Advice on new company formation jurisdiction

[Yeskou]

I’m currently providing consultancy services with a monthly revenue of around €15k. Both my client and I are based in Germany.

I’m considering setting up either a UK LTD or an Estonian OU, as the corporate taxes in both countries are lower than in Germany. The main goal is to avoid withdrawing dividends to my personal account in order to sidestep dividend taxes in Germany. I plan to keep the earnings within the company for future expenses, as the amounts aren’t significant at the moment.

Do you have any suggestions for structuring this? The challenge with a German company is the high costs for accounting and legal services, and not all expenses are considered deductible. I’m exploring other jurisdictions that might offer more flexibility in terms of expenses and lower costs for accounting and legal services.

Best regards.

 

[Marzio]

I’m considering setting up either a UK LTD or an Estonian OU, as the corporate taxes in both countries are lower than in Germany.

If you are thinking about incorporating offshore because you want to save on German taxes while bing german tax resident you are on the wrong path.

FYI managing an offshore company from Germany will make it tax resident in Germany.

 

[Yeskou]

If you are thinking about incorporating offshore because you want to save on German taxes while bing german tax resident you are on the wrong path.

FYI managing an offshore company from Germany will make it tax resident in Germany.

I agree, but how a UK LTD will be tax resident in Germany when it's incorporated in the UK ? will the UK accountant change UK corporation taxation for it ?

 

[daniels27]

The challenge with a German company is the high costs for accounting and legal services

They are actually quite cheap in Germany if you compare with other countries.

I agree, but how a UK LTD will be tax resident in Germany when it's incorporated in the UK ? will the UK accountant change UK corporation taxation for it ?

You have register your "Zweigniederlassung einer Kapitalgesellschaft (AG, GmbH) mit Hauptniederlassung im Ausland", you can do this here for example:
https://verwaltungsportal.hessen.de/leistung?leistung_id=L100009_6000814&regschl=140000000000
The company will then work like a German company, just that you do not have to bring up the capital to incorporate in Germany. No benefits but a lot of tax problems ahead. And your accounting and legal expenses will only grow by this.

If your profit is higher or you have some friends, you can start looking into incorporating elsewhere and having a local director, while you are a low paid employee in Germany. But then, you still have to pay the taxes on dividends unless you move all into a UK trust. But that will add more costs.

 

[Yeskou]

They are actually quite cheap in Germany if you compare with other countries.


You have register your "Zweigniederlassung einer Kapitalgesellschaft (AG, GmbH) mit Hauptniederlassung im Ausland", you can do this here for example:
https://verwaltungsportal.hessen.de/leistung?leistung_id=L100009_6000814&regschl=140000000000
The company will then work like a German company, just that you do not have to bring up the capital to incorporate in Germany. No benefits but a lot of tax problems ahead.

am not considering opening a branch, but a whole new company in the UK or estonia and my client will pay directly that new company

 

[fanban]

You as the owner of the company get taxed for all income the company has in Germany. The era where you could incorporate a offshore company and avoid taxed in your local country is far over, maybe 10 years it was so, not today.

Only option is to get substance in your company i.e. office, employee, utility and even then you can get a hard time to convince your local tax office. Best is relocate or tax optimize with a good accountant.

 

[daniels27]

am not considering opening a branch, but a whole new company in the UK or estonia and my client will pay directly that new company

It the Finanzamt that considers your computer to be a branch of the foreign company. You have little to say in that regard.

No joke, but we all agree here. Your proposed setup won't work. Trust us.

You either need an office with employees in the country or incorporation or you need to go work there yourself.

 

[PhantomOf ThePits]

also keep in mind, besides all the topics the other guys wrote already, that you will have exit taxes if/when you personally move out of Germany.
In German it's called Wegzugsbesteuerung and this is even more nasty (even if you have a foreign company and are shareholder more than low % of shareholding - before it was like 10%, but I think they lowered the percentage even more....)

Best is to move personally out of Germany before you start to make money ......

