Palau Digital Residency: The Perfect ID for Perpetual Travellers?

From the beginning of 2022, the island state of Palau is offering a digital residency based on blockchain technology to everyone in the world. Right now, you must be wondering what a “digital residency” is supposed to be.

This question is relatively easy to answer: as a digital resident of Palau, you get a digital identity paired with a real physical ID that is increasingly recognised around the world – all backed by a genuine sovereign state that values freedom. Moreover, unlike Estonia, Palau requires very little disclosure of information – more on this in our next article.

A brief introduction to Palau

Palau is an island nation in the western Pacific Ocean, consisting of more than 500 islands. The capital and seat of government is Melekeok on the island of Babeldaob. The islands are home to only about 20,000 people, most of whom are ethnic Palauans. The official languages are Palauan and English, but many Palauans speak Japanese and Tagalog.

The currency of Palau is the USD. Palau is a parliamentary democracy and has been an independent state, part of Micronesia, since 1994. Palau’s economy is based mainly on tourism and fishing. Palau is also known for its unique underwater world and is a popular destination for divers and snorkelers. Christoph started the COVID-19 Pandemic there in February 2020: find out what his stay was like in his web travel diary.

• https://christoph.today/manila-to-palau-pt1/
• https://christoph.today/archipelago-of-palau-pt2/
• https://christoph.today/peleliu-palau-pt3/

And if we talk about taxes, Palau does not lose its attractiveness – if you are a resident here: with a graduated rate income tax up to a maximum of 12%, Palau is quite a worthy destination. Up to an income of 8,000 $ you pay 6 %, between 8,001 and 40,000 $ you pay 10 %, and from 40,001 $ onwards you pay 12 %.

In January 2023, the Palau government introduced the Goods and Service Tax (GST). It is a 10 % tax on all goods and services purchased in Palau.

Companies in Palau pay Business Profit Tax (BPT), which is 12 % of profits. This tax replaces the previous 4 % tax on turnover.

What is the Palau Digital Residency?

Palau Digital Residency is based on RNS (Root Name System), a Web3 identity protocol that focuses on providing digital residency to people around the world. Based on blockchain technology, it offers a digital “residency programme” that also gives all citizens of the world access to economic freedom.

It is the world’s first Web3 digital identity platform developed to support the application and issuance of sovereignty-based IDs. It offers any citizen of the world the possibility to obtain a legal identity document from the comfort of their own home, including both a physical and a digital ID for online services.

Palau’s goal is to lay a foundation for digital life. This does not necessarily mean being settled somewhere or living in a country. Digital life also means doing everything digitally.

You can apply for your personal ID on the RNS programme website.

Palau’s stablecoin in cooperation with Ripple

Palau plans to introduce a stablecoin. This currency – which will be backed by Palau’s national currency, the US dollar – will offer a number of benefits to digital residents. This means that the value of the stablecoin will be closely tied to the value of the US dollar, offering a level of stability and predictability that many other cryptocurrencies simply do not have.

One of the main advantages of a stablecoin is its stability (as the name suggests), as it is linked to a fiat currency or other asset. This means that its value is less susceptible to the volatile price fluctuations characteristic of many cryptocurrencies.

The association with Ripple is another important aspect of the stablecoin, as Ripple is a well-known and respected player in the cryptocurrency arena. Ripple has a long history of collaboration with governments and financial institutions around the world, and its involvement in the Palau stablecoin project adds an additional layer of credibility and security. While we at Staatenlos reject centralised blockchains like Ripple, we also cannot conceive of stablecoins without them.

Overall, the planned launch of a stablecoin in collaboration with Ripple is an exciting development for Palau’s digital residency programme and has the potential to bring significant benefits to digital residents and other users. By offering a stable and secure way to use cryptocurrencies for payments and other financial transactions, the Palau stablecoin has the potential to become a valuable tool for individuals and businesses around the world.

What can I do with this ID?

Identification function

First and foremost, of course, this document serves as a means of identification. As the Palau government tweeted, “residency begins with identity“. This is probably true: you have to be able to identify yourself at some point. Whether it may be trying to open a bank account, applying for a residence permit or checking into a hotel…. What would residency be like without proper identification? Therefore, once your application has been successfully processed, Palau will send your national identity card to the postal address you have provided. In addition, you will receive an NFT with your details issued exclusively for you.

Since the ID is issued and recognised by the state, you can use it to identify yourself anywhere. The programme is still relatively new, but users of the digital residence have already demonstrated that they have been recognised when boarding a plane for a domestic flight, successfully checking in at hotels or applying for a credit card. The ID is especially useful in the cryptocurrency world and is accepted by major exchanges such as Binance.

If you need to undergo a Know Your Customer verification, you can do so at any time with your new Palau ID.

The other points, such as company creation, accounts and consumer bills, are not yet available, but according to the roadmap they will be in the coming months, which could make this e-Residency particularly interesting.

Setting up a company

Like Estonia’s e-Residency programme, Palau’s e-Residency also offers a business start-up programme. The start-up is completely digital and remote, so you will not need to be present anywhere. In addition, the administration of the company is also completely digital.

