Low-Tax EU or Non EU Company Setup with Substance, Advice Needed!

[plotoffshore]

I’m looking for a setup that is low-cost to maintain and easy to handle bookkeeping for. I don’t mind paying someone to do the bookkeeping and the annual accounts. As an EU citizen, I’d like to find a company structure where I pay as little corporate tax as possible.

I’ve budgeted €25,000, which includes substance, meaning an office, one employee, and utilities like electricity, heating, and internet.

What are my options, and how can I ensure that the company is not considered to be managed from my residence in Sweden?

 

[Martin Everson]

What are my options,

For 25k you can get a second residency and do everything local within that second tax friendly country and keep things separate from your home country. You won't need to worry about economic substance when you take this approach.

I don't know your activity or needs but for example a Dubai Freelance license with residency visa may work well. You get a WIO bank account also and away you go. You will have plenty of money left for a chiller free rented apartment and compulsory medical insurance.

https://freelanceuae.com/

Full Freelancer pricing details below:

https://dmcc.ae/members/support/schedule-charges

and how can I ensure that the company is not considered to be managed from my residence in Sweden?

Ideally you want to move from Sweden but it sounds like that's not on your mind. So just keep both residencies separate and its down to you to choose whether to declare the foreign one. I believe up to AED 1m (approx $270k) your income is tax free as a freelancer (someone correct me if I am wrong).

Otherwise an alternative fully arms length economic substance solution may be costly and may not even work due to exchange of corporate information between low/zero tax countries and your home country. You may fall foul of GAAR etc anyway.

 

[blizz]

WoW @Martin Everson that's something that I didn't seen detailed so much. Do you think the Swedish or any EU tax office will accept this setup ? Sounds very easy to me.

 

[ImKing]

If what martin suggest really works like that easy, not much other options can be compared to it. Otherwise I would have suggested for a complete setup in Cyprus.

I would say that @CyprusLawyer101 , @CyprusLaw and @CyprusBusiness can do everything for that amount for you, but the other thing sounds better.

 

[Don]

I’m looking for a setup that is low-cost to maintain and easy to handle bookkeeping for. I don’t mind paying someone to do the bookkeeping and the annual accounts. As an EU citizen, I’d like to find a company structure where I pay as little corporate tax as possible.

I’ve budgeted €25,000, which includes substance, meaning an office, one employee, and utilities like electricity, heating, and internet.

What are my options, and how can I ensure that the company is not considered to be managed from my residence in Sweden?

Do you have most clients in sweden and local people doing sales in Sweden? Or what are the activities?

What @Martin Everson said might work in some circumstances. However you should be wary about your personal tax residence as well as I expect that at the end of the day you want to increase you personal income that will not be taxed in Sweden.

With 25k budget you could have dual residence in both EU and UAE + business setup.
EU legal residence for banking in EU, but avoid tax residence in EU + UAE legal and tax residence for tax free income.

Residence card is needed to avoid problems with banking, substance, etc.
As local resident the banks might also not automatically report your account under CRS.

It might also be better for marketing purposes to invoice your swedish clients with an EU company, so leveraging two jurisdictions could be the answer.

 

[Martin Everson]

Do you think the Swedish or any EU tax office will accept this setup ?

If you tell them about the second residency then absolutely not unfortunately. But a lot of people have been doing this for a while especially with other countries where the cost of living and local corporate setup/tax rate makes economic sense.

But be assured this will land you in hot water if discovered. So it requires examining your tax code for treatment of duties performed overseas while resident etc and doing it all properly under professional tax advice.

 

[JustAnotherNomad]

WoW @Martin Everson that's something that I didn't seen detailed so much. Do you think the Swedish or any EU tax office will accept this setup ? Sounds very easy to me.

No, obviously not. It would be fraud. I'm surprising he's suggesting this outside the Mentor Group Gold forum.

 

[aniglo22]

Your budget is too low , to establish any true Substance .
CFC rules take precedence over tax treaties for agreements signed before 2004. For treaties signed after 2004, they are designed to incorporate CFC provisions.
And they would investigate the competence of your employees , so they would have too demonstrate qualification (e.g Degree ) , so you can't just have a layman working as Software engineer without any qualification . (https://www4.skatteverket.se/rattsligvagledning/27071.html?date=2025-01-01#section39a-7a)

§ 7 a Although the net income according to section 5 is low taxed and not exempt under section 7, the income of a foreign legal person belonging to a state within the European Economic Area shall not be considered low taxed if the foreign legal person in the state where it belongs constitutes a real establishment from which a commercially motivated business is conducted.

