Ecommerce business Malta, NHR Portugal

[Enrique123]

Hi

I have a fashion business with both wholesale (B2B) and online (BTC) operations, which I run from a high corporate tax country.

I am looking to spin-out the online business and run it from a new company in Malta, and relocate to Portugal under the NHR scheme in order to benefit from the 5% corporate tax / 0% dividend. The company in the high-corporate-tax country would still manage the wholesale operation.

A few questions if anyone with the knowledge is kind enough to help:

1. If the fashion label's brand name is registered under the existing company, can I spin-off the online side of the business and run it from a new company in Malta (and still use the same brand name)?
2. Assuming the above is possible: do I need to import the goods into Malta first, or can they be sent to a warehouse in a different country (clearly not Portugal) in order to be able to run the order fulfilment process from a country closest to our biggest markets?
3. Intention is to hire a local director and part-time employee, and potentially the after-sales customer support in Malta. Would this be enough to avoid any risks?

Thanks in advance!

Enrique

 

[Fred]

Hi Enrique,

from my personal experience I can't recommend you Malta for an B2C E-Commerce Business.

By running an B2C E-Commerce Business in the Fashion Industry I can imagine that you are dependant from PayPal and Stripe.

While Stripe could be potentially work - PayPal is a huge problem with Malta especially since Malta is on the FATF grey list.

It's close to impossible to get a Business Bank Account for an E-Commerce Online Business with a local Maltese Bank that has SEPA access (remember not all of the Maltese Banks has SEPA access or provide even Retail Banking).

In this case you need to stick to an Maltese EMI as PayPal will force you to have a Maltese IBAN despite the fact IBAN discrimination is forbidden by EU law and PayPal is even forced to they will just close the PayPal Business Account and mention an reason Internal Policy - especially is this the case when they know you from before with an existing PayPal Account from the High Tax Country.

I know you are looking into Malta as Malta is sold to you like sold to me back in the days as within the EU, EU VAT, lowest effective tax rate, you can use it as a Holding Company for the Home Country Company etc. but this isn't working in practive due to the above reasons - I mean how many big Malta based E-Commerce brands you know?

They are usually based in high tax EU countries or Ireland/UK/UAE/HK and even there UK/HK are not really working great nowadays.

Clarify this first for you before you even look into your above questions.

 

[Enrique123]

Hi Fred

Thanks ever so much for taking the time to reply.

PayPal and Stripe are indeed important since combined they process +95% of our payments - if what you highlight is the case then it rules out Malta completely.

Aside from the high-tax countries, would you know if there any other tax-efficient options within the EU to consider? How about Cyprus?

Thanks in advance

 

[CyprusLaw]

Hi Fred

Thanks ever so much for taking the time to reply.

PayPal and Stripe are indeed important since combined they process +95% of our payments - if what you highlight is the case then it rules out Malta completely.

Aside from the high-tax countries, would you know if there any other tax-efficient options within the EU to consider? How about Cyprus?

Thanks in advance

Cyprus would be a feasible option. We have a number of ecommerce businesses setting up companies in Cyprus

 

[Fred]

Hi Fred

Thanks ever so much for taking the time to reply.

PayPal and Stripe are indeed important since combined they process +95% of our payments - if what you highlight is the case then it rules out Malta completely.

Aside from the high-tax countries, would you know if there any other tax-efficient options within the EU to consider? How about Cyprus?

Thanks in advance

Hi Enrique,

Cyprus is the same kind of islands were you will run into problems.

Most people actually faciliating there E-Commerce Business through Dubai as they keep there previous PayPal / Stripe Accounts to not run into problems with PayPal / Stripe and just redirecting the withdraws to the UAE.

That's possible as you have no Audit requirements when setup in the right way - not to mention 0% tax.

With Malta & Cyprus this is not possible due to Audit & Accounting requirements.

Keep in mind PayPal will see your move as they know you as Citizen & Resident of a high tax country already since years if not decades. I personal completely underestimated this fact and opened a PayPal Business Account for the Malta Company while I had still a Business Account in Germany working completely fine and when reaching the 2.500 EUR turnover verification with the Malta PayPal Business Account the account got blocked without any further explanation and after another day the German PayPal Business Account as well.

