Company in Bulgaria, residency in France

[gnud]

Anyone here has any experience with creating a company in Bulgaria while residing in France or other EU country?

I'd hire an employee there to create an economic substance, and I'd declare the company to the country where I reside as I'm obliged to. I will pay myself nothing and keep all the money in the company.
I'm asking because of the CFC rules.

Will the tax authorities still harass me?

I've heard from people that they'd just sue me and take me to court, even though they're the ones who should first prove they have a right to claim the company. That they'll simply accuse me, because it costs them nothing, and then it'd be on me to prove that it's real, having to go through all the legal process, waste time and effort, and pay lawyers. Is it true? What awaits me if I actually decide to do it? How does the proving of economic substance look like?

 

[uplana]

For sure you want to appoint a director and refrain from being a shareholder yourself in this company. Otherwise you will have to spend money on a tax lawyer and accountant to help you set this up to comply with applicable laws in France.

 

[gnud]

For sure you want to appoint a director and refrain from being a shareholder yourself in this company. Otherwise you will have to spend money on a tax lawyer and accountant to help you set this up to comply with applicable laws in France.

Well if I'm not a director and not a shareholder, some other company that I own would have to be, so ultimately I can't avoid it without losing control over the structure. No?

 

[Lateraltrust]

First, the fact that one of your company will be shareholder of the Bulgarian company instead of you is irrelevant as CFC targets direct and indirect control. However french CFC rules are not applicable with Bulgarie as EU member states.

The substance evidence depends on the activity. In short, you have to prove that there are adequate local people and equipments to fulfill the purpose of the company. In case your french company interacts with the Bulgarian subsidiary, it will have to receive an arm's length remuneration for the services provided.

The tax authorities won't harass you as long as there is economic ground to support the creation of a subsidiary in Bulgaria.

 

[gnud]

First, the fact that one of your company will be shareholder of the Bulgarian company instead of you is irrelevant as CFC targets direct and indirect control. However french CFC rules are not applicable with Bulgarie as EU member states.

The substance evidence depends on the activity. In short, you have to prove that there are adequate local people and equipments to fulfill the purpose of the company. In case your french company interacts with the Bulgarian subsidiary, it will have to receive an arm's length remuneration for the services provided.

The tax authorities won't harass you as long as there is economic ground to support the creation of a subsidiary in Bulgaria.

I don't want a subsidiary, I just mentioned it because the first commenter advised to appoint a director and refrain from being a shareholder. I want to create a company there directly with me as a shareholder and a director.

 

[Lateraltrust]

I don't want a subsidiary, I just mentioned it because the first commenter advised to appoint a director and refrain from being a shareholder. I want to create a company there directly with me as a shareholder and a director.

You can be a direct shareholder and will not fall in the scope of the anti abuse rule of article 123bis with Bulgaria, but not director. This has to be delegated to local people to not raise the FISC's attention. If you are director and manage actually from France this company, you will be a french establishment of the Bulgarian company. The taxation right will be allocated to France for the portion of the income generated from France. I understand here that it will be 100%, so unless there is a proper delegation, there is no point to incorporate a company in Bulgaria.

However it should be quite easy to have a proper substance in Bulgaria since the employment cost are very small compared to France and the tax way smaller. If you are director and have also local people in Bulgaria, you will be taxed in France to the arm's length portion of the work done from France. For exemple if 70% of the value is generated in Bulgaria, only 30% will be taxed in France, leading to an effective corporate rate of 16% (with all the employment cost saving in addition).

Btw, if you do that, do not forgot to register the your establishment to the trade register, otherwise you will be considered as an "établissement occulte", and this is the beginning of the trouble with the Fisc.

 

[gnud]

You can be a direct shareholder and will not fall in the scope of the anti abuse rule of article 123bis with Bulgaria, but not director. This has to be delegated to local people to not raise the FISC's attention. If you are director and manage actually from France this company, you will be a french establishment of the Bulgarian company. The taxation right will be allocated to France for the portion of the income generated from France. I understand here that it will be 100%, so unless there is a proper delegation, there is no point to incorporate a company in Bulgaria.

However it should be quite easy to have a proper substance in Bulgaria since the employment cost are very small compared to France and the tax way smaller. If you are director and have also local people in Bulgaria, you will be taxed in France to the arm's length portion of the work done from France. For exemple if 70% of the value is generated in Bulgaria, only 30% will be taxed in France, leading to an effective corporate rate of 16% (with all the employment cost saving in addition).

Btw, if you do that, do not forgot to register the your establishment to the trade register, otherwise you will be considered as an "établissement occulte", and this is the beginning of the trouble with the Fisc.

Thanks a lot!

 

[Marzio]

it will have to receive an arm's length remuneration for the services provided.

How do you know how much remuneration is ok for the services provided?

 

[Lateraltrust]

How do you know how much remuneration is ok for the services provided?

By reference to the arm's length principle following the rules provided by art 57 cgi. This is also confirmed in art 6 of the tax treaty according to which where an economic activity is carried out by an establishment located in another state, this establishment should pay taxes based on the profit it would have realized if it would be an independent company. This is found through a functional analysis and a pricing on the functions carried out by this establishment. The structure can also be secured by obtaining a special ruling called "accord préalable"