Estonia and getting paid

[LisaSimpson]

I have heard that some people lowered their tax by getting paid using income tax and expenses since it comes prior to profit.
For example, I have heard of a German lady who lives under the nonhabitual resident programme in Portugal where she does not pay any income tax. She has an Estonian company. She gets the money from the Estonian company as a salary, not distributed profits. Thanks to this technique she lowers the tax she has to pay in Estonia. She decides to pay a bit of Estonian distributed tax as well by taking dividends. Just to look good to the Estonian tax authorities. I thought that they had to pay 20/80 distributed profit tax on any income. I am curious about it.

Can someone confirm this setup?

From what I have calculated Estonia is not interesting at all.
People decide to pays themselves 70% of employee benefits and 30% of board member benefit. I have calculated that the social contribution (33% in estonia) + the real distributed profit tax (25%) = 58% tax on the board member benefit. Consequently. If you pay yourself 3000 euros in the name of board member benefit and 7000 euros as employee benefits. You will pay 1740 euros tax on the 3000 euros which is equal to roughly 24,85% tax on the 10000 euros that you paid yourself.

If you live in a high tax country, you also have to pay tax in your country...

Is it me, or is Estonia not interesting at all?

 

[negon]

That sounds interesting, will monitor this thread. Sounds better than Dubai.

 

[adsltd]

Well,I just closed my company is seychelles and applied for E-Residency in Estonia,

 

[jackfrost]

I dont get why people choose those eastern countries. On paper they look good at the beginning as they offer low corporate tax but pretty much all are on par with most other countries in terms of income tax. Sure it might be 10% or so below the western ones but life quality, additional expenses of being an expat etc do not make this worth at all (in my opinion). If you are going the full length then it needs to be worth it. 20% is not worth it.

 

[JohnLocke]

Well,I just closed my company is seychelles and applied for E-Residency in Estonia,

Good luck with that! You may open a thread here if you don't mind and let us know how it is going with your setup in Estonia.

 

[adsltd]

I've seen a lot of daunting posts here, now it depends what you want to acquire if you open a company in Estonia,
depends what complicated legislation you have in your home country,
I'm looking for a possibility to give me more transparency,
and in the same time as simple as possible,my country is a hell when it comes to taxes,
at the same time you have to lose hundreds of hours at the counter to deposit piles of papers and to pay your taxes,
I hate this soviet OLD habit and concentrate to make money for my business,this is the first thing that pushed me to think about Estonia.
I want to eliminate all these headaches through this Estonian program, all this headaches can disappear with a few clicks online.

 

[JimBeam]

I've seen a lot of daunting posts here, now it depends what you want to acquire if you open a company in Estonia,
depends what complicated legislation you have in your home country,
I'm looking for a possibility to give me more transparency,
and in the same time as simple as possible,my country is a hell when it comes to taxes,
at the same time you have to lose hundreds of hours at the counter to deposit piles of papers and to pay your taxes,
I hate this soviet OLD habit and concentrate to make money for my business,this is the first thing that pushed me to think about Estonia.
I want to eliminate all these headaches through this Estonian program, all this headaches can disappear with a few clicks online.

It's been almost 6 months now.
Any updates on your experiences so far?

 

[John Andrews]

Estonia is interesting because of its lack of bureaucracy, not because of its tax rate (which is actually fairly high).

 

[JimBeam]

Estonia is interesting because of its lack of bureaucracy, not because of its tax rate (which is actually fairly high).

From what I have seen it's cheap and easy to setup.
Running costs are very cheap compared just about anything else I've seen (since everything is done electronically / no human labor).
It's great for freelancers/developers/expats or people that are not from EU to get access to EU banking and market.

If you have another company with lower tax rate (or no taxation) it can be a really good solution since you can use this company as proxy and (almost) never pay any taxes there.
So it's great if you're starting up with something or if you're not from EU. In the end it all depends how you use it.

 

[John Andrews]

It's great for freelancers/developers/expats or people that are not from EU to get access to EU banking and market.

Yeah, although you have to be careful not to trigger CFC laws in this case.

 

[JimBeam]

Yeah, although you have to be careful not to trigger CFC laws in this case.

