Belgium resident + Micro SRL in Romania

[whocares61]

Hi all,

I am a resident of Belgium and have a self-employed status. Most of my income is coming from customers abroad.

Therefore, I would like to form a company in Romania and enjoy the 3% coprorate tax.

1. I will still invoice my customers in Belgium, on my self-employed activity in Belgium.
2. I would like to invoice my customers from abroad on my company in Romania. However, I am not planning to live in Romania at this moment (possibly i will relocate there later). The substance of the company in Romania is that most of my income is coming from abroad customers.
3. I will not withdraw the company earnings as dividends and also will not transfer the earnings to a Belgian bank account. I will keep the money on the company bank account as long as I don't need it or I will invest it. The goal is to use the company to store the money.
4. I am planning relocating in couple of years to another country with low personal income tax. I am not certain yet where to.
5. I will keep the turnover of the Romania company below 60K. Probably around 50K. This might change (I know that above 60K there are some small adjustments)

Do you see any issue here?
I would love to hear your thoughts.

Thanks!

 

[Sols]

The Romanian company will most likely be considered tax resident in Belgium and be liable to pay Belgian income tax. You might be able to offset taxes paid in Romania and only pay the remainder in Belgium.

You're not proving economic substance or permanent establishment in Romania. And even if you were, you would also do so in Belgium. Companies can be resident in multiple jurisdictions.

 

[whocares61]

The Romanian company will most likely be considered tax resident in Belgium and be liable to pay Belgian income tax. You might be able to offset taxes paid in Romania and only pay the remainder in Belgium.

You're not proving economic substance or permanent establishment in Romania. And even if you were, you would also do so in Belgium. Companies can be resident in multiple jurisdictions.

A company will be considered as a tax resident?
I never heard about a company being considered a tax resident.

Can you please show me based on what info is that?

Thanks

 

[whocares61]

Ok, I have found information about it.

It seems like a company is considered a tax resident if the country where the "management effective" or something like that.
In that case, what is the purpose of making an offshore company at all?

Sorry for the noob questions.

 

[Perry8]

It seems like a company is considered a tax resident if the country where the "management effective" or something like that.
In that case, what is the purpose of making an offshore company at all?

What is means is that you cannot any longer just open a company in a jurisdictions and expect tax authorities to accept the formal construction. There are two points you should note here:
1) When you open a company in a jurisdiction the default situation is that the governement - including the tax authorities - will accept this. What I mean by this is that the tax authorities will need to make an active decision to "relocate" the company. The implication here is that practices vary a lot. Some countries are very keen on relocating companies and some are not very keen. Belgum has traditionally not been keen on this. I think this is due to the fact that it hosts a great number of french "tax refugees" either in person or at least via companies.
2) The big question is what it takes to have an effective management in the jurisdiction of incorporation. This is a bit up to your tax authorities to define, but there are two "norms" that most of them seem to follow:
a) There is a significant difference between "our tax havens" and "foreign tax havens". What I refer to here is the fact that EEA/EU countries are treated differently than "overseas tax havens". After all, one of the four freedoms are the freedom of incorporation. A too strict interpetation of "effective management" would collide with this principal.
b) The interpitation of "effective management" is dependent on the type of company. A holding company - to take one extreme - would normally only be required to have a couple of board meetings a year in their jurisdiction of incorporation to be considered to have an "effective managment" there, wheras a trading company would require a lot more.

 

[whocares61]

What is means is that you cannot any longer just open a company in a jurisdictions and expect tax authorities to accept the formal construction. There are two points you should note here:
1) When you open a company in a jurisdiction the default situation is that the governement - including the tax authorities - will accept this. What I mean by this is that the tax authorities will need to make an active decision to "relocate" the company. The implication here is that practices vary a lot. Some countries are very keen on relocating companies and some are not very keen. Belgum has traditionally not been keen on this. I think this is due to the fact that it hosts a great number of french "tax refugees" either in person or at least via companies.
2) The big question is what it takes to have an effective management in the jurisdiction of incorporation. This is a bit up to your tax authorities to define, but there are two "norms" that most of them seem to follow:
a) There is a significant difference between "our tax havens" and "foreign tax havens". What I refer to here is the fact that EEA/EU countries are treated differently than "overseas tax havens". After all, one of the four freedoms are the freedom of incorporation. A too strict interpetation of "effective management" would collide with this principal.
b) The interpitation of "effective management" is dependent on the type of company. A holding company - to take one extreme - would normally only be required to have a couple of board meetings a year in their jurisdiction of incorporation to be considered to have an "effective managment" there, wheras a trading company would require a lot more.

Thanks for the explanation.

1. I didn't really get this point. I am not relocating much. I am opening a new company in another country. Maybe I don't understand what you mean by relocating..

2b. My activity is providing Data - Software development services and as I said most of it is for companies outside Belgium. What do you think are the norms for this kind of company?

