (ab)use taxation and corporate law of different countries to structure your business to avoid as much tax and bureaucracy as possible. How much of that is morally appropriate according to the points you raised is a whole different question.
Disclaimer: I'm neither a lawyer nor a tax advisor.