I heard lot of people from third world countries (Pakistan, India, China etc) are using this so they can freelance and get paid easily or use it to sell on amazon or whatever.
If you're a resident of US/UK you should be careful about this for sure.
Don't know if every country has and follows CFC... If you know more please post...

 

[John Andrews]

There's lots of people with Estonian OUs but the question is how many of them actually paid out anything.
Even if they did, doesn't mean it's legal, they just didn't get caught yet.
I'm not a tax expert though =P

As far as I know (and don't quote me on this), you're free to open a company anywhere within EU if you are an EU resident although some countries like Germany are more strict about it and will require you to prove that the company is a resident in the country of incorporation. This can be solved by renting an office or similar.

 

[JimBeam]

When you say "paid out anything" you mean dividends?
As there is no obligation for a company to payout dividends - in case of Estonia there is no obligation to pay the corporate tax.
You can invest the money or keep it on the company bank account.

But once you decide to payout dividends you have to pay 20% tax on top of the amount and then you're also liable for the tax in your own country (need to check if there is signed DTT).
You can pay yourself a salary and in that case you'd have to pay all the taxes in your own country.

Here is a copy/paste:

If you operate outside Estonia, the following taxes apply.

• If you don't take any money out from your company, you don't need to pay corporate income tax in Estonia. You can keep the earned money on your company's account indefinitely and you won't have to pay income tax on it. You only need to start paying the relevant taxes when you start taking money out of the company, meaning paying yourself a salary, taking out dividends etc.
• If you receive a salary from your company, it is classified as an employee salary, and no personal income tax nor social tax are paid on the salary in Estonia. Whilst the salary payments are not declared in Estonia, they are not tax-free. You’re responsible for declaring and paying taxes in the country where you are a tax resident as an individual person and/or where you perform your duties. Please contact the local authorities in the country to learn about the relevant tax rules and the procedures for declaring and making the payments properly. Please be ready to provide tangible evidence about the actual tax declarations and payments in your location upon a request by Estonian tax authorities.
• If you receive dividends from your company, the corporate income tax is paid in Estonia. The rate is 20%, calculated as 20/80 from the net payment you receive. For example, if you receive €800 net as dividends, the corporate income tax of €200 has to be paid in Estonia. No personal income tax is added in Estonia. However, the personal income tax is likely to be declared and paid in the country where you are a tax resident. Please contact the local authorities in the country to learn about the income tax rules and the procedures for declaring dividends received and making the payments properly. Unfortunately we can't assist you with this yet either. In case of regular dividend payments (each year), different tax rules may be due.

(BTW: I'm not an expert either, but I have read a tons of pages on this)

 

[pjat555]

I heard that if you (as an example ) live in UK and manage your Estonian company from UK, HMRC treat this Estonian company as normal UK company so you have to pay corporate tax in UK

Not sure but what if I pay myself from Estonian company salary and declare and pay taxes on it in UK/? do I still have to pay corporate taxes in UK?

 

[chaltron]

I heard that if you (as an example ) live in UK and manage your Estonian company from UK, HMRC treat this Estonian company as normal UK company so you have to pay corporate tax in UK

Not sure but what if I pay myself from Estonian company salary and declare and pay taxes on it in UK/? do I still have to pay corporate taxes in UK?

Yes, if there is not substance in Estonia, you most likely will pay CIT in UK and also personal income tax from your salary income, however remember that a salary is a deductible expense for corporate tax, so in the end you will be paying less corporate tax.

Depending in your personal circumstances would be better to check if it's better to cash-out via salary or dividends.

 

[magicraff]

I heard that if you (as an example ) live in UK and manage your Estonian company from UK, HMRC treat this Estonian company as normal UK company so you have to pay corporate tax in UK

Not sure but what if I pay myself from Estonian company salary and declare and pay taxes on it in UK/? do I still have to pay corporate taxes in UK?

Just looking into opening a company in Estonia to lower the corporate tax. Based on my research I understand that if you don't take out the money and keep it in the company for investment only 10 % or 0 corporate tax is due.

I'm a tax resident in UK and have a LTD, based on what you are saying, above does this mean that there is no tax treaty between UK and Estonia but I do think there is? Meaning HMRC will not class my business for corporate tax, only charge me if I take out dividends.

More insights would be nice please.