 

[blockchain4ever]

The Romanian company will most likely be considered tax resident in Belgium and be liable to pay Belgian income tax. You might be able to offset taxes paid in Romania and only pay the remainder in Belgium.

You're not proving economic substance or permanent establishment in Romania. And even if you were, you would also do so in Belgium. Companies can be resident in multiple jurisdictions.

Though only internally in the country. The double tax agreement always have a tie breaker clause where taxation rights are given to one or the other country. The other country might consider that you have a permanent establishment, but in that case the income will also be divided between the countries.

If there is a typical OECD double tax agreement, corporate income will typically attributed to one and only one country.

 

[whocares61]

So in my case, which country do you think will consider my company as a permanent establishment?

Thanks

 

[Perry8]

Though only internally in the country. The double tax agreement always have a tie breaker clause where taxation rights are given to one or the other country. The other country might consider that you have a permanent establishment, but in that case the income will also be divided between the countries.

This is a very imortant - and often overlooked - distinction. All high tax countries have a vast network of tax treaties, so you have to check those as well to get an idea of how this will play out.

So in my case, which country do you think will consider my company as a permanent establishment?

It is difficult to give this type of advise. The reason is that, unlike what you have been brought up to belive, tax rules are not absolutes. The point here is that "the rule" on this is actually just a consideration. It is up to the tax authorities in your home country to decide whether your company in Romania is considered tax resident in Belgum or not. This is the reason why "tax adaption" always involves a certain amount of risk.

This said, the tax authorities do not operate in a vacume (although sometimes you would belive exactly that), so their decicions are based on an overall assessment of the situation. My experience on this is that the more ties the company has to Romania the harder it will be for the Belgium tax authorities to challange that the company is domiciled and tax resident there. For a trading company you will at need a real office and real people to be sure.

 

[whocares61]

This is a very imortant - and often overlooked - distinction. All high tax countries have a vast network of tax treaties, so you have to check those as well to get an idea of how this will play out.


It is difficult to give this type of advise. The reason is that, unlike what you have been brought up to belive, tax rules are not absolutes. The point here is that "the rule" on this is actually just a consideration. It is up to the tax authorities in your home country to decide whether your company in Romania is considered tax resident in Belgum or not. This is the reason why "tax adaption" always involves a certain amount of risk.

This said, the tax authorities do not operate in a vacume (although sometimes you would belive exactly that), so their decicions are based on an overall assessment of the situation. My experience on this is that the more ties the company has to Romania the harder it will be for the Belgium tax authorities to challange that the company is domiciled and tax resident there. For a trading company you will at need a real office and real people to be sure.

I see! Thanks!

It is not a trading company, but a company providing services to customers abroad (not in Belgium). My Belgian customers I will still charge through my Belgian business activity. The only connection that I have to Belgium is my Belgian residency.

From a quick search I found that Belgium and Romania have a double tax treaty.

 

[whocares61]

In any case, from what I understand that the worst thing that can happen is that the company will be considered a Belgian tax resident and I will just have to pay a Belgian corporate tax. In that case, I will be aware of that and won't repeat it the next year. Right?

 

[JimBeam]

Hi all,

I am a resident of Belgium and have a self-employed status. Most of my income is coming from customers abroad.

Therefore, I would like to form a company in Romania and enjoy the 3% coprorate tax.

1. I will still invoice my customers in Belgium, on my self-employed activity in Belgium.
2. I would like to invoice my customers from abroad on my company in Romania. However, I am not planning to live in Romania at this moment (possibly i will relocate there later). The substance of the company in Romania is that most of my income is coming from abroad customers.
3. I will not withdraw the company earnings as dividends and also will not transfer the earnings to a Belgian bank account. I will keep the money on the company bank account as long as I don't need it or I will invest it. The goal is to use the company to store the money.
4. I am planning relocating in couple of years to another country with low personal income tax. I am not certain yet where to.
5. I will keep the turnover of the Romania company below 60K. Probably around 50K. This might change (I know that above 60K there are some small adjustments)

Do you see any issue here?
I would love to hear your thoughts.

Thanks!

First, do you have a limited liability company (SPRL) in Belgium or some other company format with unlimited liability?
The customers outside Belgium - from which country or countries are you? Do they pay you in USD or in EUR?

If you do not plan to leave Belgium and live somewhere else for 183+ days (get some other tax residency), you can't expect to have and better tax treatment. Taxman now have the legislation and the tools to track you and if they find you - you'll get in trouble. So, unless you want to spend 183 days in Romania (that I doubt you want) it's not going to work (or not going to work in an long run).

There are some options even with amount this low - buy you need someone who lives outside EU and that you can trust (so that the company is not under your name) and has no connections to you in either way. This will probably cost more than 3% but you'll sleep better in Belgium.

 

[whocares61]

First, do you have a limited liability company (SPRL) in Belgium or some other company format with unlimited liability?
The customers outside Belgium - from which country or countries are you? Do they pay you in USD or in EUR?

