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Estonia e-residency + Portugal NHR

Nikola

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Mar 24, 2023
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I recently moved to Portugal and I am eligible for the NHR tax system which exempts me from paying taxes on foreign income. I am considering opening a company in Estonia while my residency will be in Portugal. Does anyone have experience with this arrangement and what will be the total taxes I can expect in this case?
Thanks a lot!
 
I was under the impression that due to the double taxation agreement between Portugal and Estonia, I would be able to pay taxes in the residency country (Portugal in my case). Since I qualify for the NHR in Portugal, one of the benefits is tax exemption on foreign income, including dividends from companies registered abroad. I was wondering if by combining these two elements I can actually pay 0% tax on the dividends from my Estonian company.

I didn't understand what you meant by managing my company from Portugal.
 
I was wondering if by combining these two elements I can actually pay 0% tax on the dividends from my Estonian company.

Not really since 20% it's a corporate tax that's deferred upon dividends distribution

When you distribute dividends you'll pay 20% tax or 14% for regular distributions (maybe you'll avoid the 7% WHT but i'm not sure)

I didn't understand what you meant by managing my company from Portugal.

I presume that as e-resident you intend to operate the OU from where you are resident, in this case Portugal.

By doing that you are creating a permanent establishment in Portugal so your profits could be taxed both by Estonia and Portugal (if they will find out).

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What would you recommend for tax optimization under NHR in Portugal?

If you don't live for 183 days in PT then you could pair your NHR with a US LLC.

You only need to rent an apartment in PT t be considered tax reisdent there so If you don't stay long enough in PT to trigger a permanent establishent then it could work but you have to double chck with a Portuguese lawyer.

In theory it works.
 
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My Portugal accountant believes Estonia + NHR works, though he suggests Malta instead. Further, in his long experience he's never seen the Portugal tax office come after NHR people using the permanent establishment criteria. That's not saying they won't in the future but generally he believes if you are a small fish you have little to worry about. I am already set up in Bulgaria but I find the costs too expensive. I will set up another company for my girlfriend in Estonia and see how it goes.

The tax treaty seems to suggests a reduction in taxes from the 20% of distributed dividends, to 10%. But I may be misreading that.
 
Yes, I'm probably paying too much for admin. Let me break the cost down for you in USD. Bulgarian manager/director: $635.34/month; Bulgarian accounting + tax filing: $264.25/month; Employment taxes for myself and the director ($72.76/month); Health insurance contributions for myself and the director ($99.15/month); Pensions contributions for myself and the director: $61.96/month; Social security for myself and the director ($224.77/month). Total = $1355/month or $16,260/year. Note that my Portugal accountant and Bulgarian manager agree it is wise for me to pay socials in Bulgaria so I do.
 
My Portugal accountant believes Estonia + NHR works, though he suggests Malta instead. Further, in his long experience he's never seen the Portugal tax office come after NHR people using the permanent establishment criteria. That's not saying they won't in the future but generally he believes if you are a small fish you have little to worry about. I am already set up in Bulgaria but I find the costs too expensive. I will set up another company for my girlfriend in Estonia and see how it goes.

The tax treaty seems to suggests a reduction in taxes from the 20% of distributed dividends, to 10%. But I may be misreading that.

My Portuguese Tax Lawyer also recommended Estonia or Malta! Why have you decided on Estonia? What do you expect the cost will be there?
I heard the process is super simple and everything is online, which is a big benefit for me.
 
I like the idea of using the Estonia corp to defer taxation until dividend distribution. I can compound my wealth faster that way.

That's what I was looking to do as well :) Thought you had some additional insights on why you decided to go with Estonia over Malta...
I am only now starting to research these options so I can report back when I have more information. I am looking into Estonia, Malta, and Cyprus. The goal is to see which one of these countries is the best fit when combined with a residency in Portugal under NHR.
 
Have you tried optimising your current Bulgaria setup by first like getting a cheaper director and cheaper accountant as that's where the most of the money is going?

Opening a company in Estonia is one thing but running it is a different one (and banking will be an issue).
Also, these 16k is how much in comparison to your annual income?
 
Good point. I have not tried optimizing. I know there are cheaper options. It's something to look into for sure.
It's about a 10th of the annual income in a bad year.

I've heard the banking issue about Estonia. I also heard the same about Bulgaria but when I went there it was simple enough. I will experiment with Estonia and see if it's possible.
 
If you could lower your expenses a bit it might be easier than to setup a new company.

Yes, Xolo Go was my next question as it takes 5.9% (previously 5%) so might be even cheaper than current Bulgaria setup (if you can make it work). It's a company-as-service approach.
 
If you could lower your expenses a bit it might be easier than to setup a new company.

Yes, Xolo Go was my next question as it takes 5.9% (previously 5%) so might be even cheaper than current Bulgaria setup (if you can make it work). It's a company-as-service approach.
They have a Xolo LEAP plan as well, where they help you set up your own company. You pay the startup fees (around 400e, depending on what bank you use) and then a monthly subscription to Xolo. The cheapest plan is 89e a month. Most expensive 200e.
Their FAQ page is really good, they have a ton of info on starting a company in Estonia in general.
From what I gathered you can become an e-resident in Estonia online and open a company there online.
  • Your company is a tax resident in Estonia, you are not.
  • You can be the sole shareholder and director, and pay yourself a salary.
  • You don't pay tax on your salary in Estonia, you pay it in the country where you are a tax resident.
  • You don't pay taxes on your profit as long as you keep it in the company in Estonia.
  • If you want to take out dividends (or essentially take out money any other way), you pay a 20% tax in Estonia (and maybe something in the country where you are a tax resident, needs checking). For Portugal under NHR seems to be 0% on dividends so far.

    It's probably not the most tax-efficient solution but seems to play nice with NHR, and everything is online, in English, and simple.

    This is all just based on my research online, haven't validated this with a tax consultant yet. Always do your own due diligence :)

 

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