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Perpetual travelers and tax on forex

  • Post #1
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  • First Post: Apr 1, 2007 5:25pm Apr 1, 2007 5:25pm
Suppose you are a citizen of a country which considers you to have no tax obligations while you are not resident in that country (several EU countries, but not the US). Let's say that you adopt a nomadic lifestyle, staying in various different countries for a few weeks or months at a time, trading from a notebook computer in wi-fi enabled hotspots, or from Internet cafes.

In this situation, do you have any legal obligation to pay taxes on your trading profits to any government? Does the jurisdiction in which your forex broker is located have any impact on this question? (e.g. do Swiss brokers or brokers based in Caribbean tax havens offer any advantage?) What kind of banking arrangements should you make so that you have access to your funds? (e.g. would HSBC's offshore account offering simplify your life in any way?)

Thanks in advance to anyone who can shed light on this question.

P.S. I'm aware that there is a main forex tax thread, but this question is very hypothetical and seemed a little off-topic for that discussion.
If you are a resident of a Country where you have no obligation to pay taxes on the forex, it does not matter where you trade, your only responsible for paying the taxes for your Country only.

The location of your broker has absolutely no factor in where you pay taxes or what Country your obligated to.

Example, your a resident of X Country where you have no taxes, you can trade in the United States and have a brokerage firm in Panama. You owe no taxes to any Country. The United States does not keep any tax records on you as a non-citizen.

Hope this helps
If nobody paid tax then their would be no money for airports or public roads in a lot of countries so I say dont worry about paying tax so you can visit them.
That was an ugly remark, Danny.

I guess you dont know how money are spended by the army of officials especially high officials like members of parliament, presidency's cohortes and many others.

So please dont blame anybody for that. The system is doing his duty by hitting ppl like big gates and other big manufacturers that are making products less and less lenghtier in time for us to buy other products sooner.

Peace.

Who can evade the system , good for him ( I know is damn hard)
The risk is what gives value to an investment.
Quoting 3cent
That was an ugly remark, Danny.

I guess you dont know how money are spended by the army of officials especially high officials like members of parliament, presidency's cohortes and many others.

So please dont blame anybody for that. The system is doing his duty by hitting ppl like big gates and other big manufacturers that are making products less and less lenghtier in time for us to buy other products sooner.

Peace.

Who can evade the system , good for him ( I know is damn hard)
Ugly ? please don't put words into my mouth, I didn't mention any of the above,all I was doing was pointing out that if nobody paid taxes it would be a negative overall.
I do agree that you are a fool if you pay more tax then you should and I,m aware of how much is wasted on red tape.
I think you have miss quoted me and I do not intend on offending anyone.
If you can stay out of jail and aviod tax good on you.
Quoting DannyW
Ugly ? please don't put words into my mouth, I didn't mention any of the above,all I was doing was pointing out that if nobody paid taxes it would be a negative overall.
I do agree that you are a fool if you pay more tax then you should and I,m aware of how much is wasted on red tape.
I think you have miss quoted me and I do not intend on offending anyone.
If you can stay out of jail and aviod tax good on you.

You missed the point Danny. Parameswara was asking a question as to being a citizen of a Country whereas this trader was not required pay taxes on forex trading. This question had nothing to do with tax avoidance. You then made a negative comment about the effects of avoiding taxes which was not the case. Your remark Danny was totally unnecessary.

We have had a few threads that discussed tax avoidance and they got out of hand. Let's not go there again.
PARAMESWARA,

If the country you live in requires your forex broker to report the status of your account, like the US does. It would be better (tax wise) to use a forex broker that is in a country that does not cooperate with tax authorities from other countries such as Switzerland, Lichtenstein, or a handful of other countries where disclosure of a person's financial matters are strictly forbidden.

By using a broker in one of these countries, they are not going to report your earnings to your home country. Because, as you know, tax begins when your country realizes that you have a tax liability.

If you always use an Anonymous location like a public WIFI hotspot, the tax people will have a harder time finding you or your money. However, in the US ALL communications are monitored by a system that is code-named Predator. The system is supposed to be for anti-terrorist purposes, but the tax people consider the hiding of any money from the US government as an act of terrorism. Convenient, wouldn't you say?