They mentioned something like you can only have one business account under your name and you have to be resident in the country of registration etc. - PayPal makes intensive IP checks, fraud monitoring etc. so what you have in mind with being based in Portugal and managing the E-Commerce Business through Malta - you have then to use things like VPS, Remote Desktops etc. and much more - needs to have a local director with no or only good personal PayPal history etc. and then still very high chance to get the account blocked by PayPal.

If you would only neew a Wire Transfer facility this would be another story so from transaction point of view it would even make more sense to make the B2B through Malta as this is most likely only run with Wire Transfer but the again you need to import to Malta first an ship from there with high shipping costs etc. - especially when your suppliers are within EU they are forced by there local tax authorities to document till the smallest detail that the goods were really send to Malta before they issue a VAT reverse charge invoice without VAT charged to you.

so blieve me it won't work and I really wish for you that you don't burn the 10k EUR like me back in the days.

 

[fshore]

Why would a Maltese company need to import goods to Malta before sending elsewhere in the EU /worldwide?
Why couldn't it register for vat in Germany, Ireland etc and ship from there, or outside the EU?

Hi Enrique,

Cyprus is the same kind of islands were you will run into problems.

Most people actually faciliating there E-Commerce Business through Dubai as they keep there previous PayPal / Stripe Accounts to not run into problems with PayPal / Stripe and just redirecting the withdraws to the UAE.

That's possible as you have no Audit requirements when setup in the right way - not to mention 0% tax.

With Malta & Cyprus this is not possible due to Audit & Accounting requirements.

Keep in mind PayPal will see your move as they know you as Citizen & Resident of a high tax country already since years if not decades. I personal completely underestimated this fact and opened a PayPal Business Account for the Malta Company while I had still a Business Account in Germany working completely fine and when reaching the 2.500 EUR turnover verification with the Malta PayPal Business Account the account got blocked without any further explanation and after another day the German PayPal Business Account as well.

They mentioned something like you can only have one business account under your name and you have to be resident in the country of registration etc. - PayPal makes intensive IP checks, fraud monitoring etc. so what you have in mind with being based in Portugal and managing the E-Commerce Business through Malta - you have then to use things like VPS, Remote Desktops etc. and much more - needs to have a local director with no or only good personal PayPal history etc. and then still very high chance to get the account blocked by PayPal.

If you would only neew a Wire Transfer facility this would be another story so from transaction point of view it would even make more sense to make the B2B through Malta as this is most likely only run with Wire Transfer but the again you need to import to Malta first an ship from there with high shipping costs etc. - especially when your suppliers are within EU they are forced by there local tax authorities to document till the smallest detail that the goods were really send to Malta before they issue a VAT reverse charge invoice without VAT charged to you.

so blieve me it won't work and I really wish for you that you don't burn the 10k EUR like me back in the days.

 

[Enrique123]

Fred,

I am sorry to hear about your €10k fiasco. Your insight is proving to be invaluable - we were just steps away from sitting with tax and legal advisors to study the structure and hopefully move forward.

My main concern about facilitating the E-Commerce business through Dubai is in terms of Logistics:

95% of our customers reside within the EU, so their orders would need to be fulfilled from a warehouse in the EU.

Can the Dubai company purchase goods from a factory in India and get them delivered directly to a warehouse in Europe (for orders to be fulfilled directly from there)? If so, what implications would this have?

Thanks again for the help

Enrique

 

[Fred]

Why would a Maltese company need to import goods to Malta before sending elsewhere in the EU /worldwide?
Why couldn't it register for vat in Germany, Ireland etc and ship from there, or outside the EU?

To get a reverse charge invoice without VAT - the seller has to proof that the goods were really shipped to the company based on Malta - it's even not possible to let the goods shipped to another country.

Example:

Malta Company purchase from German Wholesale and wants to have a VAT Reverse Charge Invoice - the wholesale would only issue this once the goods left to Malta. If the Malta Company register for VAT in Germany it's even more a pain in the a** to deal with the "Finanzamt" and still they want to see shipping documents to Malta before they return the VAT or even accept a VAT Reverse Charge Invoice.

Most German Wholesale would even reject to do Business with a Malta Company as they know exactly the pain that is involved as importing to Malta doesn't have any economic substance / sense if you don't want to sell on the island.

So then check the shipping prices for containers to Malta and then B2C shipping with let's say DHL + if any doubts you get the invoices from the German Wholesale only with VAT and they will tell you to deal with the VAT on your end.