 

[daniels27]

also keep in mind, besides all the topics the other guys wrote already, that you will have exit taxes if/when you personally move out of Germany.
In German it's called Wegzugsbesteuerung and this is even more nasty (even if you have a foreign company and are shareholder more than low % of shareholding - before it was like 10%, but I think they lowered the percentage even more....)

Best is to move personally out of Germany before you start to make money ......

Yes and for self-employed or KG, it is called Entstrickungsbesteuerung. You basically pay tax on the goodwill, which is up to 15 years on profits.
https://www.rosepartner.de/wegzugsbesteuerung-wohnsitzwechsel-ausland.html
But just to be warned, they have the same in Switzerland and many other places in the EU.

A single person consulting business may not have that much goodwill, but still better close down slowly.

 

[Yeskou]

You guys mean it's better to first close the germany company then open the new enty.

But guys let focus on the new entity please do you have feedback on uk ltd, estonia OU or US. WY LLC ?

 

[daniels27]

You guys mean it's better to first close the germany company then open the new enty.

But guys let focus on the new entity please do you have feedback on uk ltd, estonia OU or US. WY LLC ?

If you are not willing to move away from Germany, there is nothing you need to do.

If you want to move away, you can save taxes. But then which country you want to go to?

A US LLC has a very limited scope of application and is mainly used by either digital nomads, people in developing countries with restricted banking access and then some people in counties that don't or cannot enforce PE rules. In most other cases you are better off with a local company.

 

[PhantomOf ThePits]

You guys mean it's better to first close the germany company then open the new enty.

But guys let focus on the new entity please do you have feedback on uk ltd, estonia OU or US. WY LLC ?

Your main problem is, whatever foreign company you open while living in Germany, it'll bite you as you are controlling it from Germany.
If you create a foreign company you will need to have a lot of substance requirement in the foreign country and even then Tax office will challenge you.
In addition, if you move away from Germany, you'll risk pretty hefty exit taxes..

Best is to move to a tax friendly country and then open new company

All the other things can become a problem for you while still being German tax resident

And then, in the new country you become tax resident, you can check which type of entity makes the most sense for your case as there's no 'perfect company' (all are trade-offs you need to evaluate for your situation

 

[Despina]

guys let focus on the new entity please do you have feedback on uk ltd, estonia OU or US. WY LLC ?

People told you how many times that controlling a foreign company from Germany doesn’t work? Instead of asking the same stupid question accept the reality: your country want to tax the s**t out of you and the only real option is to move to a lower taxation country.

 

[brianK]

But just to be warned, they have the same in Switzerland and many other places in the EU.

Switzerland is not EU but they have the same true.

Instead of asking the same stupid question

there are no stupid questions only stupid people.

 

[IMEXMalta]

there are quite some more options in europe (beside the consideration to open an independent office if you want to stay in germany) i'll give you some choices:

1. Hungary

- Corporate Tax Rate: 9%
- Additional Details: Hungary offers a flat corporate tax rate, which is the lowest in Europe. The country also provides various incentives for research and development, investment in specific industries, and regions that are economically disadvantaged. There are also favorable tax policies for small and medium-sized enterprises (SMEs).

2. Ireland

- Corporate Tax Rate: 12.5%
- Additional Details: Ireland's corporate tax rate is highly competitive, especially for trading income. The country is also known for its favorable tax treatment of intellectual property and a robust network of double taxation treaties. Ireland has been a popular destination for tech giants and pharmaceutical companies due to its business-friendly tax policies and skilled workforce.

3. Bulgaria

- Corporate Tax Rate: 10%
- Additional Details: Bulgaria offers a flat corporate tax rate and also provides significant tax incentives for investment in high-unemployment regions. The country is part of the European Union, which provides access to a large market and various EU funding programs. Bulgaria's tax environment is complemented by relatively low operational costs and a growing economy.

4. Montenegro

- Corporate Tax Rate: 9%
- Additional Details: Montenegro's tax system is straightforward, with a low corporate tax rate designed to attract foreign investment. The country also offers incentives for businesses investing in specific sectors like tourism, energy, and agriculture. Additionally, Montenegro is working towards EU membership, which may further enhance its attractiveness as a business destination.