You can sign your documents digitally, use all Palau’s services and keep your accounts. In addition to local companies, there is also the possibility to set up tax-free offshore companies in Palau.

Bank account

A residency usually includes a bank account. Digital residency offers you important advantages even for this – often desperate – process: you will be able to open a bank account in Palau with your new identity card without having to travel. Palau calls it “digital banking”. For you, this essentially means that this bank account can also be managed completely digitally and without any contact with people.

In addition, you have the option of opening a broker account in Palau. Therefore, if you are a trader or investor, this is another plus of digital residency. Because of the close ties it still has with the United States, you can often get a US business account as well.

Utility bill

One of the biggest problems perpetual travellers have to face is undoubtedly proof of a utility bill. If you don’t have a residency, it will be difficult to prove to any tax agency, bank or broker that you actually live there, as they usually ask for a utility bill for electricity, gas, water or similar.

Naturally, there are ways to get this utility bill, either by renting a smaller flat or by transferring a friend’s bill into your name, for example. With the second option, you would be entering a grey area because, officially, this would not be your flat.

Palau remedies this situation with the “adopt a meter” programme. In Palau, you can legally rent an electricity or water meter (and, of course, pay for it). The corresponding bill will serve as proof that you have actually consumed that amount of electricity or water.

However, Palau is on the EU’s blacklist of tax havens. This has serious consequences, especially for German customers – according to the Tax Haven Protection Act of 2022 – and makes banking in the EU impossible. Palau is more interesting in a smart US-focused construction with a close partner there that avoids sanctions.

Certificate of residence

Some institutions or banks also want to see a certificate of residence, but fear not: Palau also takes care of sending it. It is an extension of the utility bill that will give you additional security. You will receive a real address with a US postal code.

Other services planned

The services mentioned above are already in place and can be used. However, even more services will be added in the future. The first step would be to obtain a Palau landline or mobile phone number. If you are interested in buying a flat or a house in Palau, you will be happy to know that in the future you will also be able to do so with a Palauan ID card.

You will also be able to take out insurance, use a digital notary’s office and have your Palauan mail forwarded to your home address.

Will you get a permanent residency permit in Palau?

Please note that with digital residency (as the name suggests), you will not receive a permanent residency for Palau.

However, as a German citizen you can enter Palau and stay without a visa for a maximum of 90 days. In general, the visa regulations for Palau are as follows:

Citizens of the following countries can travel to Palau without a visa and stay there for up to 1 year:

• Marshall Islands
• Micronesia (Federated States of Micronesia)
• United States

Passport holders from the countries listed below may enter without a visa and stay in Palau for a maximum of 90 days:

• All member countries of the EU or Schengen area.
• Israel
• Taiwan

In addition, Russian nationals may stay in Palau for up to 30 days without applying for a visa on arrival.

Nationals of all other countries can obtain a visa on arrival at Palau airport, valid for a maximum stay of 30 days, but extendable twice upon payment of a fee.

Only Bangladeshi and Myanmar nationals need to apply for a visa in advance.

Tax residency

Here comes the good part: if you hold a digital residency in Palau, your income not earned in Palau is tax-free, and you will not pay taxes on the purchase and sale of cryptocurrencies in Palau either. Therefore, you have in your hand the ultimate identity document to enjoy a tax-free life as a Perpetual Traveller legally and without much effort. Of course, a pure identity card does not count as a tax residence in the strict sense of the word, but you can simulate one very well with the possibilities it offers you.

And how much does all this cost me?

If the above-mentioned advantages have not yet convinced you, the price will do the trick. To obtain residency in other countries, you usually have to make a significant investment, set up a company or buy a property. Depending on the country, this can cost thousands of euros per year, or even more. For Perpetual Travellers, this method also involves additional effort.

Typically, you will have to visit the country within a certain period of time (one or two years, sometimes less). If you have permanent residence in Dubai, for example, you must enter the country at least one day every six months to maintain your visa. This means booking flights and accommodation so that you preserve your residency status. Yes, you have the right of permanent residence in these countries, but you may not need it at all.

The annual cost of the Palau ID card is only €248.00 in total. You can also pay with Ethereum – that would be 0.15 ETH.

Compared to other countries, this payment is extremely cheap. In addition, you will get rid of the stress of having to travel to Palau every few months or years. Unfortunately, due to the conflict in Ukraine, the flight time to Palau from Europe has increased considerably, as the detour to Japan takes much longer than the old route via Russia. Even so, Palau is one of the most easily accessible Pacific nations, especially when travelling through Southeast Asia.

We believe that with this type of residency, Palau is taking an important step for digital nomads and perpetual travellers. Overall, we can say that we are very enthusiastic about the RNS ID programme, as it offers – not only to EU citizens, but to everyone in the world – the opportunity to live freely and digitally. Palau has just realised that the country of birth or origin should not determine how we live our lives or what opportunities we are given – or denied. We are glad that Palau, which we find an extremely attractive island state, has recognised these values. We hope you have enjoyed discovering it with us!