Advice on the setup

[Gree1984]

Dear all, please advise on the situation as described below.
German resident, non-EU citizen (Russia), needs to open a company to work with Singapore company mostly and other global clients (not defined yet). It is also necessary to have a company that is not directly linked to the resident so that the name should not appear in the B2B transactions (invoices, quotes). Estimated size of business 100k euro annually. Nature of the business - digital services like creative work, creation of the training courses.
The dividends (if ownership with the nominated director is the only option) will be transferred to the personal account in Germany and will be declared as income from foreign dividends. So the other condition is to have minimal corporate tax and minimal tax on dividends in the company's jursdiction. Plus, the double taxation treaty with Germany is preferred.
What would you recommend? Singapore, HK, or other countries to look at? Or maybe there is already a setup I can take a look at? (Did forum search).
Thank you in advance for the expert advice.

 

[Sols]

Any company that you own/control from Germany becomes a German tax resident, so the company itself must pay German corporate tax. Tax treaties won't help you. Transparent companies (such as US LLC or UK LLP) are generally not recognised as transparent in Germany, so you can't use them to get around German corporate income tax either.

So I'd recommend setting up a German company, if you want a separate legal entity. AG and GmbH can be expensive and complicated, so look into UG if you want something relatively easy.

 

[Gree1984]

Any company that you own/control from Germany becomes a German tax resident

Sorry, this doesn't make any sense to me. If you form a company outside of the EU, it can't be a German tax resident.

 

[Sols]

Sorry, this doesn't make any sense to me. If you form a company outside of the EU, it can't be a German tax resident.

That's not how things work.

Under German law (and it's the same in nearly every country nowadays), a company which is owned or controlled from Germany is considered German for tax purposes. Feel free to verify this yourself by researching tax residence. Below are three reputable sources.

Germany - Corporate - Corporate residence

Detailed description of corporate residence rules in Germany

taxsummaries.pwc.com

A corporation is resident in Germany for tax purposes if its place of incorporation or its main place of management is in Germany. A corporation meeting neither of these criteria will be regarded as non-resident with tax obligations limited to its income from German sources.

https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/Germany-Tax%20Residency.pdf

The income of (a) corporations (in the sense of legal persons with legal capacity), in particular, incorporated entities (e.g. public companies or limited liability companies), registered and unregistered cooperatives, and registered associations, (b) associations that are not legal persons with legal capacity but that have an association-like structure typical of corporations (e.g. non-registered associations) and (c) pools of assets (e.g. foundations with or without legal capacity) is subject to corporation tax. In accordance with section 1 (1) of the Corporation Tax Act, corporations whose place of management (section 10 of the Fiscal Code) or registered office (section 11 of the Fiscal Code) is located in the Federal Republic of Germany are subject to unlimited corporation tax liability.

https://www2.deloitte.com/content/dam/Deloitte/de/Documents/Country%20Services%20Group/Brochure-Income-Tax-German-Corporations.pdf

Corporations with legal seat and/or place of management in Germany are subject to corporate income tax (CIT) of 15 percent plus 5.5 percent Solidarity Surcharge (SolS) thereon, combined 15.825 percent, based on German domestic tax law.

The days of forming offshore companies to avoid local corporate tax are long gone.

 

[Gree1984]

Thank you for the detailed explanation. Still, the note below tells me that if I am not in the management and have a nominee director, I will be exempt from CIT in Germany. I need to have anonymous ownership for the sake of B2B transactions only. The source of income will be outside of Germany.
If a corporation has neither its legal seat nor its place of management in Germany but is generating German source income (e.g., dividend, royalty income, German permanent establishment, shares in a German based corporation, etc.), its German source income should be subject to German taxation with CIT and in case of a German permanent establishment also with TT.

 

[Sols]

Tax authorities aren't dumb. They know what nominees are and the laws are written to bypass them. Nominee directors won't help. The law looks for effective management. As long as you are calling the shots from Germany (by being UBO or otherwise controlling the business directly or indirectly), it's a German taxable entity.