Sleuth
Quoting DannyW
If nobody paid tax then their would be no money for airports or public roads in a lot of countries so I say dont worry about paying tax so you can visit them.
Yeah, there would be private airports and private/toll roads. Both of which exist (in addition to public) near me.
Quoting WHTenn
You missed the point Danny. Parameswara was asking a question as to being a citizen of a Country whereas this trader was not required pay taxes on forex trading. This question had nothing to do with tax avoidance. You then made a negative comment about the effects of avoiding taxes which was not the case. Your remark Danny was totally unnecessary.

We have had a few threads that discussed tax avoidance and they got out of hand. Let's not go there again.
Fair enough I know it was off the point of the question,just being to general.
Quoting WHTenn
If you are a resident of a Country where you have no obligation to pay taxes on the forex, it does not matter where you trade, your only responsible for paying the taxes for your Country only.

The location of your broker has absolutely no factor in where you pay taxes or what Country your obligated to.

Example, your a resident of X Country where you have no taxes, you can trade in the United States and have a brokerage firm in Panama. You owe no taxes to any Country. The United States does not keep any tax records on you as a non-citizen.

Hope this helps
This is only on the level of income tax. Most countries countries still have the fortune tax. If you make above 5 or 6 digit on forex ( depending on the country ) you still have to declare it in your country of residence to be within the law. If you really make big amount, go to a good tax consultant and don't try to save that fee. He has all the legal tricks to help you deduct and save back on taxes legally. Often what you can save back exceeds the fee you pay him. Certain countries have other very minor taxes ( even though you are not earning) which they collect at the end of the year along with the income tax. So it depends on your country.
For Danny I know how you feel seeing your tax money being used in the wrong way. If you cannot beat the system, don't waste your energy. Try greener grass somewhere if possible.
Quoting Sleuth
PARAMESWARA,

If the country you live in requires your forex broker to report the status of your account, like the US does. It would be better (tax wise) to use a forex broker that is in a country that does not cooperate with tax authorities from other countries such as Switzerland, Lichtenstein, or a handful of other countries where disclosure of a person's financial matters are strictly forbidden.

By using a broker in one of these countries, they are not going to report your earnings to your home country. Because, as you know, tax begins when your country realizes that you have a tax liability.

If you always use an Anonymous location like a public WIFI hotspot, the tax people will have a harder time finding you or your money. However, in the US ALL communications are monitored by a system that is code-named Predator. The system is supposed to be for anti-terrorist purposes, but the tax people consider the hiding of any money from the US government as an act of terrorism. Convenient, wouldn't you say?

Sleuth
Actually, most forex brokers do not report to the U.S. Internal Revenue Service. They are not obligated to do so.

Highway3000....thanks for the information...very much appreciated
Thanks to everyone who responded to my question. I understand the concerns some posters raised about the morality of tax avoidance, but as others have pointed out, I'm actually talking about situations in which meeting one's legal obligations in full would not involve paying tax on forex earnings.

Just to clarify my original post a little, I'm interested in the situation that arises when your country of citizenship and your country of residence are different. In particular, what happens when you are living for the long term outside your country of citizenship, but cannot be said to have established residency anywhere else (i.e. perpetual traveler)? Your country of citizenship does not make any claims on you, and from the perspective of the countries you pass through, you are a tourist or visitor who is not liable to taxation. As far as I can see, in this case one's forex earnings would legally not be liable to taxation anywhere.

The responses on this thread would seem to indicate that the physical location of the broker has no tax implications other than possible privacy benefits resulting from banking laws in Switzerland and similar jurisdictions. So, all things being equal, a US based broker is as good a choice as any if one were to attempt to take up a perpetual traveler lifestyle?

Thanks again for the great information. Keep the posts coming if anyone has any further comments on this issue!
It really is a tricky question and depends on where you are from and where you are trading.
Eg in Australia you have to live outside the country for a period of 3 years and can only come back to visit not more then 3mths or that could be 6.
You are not allowed to have any asset in the country like a house.
Your children aren't allowed to be at an Australian school.
Once you have meant this critera you then are considered an ex pat and don't have to pay tax.
The important thing is that you remain a private enterty,as soon as you attach yourself to a company you then fall liable.
A few years ago a room full of traders were busted in Thailand for not paying tax.They were going sent to jail but I didn't follow the outcme on it and Thailand is the sort of place you can pay your way out of trouble to some extent.
Once you do return you could still be subject to a tax investergation to see where your funds have come from and if you should have paid tax somewhere else.
So really you need to be up on your country of resident or citerzenship tax laws and go to an experienced account that knows about trading and living abroad not just anyone.
That's a fascinating story about the traders who got busted for tax avoidance in Thailand. I ran a few searches to try to find the story, but couldn't come up with anything. From your message I guess they were Australians?