When considering whether the conditions in the first paragraph are met, special consideration must be given

1. if the foreign legal person has its own resources in the State in which it belongs in the form of premises and equipment to the extent necessary for its activities;

2. if the foreign legal person has its own resources in the State in which it belongs in the form of personnel with the competence necessary to conduct the business independently; and

3. if the foreign legal person's staff independently makes decisions in the ongoing operations. Law (2007: 1254).

You would have to look at companies higher than 11.8% Corp tax to be out of scope of CFC rules .
But even then as long you manage & control from Sweden , you will be liable for Swedish Tax as you have PE in Sweden .

Fixed place of business​

Section 29 A permanent establishment for business activities refers to a permanent place for business operations from which the business is wholly or partly conducted.

The term permanent establishment includes in particular

- place of business management,

- branch,

- office,

- factory,

- workshop,

- mine, oil or gas source, quarry or other site for the extraction of natural resources,

- location for construction, civil engineering or installation activities, and

- property that is a stock asset in business operations.

If someone is active for a business activity here in Sweden and has received and regularly uses a power of attorney to enter into an agreement for the business owner, a permanent establishment is also considered here.

However, a permanent establishment is not considered to exist in Sweden simply because someone conducts business here through the mediation of brokers, the commissioner or any other independent representative, if this is part of the representative's regular business activities.

Swedish tax Authorities have a nice website with detailed information about CFC :https://www4.skatteverket.se/rattsl...letteringsregel-2-for-lagbeskattade-inkomster

TLDR ( like 90% of threads here ) :
If you don't like Swedish tax then leave Sweden .
If you like to live in Sweden then be prepared to pay taxes .

 

[JustAnotherNomad]

I’m looking for a setup that is low-cost to maintain and easy to handle bookkeeping for. I don’t mind paying someone to do the bookkeeping and the annual accounts. As an EU citizen, I’d like to find a company structure where I pay as little corporate tax as possible.

I’ve budgeted €25,000, which includes substance, meaning an office, one employee, and utilities like electricity, heating, and internet.

What are my options, and how can I ensure that the company is not considered to be managed from my residence in Sweden?

This will be very tricky.
You not only have to worry about the "managed from Sweden" part (corporate tax residence), but also the "some work being done from Sweden" part (permanent establishment), as well as the "artificial arrangement" (CFC rules) part.

Probably Malta would be your best bet since it has the lowest taxes in the EU.
But you would have to explain to the tax authority why you set up this company in Malta of all the places and how you're not involved in the business.
You can also expect that they will investigate everything closely. If the company has 10M in profits, but you only pay 5k for the office, 5k for accounting and a 15k salary to the "CEO" (25k in total) - how realistic is it that a CEO who can generate 10M in profits for the owner is willing to work for just 15k per year? It reeks of a fake setup.

Countries like Malta and Cyprus also have a very bad reputation, so you can expect extra scrutiny from the tax office.

 

[JustAnotherNomad]

You would have to look at companies higher than 11.8% Corp tax to be out of scope of CFC rules .

I did some googling - isn't there a whitelist of countries, and also EU countries should be exempt from this?
So Malta should work, even at 5% corporate tax - provided that the company actually has substance and isn't an "artificial arrangement" (which is where it will get tricky)?

But even then as long you manage & control from Sweden , you will be liable for Swedish Tax as you have PE in Sweden .

If you manage and control from Sweden, the company will even be tax resident in Sweden, it won't just be a PE (though the difference will probably be negligible anyway).

TLDR ( like 90% of threads here ) :
If you don't like Swedish tax then leave Sweden .
If you like to live in Sweden then be prepared to pay taxes .

Yup.

 

[aniglo22]

This will be very tricky.
You not only have to worry about the "managed from Sweden" part (corporate tax residence), but also the "some work being done from Sweden" part (permanent establishment), as well as the "artificial arrangement" (CFC rules) part.

Probably Malta would be your best bet since it has the lowest taxes in the EU.
But you would have to explain to the tax authority why you set up this company in Malta of all the places and how you're not involved in the business.
You can also expect that they will investigate everything closely. If the company has 10M in profits, but you only pay 5k for the office, 5k for accounting and a 15k salary to the "CEO" (25k in total) - how realistic is it that a CEO who can generate 10M in profits for the owner is willing to work for just 15k per year? It reeks of a fake setup.

Countries like Malta and Cyprus also have a very bad reputation, so you can expect extra scrutiny from the tax office.

Malta won't work , because it's in the blacklist and also Cyprus has some restrictions .
But it would still wouldn't work , if he has PE in Sweden.