Whether your clients are outside of Germany doesn't matter. The German law specifically states that even if your company is non-resident, income derived from activities performed from within Germany are subject to German corporate tax.

 

[RealDude]

Who uses a german UG for a serious and solvent business? Cheap Charlie?

Read the articles about Internationales Steuerecht to get started:

Fachwissen

Aktuelle Steuerinformationen kostenlos für Sie. Unser Schwerpunkt liegt auf der Besteuerung von Kapitalgesellschaften & Personengesellschaften.

www.juhn.com

 

[Sols]

Who uses a german UG for a serious and solvent business? Cheap Charlie?

Since GmbH requires 12,500 EUR in capital just to incorporate, a lot of smaller (mostly one-person) companies are set up as UG instead to get going and convert to GmbH later.

I don't see the point in mocking someone for not having or wanting to set aside 12,500 EUR just to form an ordinary company (in addition to all the other expenses). Maybe you can explain what you're trying to convey?

 

[RealDude]

As far as I know, UGs do not have a good reputation in the business world. GmbH or GmbH & Co. KG are recommended if liability is to be limited.

 

[boomy]

Sorry, this doesn't make any sense to me. If you form a company outside of the EU, it can't be a German tax resident.

I read the below and discussed with another user similar situation as yours

What to Know about CFC Rules & Permanent Establishment – Can You Still Reduce Tax?

More and more entrepreneurs turn to offshore companies for a wide variety of benefits. To lots of business people, this is all about reducing tax and diversifying assets. To others, it is about minimizing the overall hassle. If you are "lucky" enough to live in a country with lots of...

www.offshorecorptalk.com

 

[Sols]

As far as I know, UGs do not have a good reputation in the business world.

In the use case given here, that doesn't seem like it'd be a problem. Gree1984 isn't starting a large enterprise with suppliers, employees, and end customers. From the description, it sounds like a one-person company with a decent 100,000 EUR/year revenue stream. UG is perfectly fine for that, and becoming quite common among others in similar situations.

 

[kilor]

What stands UG for and why a UG and not sole proprietor company in Germany if not a setup in Singapore as OP suggested at first?

 

[Sols]

UG stands for Unternehmergesellschaft. It's a special form of the more common GmbH, specifically created for small businesses. UG can be converted to a proper GmbH.

OP doesn't want their name shown in public, so a sole proprietorship wouldn't work for that reason. Aside from that, sole proprietors do not have limitation of liability, which is something any business owner should make absolutely sure to have.

 

[kilor]

limitation of liability,

that was what I was looking for. The UG will provide that? do you say the UG will also don't show OP's name anywhere public?

 

[Sols]

that was what I was looking for. The UG will provide that?

Yes.

do you say the UG will also don't show OP's name anywhere public?

No, sorry, I was unclear. As a sole proprietor, your name appears on invoices and transactions. That is not the case with UG. OP wants to not have their own name appear on invoices, so an UG works for that.

But an UG still appears in public company records (government registry) like a regular GmbH.

 

[RealDude]

Please note that a one-person company does not protect you from Scheinselbständigkeitsvorwurf (Bogus self-employment).

The following professions could also give the appearance of bogus self-employment:

• Consultant in various industries
• Graphic designers, copywriters, illustrators
• Employee in film and television
• Craftsman
• Real estate agent
• Employees in the freight forwarding or courier business
• Teachers, trainers, coaches
• programmer
• Cleaning staff
• Health care professional

What is Bogus Self-employment? – Graduate Definitions

 

[icecold]

So we are back to a GmbH or AG to avoid liabilities ?

 

[RealDude]

Have you considered the very high exit taxation for a UG / GmbH or AG if you have to leave Germany?

 

[netizen]

Yea exit tax really sucks if you have a company in Germany and want to leave later.

 

[erni]

What would happen if you just leave the country, don't tell anyone where you are going and settle for instant outside of the EU and never come back to Germany?