With Wholesale from non-EU it's slighlty easier as you can go through the whole EU and not only your country of incorporation - I have already seen from clients very interesting setups with Dubai & Slovenia on the EU side involved for import from outside the EU.

Due to a lot of VAT fraud - it's for sure not going into a better direction.

 

[Fred]

Fred,

I am sorry to hear about your €10k fiasco. Your insight is proving to be invaluable - we were just steps away from sitting with tax and legal advisors to study the structure and hopefully move forward.

My main concern about facilitating the E-Commerce business through Dubai is in terms of Logistics:

95% of our customers reside within the EU, so their orders would need to be fulfilled from a warehouse in the EU.

Can the Dubai company purchase goods from a factory in India and get them delivered directly to a warehouse in Europe (for orders to be fulfilled directly from there)? If so, what implications would this have?

Thanks again for the help

Enrique

You are welcome.

I'm not a EU VAT specialist and for sure a smart Tax Adviser can draw you something in theory on paper.

But most likely in practice with being dependant on PayPal you will run into a rock from there side.

Yes buying products from India/China/Turkey and ship them directly to the client in the EU is possible - till the 01.07.2021 this was possible without any issue up to a goods value of ca. 23 EUR - since the 01.07 usually everything needs to get throuh the customs - this is not really enforced actually - at least all E-Commerce/Dropshipping clients report that it's still working like before - the smart sellers from China have smelled there chance and now charging you straight 20% on top for custom clearance unless you mention otherwise to them - I have a smile imagine the sellers from China telling each other how stupid the EU is - +20% for them for clueless business people from EU.

 

[Enrique123]

Your last phrase made me smile as well.. it's incredible how the EU have the resources to make things happen yet we manage to get so much of it wrong.

My doubt was actually whether a company based in Dubai can take goods from a vendor in India, get the goods delivered directly to a warehouse in the EU and pay any associated import duties.

The warehouse in the EU would then fulfil any orders directly to the customers in the EU.

Would this be possible?

As a separate note, our experience post 01.07 has been rocky. Our average order value is 150€ of a made-in-India product - we see our customers in Switzerland and the UK get hit with hefty duties once the item has been delivered to them. We have had to stop marketing in these countries till we find a viable solution.

 

[JustAnotherNomad]

Example:

Malta Company purchase from German Wholesale and wants to have a VAT Reverse Charge Invoice - the wholesale would only issue this once the goods left to Malta. If the Malta Company register for VAT in Germany it's even more a pain in the a** to deal with the "Finanzamt" and still they want to see shipping documents to Malta before they return the VAT or even accept a VAT Reverse Charge Invoice.

I don't understand. Why would there be reverse charged VAT? As long as the product hasn't left Germany, of course there should be German VAT? It would be just the same if the buyer was a German company?

 

[Fred]

The warehouse in the EU would then fulfil any orders directly to the customers in the EU.

Would this be possible?

As a separate note, our experience post 01.07 has been rocky. Our average order value is 150€ of a made-in-India product - we see our customers in Switzerland and the UK get hit with hefty duties once the item has been delivered to them. We have had to stop marketing in these countries till we find a viable solution.

No - for this particular scenario you would need a EU parent company that handles the import.

But again this is too General Questions - for example we have clients with getting goods from Turkey and sending them directly to Amazon for FBA and were doing this pre 01.07 through Switzerland Company and post 01.07 with Dubai Company + Ireland Ltd - they have a close to 0% tax bill due to the nice arrangement with Amazon and there warehouses across EU - so they can send the goods to the EU country that fit's the best for the import and EU entry and then Amazon itself is redirecting Amazon internal the goods to the warehouses were the most clients actually are based - let's say in Germany.

If you can't use such a network things are more harder but still you get it somehow managed if you have on the company not too much bureaucracy etc.

 

[Fred]

I don't understand. Why would there be reverse charged VAT? As long as the product hasn't left Germany, of course there should be German VAT? It would be just the same if the buyer was a German company?

This was a wholesale B2B example between 2 EU companies - they can make use of the reverse charge - if certain conditions are met - otherwise you are buying wholesale with VAT that ruins your margin.

 

[JustAnotherNomad]

This was a wholesale B2B example between 2 EU companies - they can make use of the reverse charge - if certain conditions are met - otherwise you are buying wholesale with VAT that ruins your margin.

Why does it ruin your margin? Worst case scenario would be you have to front the VAT until the customer pays it?