Appendix 39 a​

Areas referred to in Chapter 39 a. Section 7:



- Cyprus and Turkey, both in terms of income from banking and finance operations, other financial activities, insurance activities, royalties and other income from intellectual property rights, which are not taxed with the normal income tax there, and income subject to notional interest deduction and similar deductions,


4th Europe, with the exception of

- British Channel Islands, Isle of Man, Malta and Monaco,

 

[JustAnotherNomad]

Malta won't work , because it's in the blacklist and also Cyprus has some restrictions .

But it's also an EU member - can they actually blacklist EU member states?
Usually EU law wins over local law, and CFC rules have to exempt companies in other EU countries - if they actually operate from there and aren't just an "artificial arrangement" (a shell company).
Anyway, it seems like Bulgaria should be fine, for example.

But it would still wouldn't work , if he has PE in Sweden.

Exactly, and that will be OP's main problem. I don't see how you can build sufficient substance with a budget of 25k.

As far as I remember, Sweden has some exemptions if you work abroad (similar to what Cyprus has?) - so you can still be tax resident in Sweden, but Sweden will not tax your salary if your salary was earned abroad. This even works without a tax treaty. However, I think this requires that it's a job (can't be your own company), you have to be working in the employer's country (can't travel), the employer has to require you to work from the other country (can't be your choice), and then there's also a limitation on how many days you can spend in Sweden.
Not sure how attractive or relevant this would be for OP.

Otherwise probably the best option for OP would be to just accumulate the profits in the Swedish company and then move to Cyprus or some other tax-efficient country later and cash out from there? As far as I recall, Sweden doesn't have an exit tax, they only tax you if you sell the company within a certain number of years after moving abroad?

 

[MarkusCostigan]

Malta won't work , because it's in the blacklist

Can you please explain what black list you are referring to?

EDIT: I'm reading something about Sweden put Malta on blacklist in 2023 but it's not clear.

 

[aniglo22]

Can you please explain what black list you are referring to?

As far as I know Malta is not on any official blacklist.

That it is considered a high-risk place by some operators/institutions is another story.

"Appendix 39 a" contains the blacklisted countries .
From Chapter 39 a. Section 7 ( Income tax law ) :

"Section 7 Although the net income according to section 5 is low taxed, the income of a foreign legal person shall not be considered low taxed if the foreign legal person belongs and is liable to pay tax in an area specified in Annex 39 (a) and which is not covered by the exceptions specified therein."

Appendix 39 a :

Appendix 39 a​

Areas referred to in Chapter 39 a. Section 7:

1st Africa, with the exception of

- Djibouti, Seychelles and Saint Helena,

- Ceuta, Egypt, Gabon, Gambia, Ghana, Cape Verde, Comoros, Congo (Congo-Brazzaville), Liberia, Libya, Madagascar, Morocco, Mauritius, Mayotte, Melilla, Réunion, Rwanda, Sao Tomé and Príncipe, Senegal, Tanzania and Tunisia, all in terms of income from banking and finance operations, other financial activities, insurance activities

- Madeira in terms of income from banking and finance operations, other financial activities, insurance activities, royalties and other income from intellectual property rights, which are not taxed with the normal income tax there, and income subject to notional interest deduction and similar deductions, and

- Kenya and Namibia, both in terms of income from banking and finance operations, other financial activities, insurance operations, royalty and other income from intellectual property rights, which are not taxed with the normal income tax there, and income that is not taxed there because of the income is not considered to come from there.

2nd America, but only in terms of

- United States of America, Brazil, Colombia, Dominican Republic, Ecuador, Haiti, Honduras, Canada, Cuba, Mexico and Venezuela,

- Argentina, Barbados, Chile, French Guiana, Guyana, Jamaica, Peru, Surinam and Uruguay, all with the exception of income from banking and finance operations, other financial activities, insurance activities, royalties and other intellectual property income, which are not taxed with the normal income tax there,

- Paraguay, with the exception of income from banking and finance operations, other financial activities, insurance, royalty and other intellectual property income, and

- Belize, Bolivia, Costa Rica, El Salvador, Guatemala, Nicaragua and Panama, all with the exception of income from banking and finance operations, other financial activities, insurance activities, royalties and other intellectual property income, which are not taxed at the normal income tax there, partly from income that is not taxed there because the income is not considered to be derived from it.

