Do I have to pay corporation/dividend taxes to Estonia if I pay myself a salary while living in the Philippines?

[DaveFischer]

You can easily set-up a company in Estonia.

The Philippines do not charge foreign residents taxes for income from overseas.

Since salaries are expenses, that means the Estonian company isn't making any profits and I wouldn't have to pay any taxes?

 

[CaLViN]

You will pay your tax while you are taking any dividents or salaries.
Corporate tax in Estonia is ZERO as long as you dont take any profits to yourself.

 

[DaveFischer]

Why would I pay taxes on my salary to the Estonian government, when I live in the Philippines and am liable to personal income tax there? The Estonian company will not have run any profit, because salaries are expenses.

So I live and travel in Southeast Asia and I do freelance work for European clients. I'm planning to live off my savings for the next 5 years, which should be sufficient and invoice through my Estonian company.

Estonian companies only pay corporation tax when you pay out the profits as dividends. If I keep the money in the company, I won't have to pay taxes over it.
The Philippines do not charge foreign residents taxes for income from overseas. So then in 5 years I could cash out all the money earned in those 5 years... tax-free.

• The Estonian company will not have run any profit, because salaries are expenses.
• The Philippine government won't charge me any personal taxes, because they do not charge foreign residents taxes for income from overseas.

Any flaws in this plan?

 

[avalanche]

Why would I pay taxes on my salary to the Estonian government, when I live in the Philippines and am liable to personal income tax there? The Estonian company will not have run any profit, because salaries are expenses.

So I live and travel in Southeast Asia and I do freelance work for European clients. I'm planning to live off my savings for the next 5 years, which should be sufficient and invoice through my Estonian company.

Estonian companies only pay corporation tax when you pay out the profits as dividends. If I keep the money in the company, I won't have to pay taxes over it.
The Philippines do not charge foreign residents taxes for income from overseas. So then in 5 years I could cash out all the money earned in those 5 years... tax-free.

• The Estonian company will not have run any profit, because salaries are expenses.
• The Philippine government won't charge me any personal taxes, because they do not charge foreign residents taxes for income from overseas.

Any flaws in this plan?

Make sure to check withholding tax rates on salaries paid to non residents in tax haven jurisdictions. Philippines is considered tax haven country in many jurisdictions and it probably has no double taxation avoidance treaties with Estonia.

 

[Martin Everson]

The Philippines do not charge foreign residents taxes for income from overseas. So then in 5 years I could cash out all the money earned in those 5 years... tax-free.

How do you plan on cashing out the money "tax-free" after 5 years?

Estonia's corporate tax system is based on taxation at point of distribution of profits which includes distribution by dividends, capital reduction, gifts, donations and even payments unrelated to business activities.

 

[DaveFischer]

There wouldn't be any profits if I would pay myself a salary?

A salary is an expense... so this would lower the profits to 0.

 

[CaLViN]

If you (as an individual) are a tax resident outside Estonia and you own and run a company which is a tax resident in Estonia, there are 3 options for receiving funds from your company:

• receive dividends (the corporate income tax rate is 20%, calculated as 20/80 from your taxable net payment, if you keep this money in your company e.g. reinvest, then no taxes apply)
• receive management board member salary (you would need to pay 20% personal income tax + 33% Estonian social tax)
• receive employee salary (not taxed in Estonia, you would need to pay social taxes in your country of residence)

 

[Perry8]

If you (as an individual) are a tax resident outside Estonia and you own and run a company which is a tax resident in Estonia, there are 3 options for receiving funds from your company:

• receive dividends (the corporate income tax rate is 20%, calculated as 20/80 from your taxable net payment, if you keep this money in your company e.g. reinvest, then no taxes apply)
• receive management board member salary (you would need to pay 20% personal income tax + 33% Estonian social tax)
• receive employee salary (not taxed in Estonia, you would need to pay social taxes in your country of residence)

Correct, but there is a BIG but here. Salary will be normally be taxed in the country where you reside, not the country where the payment is made from, but this is just a result of the tax treaty between the countries. Salary will normally be taxable in Estonia if 1) There is no tax treaty, or 2) There is a tax treaty but the country of residence do not tax it.

So, you will have to check the tax treaty to be certain. But, my guess is thatif you do it "your way" you will be taxed in Estonia for your salary.