5. Bosnia and Herzegovina

- Corporate Tax Rate: 10%
- Additional Details: Bosnia and Herzegovina offers a low corporate tax rate and various incentives for foreign investors, including tax holidays and exemptions for specific industries and regions. The country has a developing market economy with opportunities in manufacturing, energy, and tourism.

6. North Macedonia

- Corporate Tax Rate: 10%
- Additional Details: North Macedonia provides a flat corporate tax rate and a range of tax incentives, especially for foreign investors. The country offers tax holidays, reliefs, and exemptions to stimulate economic growth and attract investment. Key sectors include automotive, agribusiness, and information technology.

6. Malta

- Corporate Tax Rate: 35% (can be reduced to 5%) Read more about Malta Corporate Tax: Malta Ranks Third in EU for Corporate Tax Revenue
- Additional Details: The standard corporate tax rate in is of 35% on the chargeable income for a fiscal year. Malta is the only EU member state that applies the full imputation system; shareholders of a Malta Company are entitled to claim a refund of the tax paid by the company whenever a dividend is being distributed. Shareholders who receive dividends from companies incorporated in Malta may claim a number of refunds on the tax payable depending on the nature of the income received by the company.

Need some more countries:

Western Europe
- Ireland: 12.5% (with a higher rate of 25% for certain non-trading income)
- United Kingdom: 25% (main rate for companies with profits above £250,000)
- France: 25%
- Netherlands: 25.8% (15% for income up to €200,000)
- Belgium: 25%
- Switzerland: Varies by canton, with an average of around 14.7% to 25%
- Luxembourg: 24.94%

Northern Europe
- Denmark: 22%
- Sweden: 20.6%
- Norway: 22%
- Finland: 20%

Southern Europe
- Italy: 24% (plus a regional production tax of 3.9%)
- Spain: 25%
- Portugal: 21% (plus municipal surtaxes that can add up to 1.5%)
- Greece: 22%

Eastern Europe
- Poland: 19%
- Czech Republic: 19%
- Hungary: 9% (the lowest in the EU)
- Slovakia: 21%
- Romania: 16%
- Bulgaria: 10%

Baltic States
- Estonia: 20% (only on distributed profits)
- Latvia: 20% (only on distributed profits)
- Lithuania: 15%

Balkan States
- Croatia: 18% (10% for annual income up to HRK 7.5 million)
- Serbia: 15%
- Slovenia: 19%
- Bosnia and Herzegovina: 10%

 

[daniels27]

Thanks. But how is this supposed to work in practice when he is resident in Germany? He would still be taxed there. And his income is also not like you just open some great HQ in Malta.

 

[IMEXMalta]

Thanks. But how is this supposed to work in practice when he is resident in Germany? He would still be taxed there. And his income is also not like you just open some great HQ in Malta.

There is a difference between residency and domicile which need to be considered, to be resident of germany and open a company abroad is the worst scenario but there are plenty of opportunities and every solution depends on the private circumstances, there is no global solution, it's a personal solution.

 

[daniels27]

Absolutely. But not in his case. He only makes 15k from consulting. It is like if a doctor treats patients in Germany but claims his practice is managed from Malta. Of course it could work if it was a trading company making 150k per month. You could hire a manager if Malta at 6k and be some warehouse guy in Germany at only 2k and pulling the rest as dividends. But in his case, it is very obvious that he is doing the job unless he spends a lot on the director. The German tax office are no fool. They will have him in the radar once his revenue drops and suddenly goes to his Maltese company.

 

[Yeskou]

Thanks for the interaction guys. Well i can have the situation the open the offshore company under other name, trusted guy. He do the business for my german company. Then I figure out how to take from my trusted guy the company after some years.( it could be brother, fater, wife etc...)

 

[IMEXMalta]

Thanks for the interaction guys. Well i can have the situation the open the offshore company under other name, trusted guy. He do the business for my german company. Then I figure out how to take from my trusted guy the company after some years.( it could be brother, fater, wife etc...)

The problem are the german tax guys, the director of the company (and/or UBO) cannot be a resident of Germany and the problem is indeed, if you are depending on one client. And ask yourself a question: where do you see you/your company in 5 years ?