3rd Asia, with the exception of

- Bahrain, the United Arab Emirates and the Maldives,

- Armenia, Azerbaijan, the Philippines, India, Indonesia, Iran, Israel, Jordan, Kazakhstan, China, Lebanon, Macao SAR, North Korea, Russia, South Korea, Tajikistan and Thailand, all in terms of income from banking and finance operations, other financial activities, insurance activities , royalty and other intellectual property income, which is not taxed with the normal income tax there,

- Georgia, Kyrgyzstan, Mongolia, Oman, Turkmenistan and Uzbekistan, all in terms of income from banking and finance operations, other financial activities, insurance, royalty and other intellectual property income,

- Cyprus and Turkey, both in terms of income from banking and finance operations, other financial activities, insurance activities, royalties and other income from intellectual property rights, which are not taxed with the normal income tax there, and income subject to notional interest deduction and similar deductions,

- Brunei Darussalam, Hong Kong SAR, Kuwait, Malaysia, Qatar, Singapore and Syria, all in terms of income from banking and finance operations, other financial activities, insurance activities, royalties and other income from intellectual property rights, which are not taxed with the normal income tax there , partly income that is not taxed there because the income is not considered to be derived from it,

- Pakistan, in terms of income from other financial activities, royalties and other income from intellectual property rights, which are not taxed with the normal income tax there, and

- Christmas Island and the Kokos Islands, both in terms of income from banking activities that are not taxed with the normal income tax there according to the rules on the Offshore Banking Unit regime.

4th Europe, with the exception of

- British Channel Islands, Isle of Man, Malta and Monaco,

- Azerbaijan, France, Greece, Ireland, Kazakhstan, Croatia, Lithuania, Luxembourg, Netherlands, Poland, Romania, Russia, San Marino, Slovakia, Spain, Czech Republic, Ukraine, Belarus and Austria, all in terms of income from banking and finance operations, other financial activities, insurance activities, royalties and other intellectual property income, which are not taxed with the normal income tax there,

- Andorra, Bosnia and Herzegovina, Bulgaria, Estonia, Gibraltar, Georgia, Kosovo, Latvia, Macedonia, Moldova, Montenegro, Switzerland and Hungary, all in terms of income from banking and finance operations, other financial activities, insurance, royalty and other income from intellectual property rights,

- Belgium, Italy, Liechtenstein, Portugal and Turkey, all in terms of income from banking and finance operations, other financial activities, insurance activities, royalties and other income from intellectual property rights, which are not taxed with the normal income tax there, and income that is subject to for notional interest deduction and similar deductions, as well

- the United Kingdom of Great Britain and Northern Ireland and Slovenia, both in terms of income from banking and finance operations, other financial activities and insurance activities, which are not taxed at the normal income tax there.

5th Oceania, but only in terms of

- Hawaii, New Zealand and Papua New Guinea, as well

- Australia, with the exception of income from banking activities that are not taxed with the normal income tax there according to the rules on the Offshore Banking Unit regime. Law (2020: 1072).

 

[MarkusCostigan]

"Appendix 39 a" contains the blacklisted countries .
From Chapter 39 a. Section 7 ( Income tax law ) :

Appendix 39 a :

Thanks for clarifying. Very interesting.

 

[blizz]

great thread, thanks for clarification, better finding different method!

 

[uplana]

No, obviously not. It would be fraud. I'm surprising he's suggesting this outside the Mentor Group Gold forum.

I totally agree, however now it is out and still seems to be some sort of solution, depending on each individual situation.

 

[JustAnotherNomad]

I totally agree, however now it is out and still seems to be some sort of solution, depending on each individual situation.

The thing is - you rely on the bank not reporting you. You give them a UAE address and tell them you live there and not in Sweden or wherever you actually live.
But there are no guarantees this will work - they have to report you if they suspect you really live in Sweden (could be a Swedish phone number of Swedish IP address giving this away), but more importantly, some banks just report to your passport country regardless.
It is very risky. Better to move somewhere else and sleep well.

Or, if you can't move right away - keep your money in a Swedish company, move abroad in the future and cash out then. Then you only pay Swedish corporate tax, if I'm not mistaken.

 

[Martin Everson]

I totally agree, however now it is out and still seems to be some sort of solution, depending on each individual situation.

One needs to read their local tax code in detail and any DTA agreement. It is perfectly legal to have two or more tax residencies and make use of DTA and any tie breaker rules for example if you do spend a little time in the other country and perform your freelance activity in that country. So one needs to check how it works in Sweden to really confirm. In i.e UK its pretty clear how it works for dual residents but for others it may be different.

https://www.gov.uk/government/publi...ssessment-helpsheet/dual-residents-2024-hs302

 

[JustAnotherNomad]

One needs to read their local tax code in detail and any DTA agreement. It is perfectly legal to have two or more tax residencies and make use of DTA and any tie breaker rules for example if you do spend a little time in the other country and perform your freelance activity in that country.

Forget about "a little time", you have to move your life to the other country.
And even then, you would still pay tax in the other country, just a bit less (depending on how much time you spend there).

So one needs to check how it works in Sweden to really confirm.

Yes, but pretty much pointless if OP doesn't actually want to move.