Best setup to avoid European withholding tax? Anything better than Malta?

[Don]

Probably we will be seeing around 10% minimum CIT very soon...

By the way, have you considered establishing a European Company (Societas Europea or SE)?
Perhaps it's worth looking into?

As a new legal form, the SE coexists with the existing corporate forms of each Member State. It is a separate legal entity with a minimum registered share capital of EUR 120,000 divided into shares which are eligible for listing on a stock exchange. The name of an SE must include the letters “SE”. An SE is domiciled in the MemberState, where its head office is located and is registered in the appropriate commercial register. In addition to the SE Regulation, the SE is subject to and governed by the national laws of the Member State of its domicile,i.e. the national law implementing the SE Regulation and the SE Directive, as well as the respective national stock corporation acts. As a result, the basic requirements for an SE are the same in each member-state, but most of the details are still determined by national law – making the SE a national rather than a uniform European legal entity.

 

[JustAnotherNomad]

By the way, have you considered establishing a European Company (Societas Europea or SE)?
Perhaps it's worth looking into?

What's the advantage? I thought it's mostly relevant for very large companies?

 

[Don]

What's the advantage? I thought it's mostly relevant for very large companies?

Reputation - as you said, they might be perceived as very large companies

 

[JustAnotherNomad]

But the clients would always be interacting with the local subsidiaries anyway?
I expect my clients to be looking for local businesses, so they know if there is a problem, the company will be easy to hold accountable.

In terms of reputation, I was mainly thinking about:
1. Tax offices (if they see the subsidiary shifts profits or pays dividends to a country like Malta or Cyprus --> increased audit risk)
2. If clients want to understand the whole ownership structure and they see that the local subsidiary is owned by a MT company - again, bad reputation

But if they see it's owned by an SE that has its head office in MT, what's the advantage? I'm not sure it's worth paying 120k for that... And probably accounting would also be more expensive?

 

[clemens]

1. Tax offices (if they see the subsidiary shifts profits or pays dividends to a country like Malta or Cyprus --> increased audit risk)

I am sure that if the company structure is frequently changed and little to no taxes and other fees are paid despite high revenue, there will be an audit.

 

[inector]

Afaik, CFC rules do apply if the CIT is less than 75% of UK tax which was recently increased to 25%.

For a UK company with PE in Malta, do UK CFC rules apply (or the Maltese CFC rules apply)? Technically it's still a Maltese company then

UK Ltd resident, not domiciled in MT
|
CH company
|
+ subsidiary 1
+ subsidiary 2
+ subsidiary 3

That concludes the setup?

 

[JustAnotherNomad]

For a UK company with PE in Malta, do UK CFC rules apply (or the Maltese CFC rules apply)? Technically it's still a Maltese company then

The UK company would be tax resident in Malta, so it would be treated like a Maltese company, so only Maltese CFC rules should apply.

 

[JustAnotherNomad]

@Don What about using a Swiss company with a branch/PE in the UAE? There is a tax treaty, so branch profits should be excluded from taxation in Switzerland.

 

[Marzio]

Your UAE PE will be tax free up t AED 3 million so good thiking but:
1. you'll pay A LOT in salaries if you want to hire local staff
2. you'll be stuck with money in CH and you'll need to form another company to distribute dividends tax free

 

[Don]

Your UAE PE will be tax free up t AED 3 million so good thiking but:
1. you'll pay A LOT in salaries if you want to hire local staff
2. you'll be stuck with money in CH and you'll need to form another company to distribute dividends tax free

@Don What about using a Swiss company with a branch/PE in the UAE? There is a tax treaty, so branch profits should be excluded from taxation in Switzerland.

The same applies to Estonia, and not only by treaty but domestic law.
Check carefully article 22 and whether it is flexible enough to fit your purpose.

It's a kind of bureaucratic setup to open a branch office in the UAE, but one huge benefit in favour of doing it compared to establishing a local company is that foreign tax resident companies are exempt from economic substance requirements in the UAE. So it could be worth it if your business is related to IP or management, service centre, holding, lease/finance.

I find operating as an unincorporated partnership often to be more beneficial, as you would just need a tax number.
Opaque unincorporated partnerships should maintain financial statements but must obtain audited financial statements only if the revenue exceeds AED 50 million.

Small Business Relief exempts eligible Resident Persons with revenue under AED3 million from CT including unincorporated partnerships.

 

[2fire]

LU = expensive

Luxembourg seems offers a generous participation exemption regime for holding companies, which can result in significant tax savings.

Dividend Income: Dividends received from qualifying subsidiaries are exempt from corporate income tax (CIT), municipal business tax (MBT), and net wealth tax (NWT).

Capital Gains: Capital gains on the sale of qualifying participations are exempt from CIT and MBT.

Does anyone has an experience with Luxembourg holding company and related expenses?

 

[koohl]

1. you'll pay A LOT in salaries if you want to hire local staff

It depends on how many staff members / worker you need. You can just ask your agent in Switzerland to manage the company, so you pay 4000 - 5000 CHF a year that's it.

 

[Marzio]

You can just ask your agent in Switzerland to manage the compan

Managing the company on paper is one thing, another is paying staff to work which will cost him at lest 10x more than 4000CHF

 

[JustAnotherNomad]

Does anyone has an experience with Luxembourg holding company and related expenses?

It's a popular choice for very large companies.
But it's known to be very expensive, and you would likely be required to have proper substance there.
There's also the EU's "Unshell" directive, which pretty much is making pure holding companies a think of the past.

It depends on how many staff members / worker you need. You can just ask your agent in Switzerland to manage the company, so you pay 4000 - 5000 CHF a year that's it.

It's doubtful that this would be accepted as proper substance (for profit shifting and tax-free flow of dividends).

 

[JohnLocke]

It's doubtful that this would be accepted as proper substance (for profit shifting and tax-free flow of dividends).

yeah it depends what he/she means with this! But if a real person is hired and appointed as managing director for the company it could work well.

 

[JustAnotherNomad]

Not for a few thousands bucks per year, that's no proper substance. And even then, the Unshell directive could be a problem.