This case sounds a little different from what I was getting at. 'A room full of traders' suggests an unregistered business, possibly investing other people's money in an organized manner. I wonder if they'd still go after an individual managing their own money by making occasional trades online.
Quoting parameswara
That's a fascinating story about the traders who got busted for tax avoidance in Thailand. I ran a few searches to try to find the story, but couldn't come up with anything. From your message I guess they were Australians?

This case sounds a little different from what I was getting at. 'A room full of traders' suggests an unregistered business, possibly investing other people's money in an organized manner. I wonder if they'd still go after an individual managing their own money by making occasional trades online.
I don,t think they would, The traders were not from australia i would have remembered that being a Aussie myself.
Thailand is my second home and caught it on the news one night while I was there.
It was a company and they where caught out, thats alI I really remember of it as it was a while ago.
i wonder what is that tax coloum in MT4 for..........

is loss taxable? so the .gov reduce our loss :
Quoting WHTenn
Actually, most forex brokers do not report to the U.S. Internal Revenue Service. They are not obligated to do so.

Highway3000....thanks for the information...very much appreciated
I think the same is true for futures/commodity brokers as well. The only type of broker that is obligated to report earnings to the IRS is with stocks, bonds and other interest bearing instruments. Also, regulated funds, whether they're mutual, hedge or CTAs must report your gains in that fund. When you have to pay the taxes on that fund depends on the nature of it (ie: taxes taken out every year, or when you cash it in).

While futures and forex brokers are not obligated to report earnings to the IRS, it does not necessarily mean that they won't volunteer such information to the IRS.
France has a pretty fair system (well at least we have something good in the tax system)

You can have asset in France but if you want to not pay French tax, you must leave at least 6 month and 1 day outside France.

I think this is fair and not restricting like the Australian law which i think is very harsh vs their citizen :-/
OK, I do NOT claim to have any special tax expertise and I am just getting started in this myself, so take everything I say with a big dose of skepticism. That being said, I do know that in certain jurisdictions, the "nomadic lifestyle" does not free you from paying taxes to local authorities. In America, you have a tax liability for any income that you earned while you were in the country. It doesn't matter if you are a citizen of another country where there is no tax burden. For example, if you are a citizen of TaxFreedomLand and you earn $100,000 working in America for a year, you are expected (under U.S. law) to pay federal income tax on that $100,000. This applies to investment income just as it applies to "normal" income.

Of course, you can't be expected to pay tax unless the local authorities actually know that you have earned income in their jurisdiction. So if you visit America for 3 months and you routinely spend your days logging into your trading account and making trades, no one in the American government is ever going to realize that you were making money while you were here, so your tax burden is really only hypothetical, unless you are foolish enough to alert the government to your income-generating activity. My example really applies more to people who come here in the capacity of a traditional job.

In many jurisdictions, your trading style will also determine what, if any, tax burden you have. Consider this: You could be a big-time investor who owns thousands (or even millions) in stocks, currency, real estate holdings, etc. In this case, whenever you travel, your assets are almost always appreciating and I do not believe that any jurisdiction would levy a tax on those "earnings" that were passively received while you happened to be traveling through that country. But if you are an active, professional trader, that is a bit of a different story (at least, it is different in the U.S.). If you are an "active trader", this means that you are trading as a profession and you are probably pursuing your trading activities full-time. In this case, the U.S. authorities expect you to pay income tax on any positive returns from this activity. But again, the authorities would almost never have any ability to realize that you are gaining trading income while you are in their country, so this is largely a moot point.
Quoting DannyW
A few years ago a room full of traders were busted in Thailand for not paying tax.They were going sent to jail but I didn't follow the outcme on it and Thailand is the sort of place you can pay your way out of trouble to some extent.
I think you are talking about the Brinton Group or such like. They were NOT traders. They were thieves. A classic boiler room operation. There are dozens in Asia. They sold non-existant stock and options that were so far out of the money it was a joke. But with a good story thousands were suckered.
Do not focus on making money; focus on protecting what you have.
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