 

[Fred]

Why does it ruin your margin? Worst case scenario would be you have to front the VAT until the customer pays it?

This is going off topic - pleade @Admin delete in case.

I'm not sure if you are from EU but it's pretty easy - if you can't get a reverse charge VAT invoice for a B2B transaction between 2 EU companies then you have to pay the VAT for the wholesale - around 20% VAT + you have to charge again the client VAT for the B2C sale. So if you pay 20% VAT in the buy in and the average margin in E-Commerce is 20-30% - either you are loosing the whole marging or you have to charge the client an price that isn't competitive.

 

[fshore]

This is going off topic - pleade @Admin delete in case.

I'm not sure if you are from EU but it's pretty easy - if you can't get a reverse charge VAT invoice for a B2B transaction between 2 EU companies then you have to pay the VAT for the wholesale - around 20% VAT + you have to charge again the client VAT for the B2C sale. So if you pay 20% VAT in the buy in and the average margin in E-Commerce is 20-30% - either you are loosing the whole marging or you have to charge the client an price that isn't competitive.

OP asked about fulfillment, so I think this is relevant.
If the Maltese company has a warehouse in Germany and buys from a French supplier then the company can get reverse charge with the DE vat number. If it buys from a DE supplier then it'll pay the DE vat and get it refunded on the next vat return.
So a Maltese company (when trading goods) is not any disadvantage company to any other company.

 

[JustAnotherNomad]

If the Maltese company has a warehouse in Germany and buys from a French supplier then the company can get reverse charge with the DE vat number. If it buys from a DE supplier then it'll pay the DE vat and get it refunded on the next vat return.

That's exactly how I would have expected this to work. But I don't have experience with physical products, so I wasn't sure.

 

[Enrique123]

Thanks Fred - We sell directly through our own website (like most medium/high pret-a-porter labels), so the Amazon FBA example you highlighted wouldn't be relevant in our case.

From your experience and the little I have talked about our current set up, are there any other viable options you think we could explore?

 

[Fred]

OP asked about fulfillment, so I think this is relevant.
If the Maltese company has a warehouse in Germany and buys from a French supplier then the company can get reverse charge with the DE vat number. If it buys from a DE supplier then it'll pay the DE vat and get it refunded on the next vat return.
So a Maltese company (when trading goods) is not any disadvantage company to any other company.

Yes in theory.

In practice the German Warehouse will create substance and the german "Finanzamt" tries to tax the German Branch of the Malta Company - we were going through this with a very expensive tax adviser and we even figuered out that this on EU wide level should work and even found some examples.

However the German Tax Authority didn't want to accept the arguments and imply that one warehouse worker and the warehouse itself would even cause substance that is taxable - what's basically bulls**t.

So the deal from the tax authorities was basically either to pay taxes in Germany and get the VAT refund or to not pay any taxes and not get any VAT refund.

The issue was also that they doubt my residence on Malta as a German Citizen etc. - so they argumented with so many stuff that even the tax advisor that planned the structure initially didn't advised to take it to the court as the chances are very low.

Again on EU level and in several other EU countires we have seen this working with success.

Finally this was the trigger for leaving the EU and even shifting all the focus on how to do Business with a non-EU Company in Dubai within the EU by buying in China etc. and selling in EU

 

[Vince]

I have been more or less doing similar with Ecom successfully for years but I have an american company which gives me US business bank account + paypal and other payment processors, then I pay a little taxes in the US but shift most of the profits to a Maltese company, and I recently just setup residency in Malta as well post-covid.

I think you have an added layer of complexity since you're looking to keep inventory in Malta as well which I don't do.

the thing about the setup you're trying to do, is that by law you should be paying corporate taxes in the country from where you are running your company, so the portuguese tax man can go after you for living in Portugal and running a company based elsewhere and make you pay full Portuguese corporate tax. From what I know Portuguese tax authority does not do this yet, but some day they might decide to. So the safe way to do it for you is to setup Malta residency as well. Rent a place there, and then you can travel where you want.

the good thing about Malta residency is that they don't care how much time you spend there and don't check, so you'll only need to worry about if other countries where you are really staying might go after you.

other benefits are that taxes as a Malta resident are 0% for foreign sourced income and you dont have to hire a director for your maltese company, you can be your own director, so you save a lot of money there, as you'll only be paying taxes on the little salary your company pays yourself.