The way you would normally do this is to register as a sole trader (or similar) in your country of residence. Then you will invoice your Estonian company for services. This will be deductible in Estonia, and taxable in your country in residency.

 

[DaveFischer]

In that case, can I not just open a second company in Belize. Then afterwards invoice my Estonian company for all services through the Belize company?

The primary reason for the Estonian company is having a EU business bank account and easily being able to do freelance assignments for European corporations in the first place, while being able to live and travel outside the EU.

 

[fshore]

Correct, but there is a BIG but here. Salary will be normally be taxed in the country where you reside, not the country where the payment is made from, but this is just a result of the tax treaty between the countries. Salary will normally be taxable in Estonia if 1) There is no tax treaty, or 2) There is a tax treaty but the country of residence do not tax it.

So, you will have to check the tax treaty to be certain. But, my guess is thatif you do it "your way" you will be taxed in Estonia for your salary.

The way you would normally do this is to register as a sole trader (or similar) in your country of residence. Then you will invoice your Estonian company for services. This will be deductible in Estonia, and taxable in your country in residency.

That is not correct. Estonia doesn’t tax foreign non resident individual for salaries from work performed outside Estonia. No tax treaty required.

 

[Perry8]

That is not correct. Estonia doesn’t tax foreign non resident individual for salaries from work performed outside Estonia. No tax treaty required.

I have not checked this very thoroughly my self, but I would be supprised if you are right. The normal way this is built up is that residents are taxed on a global level (if the country has a global tax system), wheras non-residents are taxed for income derived from that contry. "Derived from that country" it is normally understod as paid from that country, no matter where the work is done.

Some years ago I asked this question to a local partner in KPMG, and he gave the answer that it wil be taxed in Estonia. But, these guys are not always that credible. If you have any sources I will be greatful.

Please note that Estonia, like most countries, do not tax income for-non residents where the income dos not have any connection with Estonia. This is common. What we are talking about here is income paid from Estonia to a non-resident.

 

[fshore]

I have not checked this very thoroughly my self, but I would be supprised if you are right. The normal way this is built up is that residents are taxed on a global level (if the country has a global tax system), wheras non-residents are taxed for income derived from that contry. "Derived from that country" it is normally understod as paid from that country, no matter where the work is done.

Some years ago I asked this question to a local partner in KPMG, and he gave the answer that it wil be taxed in Estonia. But, these guys are not always that credible. If you have any sources I will be greatful.

Please note that Estonia, like most countries, do not tax income for-non residents where the income dos not have any connection with Estonia. This is common. What we are talking about here is income paid from Estonia to a non-resident.

You might be surprised. This is the common way in many countries including UK, USA.
One exception I'm aware of is Singapore.
And note for estonia that board member salary is always taxed in Estonia.

 

[DaveFischer]

You might be surprised. This is the common way in many countries including UK, USA.
One exception I'm aware of is Singapore.
And note for estonia that board member salary is always taxed in Estonia.

Yes, but you can decide yourself if you pay yourself as a board member or an employee.

"The first thing you need to know is what salary you are going to assign yourself, board member salary (director of the company or administrator), employee salary (employee), or both."
Source: Your Company In Estonia | How do I pay myself a salary as member of the board or shareholder of my company?

 

[Perry8]

You might be surprised. This is the common way in many countries including UK, USA.
One exception I'm aware of is Singapore.
And note for estonia that board member salary is always taxed in Estonia.

I would really appriciate if you could link to some sources on this. Also, what are the requirements? I would love to learn new ways. As I said I have not checked Estonia very well myself, but in UK I am pretty sure this is not the case.

 

[JustAnotherNomad]

As others have explained, Estonia does not tax you (not even corporate income tax) if you are not a tax resident of Estonia and you pay a salary or service invoice.
But of course there is a (small) risk that the Philippines could say the company has a permanent establishment there and that it should be taxed as local income.
I would strongly advise against invoicing the Estonian company from a Belize company, or something similar. This would most likely trigger corporate tax (in case Belize is considered a tax haven). It would also raise all kinds of red flags. If you want to go down that route, you should talk to an Estonian tax lawyer first because things like transfer pricing etc. will become relevant.
Just use your own name and you will be fine.