3 Things to Consider When Starting a Business Overseas

If you’re planning to become a digital nomad or spend your retirement overseas, there are a couple of tips to make things easier and cheaper.

For one thing, U.S. citizens are required to pay state taxes no matter where they live, so if you’re not planning to renounce your U.S. citizenship, look into alternative options to decrease the sum.

One good idea is to establish a business overseas and adhere to local taxes but let’s start from the beginning.

How to Handle U.S. Expat Taxes

Americans living overseas must file U.S. pay taxes on their income no matter where it was earned unless they’ve renounced their U.S. citizenship. Also, American residents with any income in the state follow this pattern as well.

American expats are considered residents if:

• They lived in the state for any duration during the tax year
• They have a permanent place of residence in the state
• They have immediate family that lives in the state while they’re abroad
• They keep their voting rights, ID card, or driver’s license in the state (any of these)

Simply put, the USA imposes citizenship-based taxation. However, some U.S. states are an exception to the rule.  

The US states that don’t apply expat state income taxes are Alaska, Florida, Nevada, South Dakota, Texas, Washington State and Wyoming. New Hampshire and Tennessee apply income tax only on interest income and dividends.

California, South Carolina, New Mexico, and Virginia apply expat state income taxes if an expat:

• Owns property in the state
• Owns a bank or investments account in the state
• Holds an ID card, a driving license, or a voter registration in the state
• Has a mailing address in the state or if their relatives do
• Has dependents in the state

U.S. taxes for your overseas business are a different matter entirely. Naturally, businesses are obliged to pay taxes in the country they are registered. Now, think about this: more and more countries are offering beneficial tax packages to expats and digital nomads in an obvious attempt to attract new capital.

Some countries even go so far as to offer 0% taxes in the first couple of years, so make sure to compare benefits.

In addition, there are three ways to prevent double taxation, namely tax treaties, The Foreign Earned Income Exclusion (FEIE) and The Foreign Tax Credit (FTC).

• Tax Treaties

The U.S. has tax treaties with ca. 70 countries. If you establish a business in a country that has a tax treaty with the U.S., you qualify for this program. Look up the list of countries the US has tax treaties with.

• The Foreign Earned Income Exclusion (FEIE)

If you can pass either the Bona Fide Residency Test or the Physical Presence Test, you qualify for the FEIE. This program allows the exclusion of up to $107,620 of your foreign-earned income in a tax year.

•  The Foreign Tax Credit (FTC)

The FTC allows American expats to claim a dollar-for-dollar credit on foreign income taxes. To qualify, they should obtain a foreign tax liability.

Online Businesses

Another tip to keep in mind is that a business overseas doesn’t have to be tied to the local market. In fact, it doesn’t even need to have physical premises.

How come?

Start an online business!

You don’t even have to employ anyone. You can be a freelancer working remotely or a digital nomad with a number of returning clients. Either way, you can register a business and start earning anywhere, anytime.

The list of countries offering additional benefits to digital nomads is impressive. You can literally pick a country on any continent and keep traveling as long as your business is registered in one of these countries.

Set up a Membership Site

A pro tip for open-minded people: set up a membership website!

This kind of business can target any topic, any audience, and any location as long as your website is secure and visible.

Of course, it’s recommended to perform research and pick a specific niche likely to attract more people than other niches.

Here are some ideas:

•    Sell online courses — pick a topic you specialize in
•     Provide expert services — offer different packages for businesses
•     Sell your online marketing skills — create different packages
•     Repurpose content — sell your pro articles to multiple clients
•     Offer membership subscription to any kind of content you specialize in

Key Takeaways

There are many ways to start an online business overseas. Depending on your expertise and target niche, you may rely on remote work, gigs, monetizing your expert knowledge, selling online courses, etc. You can look for extended stay options and save a lot of money on housing as well.

The trick is to pick the best package for your specific needs and couple it with tax benefits. First of all, see how you can minimize your U.S. expat taxes. Next on, connect with the local expat community which knows a trick or two. Lastly, set up your business and enjoy the ride!