If you do not plan to leave Belgium and live somewhere else for 183+ days (get some other tax residency), you can't expect to have and better tax treatment. Taxman now have the legislation and the tools to track you and if they find you - you'll get in trouble. So, unless you want to spend 183 days in Romania (that I doubt you want) it's not going to work (or not going to work in an long run).

There are some options even with amount this low - buy you need someone who lives outside EU and that you can trust (so that the company is not under your name) and has no connections to you in either way. This will probably cost more than 3% but you'll sleep better in Belgium.

No, I just have a self-employed activity in Belgium.

Customers are from: Dubai, Hong Kong, Hungary, Switzerland

In couple of years (depending on some matters here) I do plan to move to Eastern Europe for a long time.

I understand the option of having it on someone's name, but if possible i would like to have it on my name.

 

[AndrewJ]

One, for most EU countries you need a director who is resident in that country. Do you know someone in Romania who you trust? Two, we come back to the familiar problem of opening a bank account. I am afraid no traditional bank will help you.

 

[Sols]

For someone running a business, what it comes down to is also whether all this extra headache of tax treaties and doubled risks of audits and questionings are really worth it, when you could either relocate to a low-tax jurisdiction or stay put and start a local company following local law.

You're adding a lot of accounting acrobatics to your business by introducing a foreign company this way.

 

[JustAnotherNomad]

You will most likely be required by law to tell the Belgian tax authorities that you have formed a company in Romania. Then they will start asking questions and the end of it will probably be that you will be paying the same amount of taxes you would have paid in the first place + additional fees for the structure, accounting etc. Doesn’t make sense at all. Unless maybe if you have many Romanian customers who prefer dealing with a local company or some stuff like that.

If you don’t tell the Belgian authorities and they find out later, you will probably be charged with tax evasion and pay all taxes + a hefty fine, or even go to jail.
If you are willing to risk going to jail, then I don’t see the point in choosing an EU country for your illegal operation. Then you might as well go for a country that at least doesn’t exchange information, has no taxes at all etc.

I find it really amazing how many people believe they can just legally register a company in some other country and not pay taxes where they live and work. How stupid do you think the authorities are? If it was that easy, nobody would be paying any taxes in high-tax countries. Just think about it for one minute. Do you really think you are the first person who came up with that idea? That the reason nobody does it is because they all aren’t as smart as you?

 

[whocares61]

One, for most EU countries you need a director who is resident in that country. Do you know someone in Romania who you trust? Two, we come back to the familiar problem of opening a bank account. I am afraid no traditional bank will help you.

You don't need a director in Romania and there's no problem opening a bank account for me. These things are not an issue.

 

[whocares61]

For someone running a business, what it comes down to is also whether all this extra headache of tax treaties and doubled risks of audits and questionings are really worth it, when you could either relocate to a low-tax jurisdiction or stay put and start a local company following local law.

You're adding a lot of accounting acrobatics to your business by introducing a foreign company this way.

Relocating was the plan. For now I would like to open a company to collect international income on it and then relocate once I am ready.

 

[cyprus123]

You should mention your industry. Without knowing the type of your business you can not give a serious suggestion for the best country to establish it.

Romania is very slow and bureaucratic, in my opinion it is not a good place to form a company for tax reasons, more for factories or "cheap labor".

Consider Cyprus, Georgia, Bulgaria.

 

[whocares61]

You will most likely be required by law to tell the Belgian tax authorities that you have formed a company in Romania. Then they will start asking questions and the end of it will probably be that you will be paying the same amount of taxes you would have paid in the first place + additional fees for the structure, accounting etc. Doesn’t make sense at all. Unless maybe if you have many Romanian customers who prefer dealing with a local company or some stuff like that.

If you don’t tell the Belgian authorities and they find out later, you will probably be charged with tax evasion and pay all taxes + a hefty fine, or even go to jail.
If you are willing to risk going to jail, then I don’t see the point in choosing an EU country for your illegal operation. Then you might as well go for a country that at least doesn’t exchange information, has no taxes at all etc.

I find it really amazing how many people believe they can just legally register a company in some other country and not pay taxes where they live and work. How stupid do you think the authorities are? If it was that easy, nobody would be paying any taxes in high-tax countries. Just think about it for one minute. Do you really think you are the first person who came up with that idea? That the reason nobody does it is because they all aren’t as smart as you?

First of all, I didn't say anything about easy. If you will read my original thread you will see I clearly stated the situation and the plans and asked for opinions.
I consulted some accountants and all said that as long as it's dealing with international customers and as long I don't take dividends or any profits to myself and keep the profit in the Romanian company they don't see any issue with this at all. Moreover, the profits from the Belgian companies will not reduce significantly.
That's why I opened this thread to hear other opinions.

It's not about "stupid" authorities, it's about knowing the best possibilties in each situation.
For example, I heard as well, that Belglian authorities will not be able to check if I actually have Romanian customers or not, for this they need an international court order and this will never happen in my small case.