Estonian E-residency and taxes

[silvana]

Hi there! I've just found this forum and I'm super excited about the things I'm reading. Can't believe there's such a community and so much info available.

I have a company in Estonia under the e-residency program. I'm not distributing dividends so far, but have been transferring "employee salary" to an EU account. The accountants that advice me said that if I can justify that I'm a "digital nomad" (showing a certificate that says I don't need to pay tax in the latest country I "used to live"), I would be fine, and nobody would question this move. I presented such certificate and everything is fine so far.

I understand this is quite a gray area so I'm looking to properly register and pay what needs to be paid, in Europe.

If I start paying taxes in an European country, let's say Italy, would you say I will be investigated in the future for those years where I didn't declare the income? If so, what are the consequences?

Anybody with a similar experience? Thanks!

 

[JohnLocke]

Where do you live today ?

 

[silvana]

Germany.

 

[Martin Everson]

I have a company in Estonia under the e-residency program. I'm not distributing dividends so far, but have been transferring "employee salary" to an EU account.

Then you may owe taxes where you were resident unless your a non-dom in some situations or offshore income falls under CFC threshold of where you were resident. The idea of "digital nomad" is a nonsense term when it comes to tax. You need to look at each countries tax law where you were resident and working from. You have given no details on the countries or time spent in each etc.

If I start paying taxes in an European country, let's say Italy, would you say I will be investigated in the future for those years where I didn't declare the income?

Italy won't investigate you if you just moved there and started paying taxes. As Italy will gain nothing from investigating foreign tax offenses were no income is due to them.

 

[silvana]

Thanks. So it's safe to assume that if I didn't declare the income all these years, and if today I move my fiscal residency to Italy I would be in theory starting from zero and not at risk of being investigated?

 

[Martin Everson]

Thanks. So it's safe to assume that if I didn't declare the income all these years, and if today I move my fiscal residency to Italy I would be in theory starting from zero and not at risk of being investigated?

When you arrive in Italy all your money you bring with you is considered capital so in theory you should get no issues. However I have seen issues with some EU countries where when registering they ask for the prior countries you were living in for last few years. Only in worst case if you were being investigated i.e by Germany and they can ask Italy for what you declared when registering then you would be screwed if you declared yourself to Italy as living previously in Germany. But I don't know what they ask when you register in Italy so maybe nothing to concern yourself about and again this wont just randomly happen.

 

[silvana]

Thanks!

 

[Kirito]

@berlinerrr Could you elaborate the "employee salary" in Estonia?

I'm planning to open a company there, so I want to know if an owner can also be an employee and if the money paid as an employee counts as dividend or not.

 

[JustAnotherNomad]

So it's safe to assume that if I didn't declare the income all these years, and if today I move my fiscal residency to Italy I would be in theory starting from zero and not at risk of being investigated?

Congratulations, you have committed both tax evasion and social security fraud.
The Estonian company has to pay tax where you live, like a local company.

When you move to Italy, you will also have to pay exit tax in Germany on your Estonian company, the payment of which may or may not be deferred for as long as you live in the EU.
So if you don't declare that when you move, you're committing even more tax evasion.

In Italy, it will be the same situation. So you're planning to just move to Italy and keep committing a crime?

I'm planning to open a company there, so I want to know if an owner can also be an employee and if the money paid as an employee counts as dividend or not.

No, it's a salary, not a dividend. So it is taxed as income, not as a dividend.
But the company will be taxable where you live. It most likely won't be taxable in Estonia at all.

It almost never makes sense to have a company in Estonia, as long as you live in a country with high taxes and strict enforcement (=another EU country).

 

[silvana]

"The Estonian company has to pay tax where you live, like a local company."

No, the company pays taxes in Estonia. You as an individual are required to pay tax wherever you live, if you get a salary or dividends from the company. Otherwise there's no point of creating a company in Estonia under the e-residency program if the company needs to pay taxes wherever you live. It defeats purpose.

"In Italy, it will be the same situation. So you're planning to just move to Italy and keep committing a crime?"

Quite harsh to put it that way, no? I'm happy to pay all tax that's due.

 

[Martin Everson]

The Estonian company has to pay tax where you live, like a local company.

This is not necessarily true as some countries have CFC thresholds where only over a certain amount of income the company is considered a CFC. You need to examine the CFC rules of each country and take into consideration ATAD.

 

[Konstanz]

Estonia e-residency is not residency. It's just digital signature. It does not give permission to live in Estonia or declare tax residence.
You have to have real place to live in Estonia and register. And if you are not EU citizen you will have to get EU visa.

 

[clemens]

When you arrive in Italy all your money you bring with you is considered capital so in theory you should get no issues. However I have seen issues with some EU countries where when registering they ask for the prior countries you were living in for last few years. Only in worst case if you were being investigated i.e by Germany and they can ask Italy for what you declared when registering then you would be screwed if you declared yourself to Italy as living previously in Germany. But I don't know what they ask when you register in Italy so maybe nothing to concern yourself about and again this wont just randomly happen.

So, one could actually imagine first moving to a country outside the EU, giving up one's fortune there, and betting on them not asking in Germany - and then moving to Italy and telling them that you come from a non-EU country, which might make them indifferent?

 

[JustAnotherNomad]

This is not necessarily true as some countries have CFC thresholds where only over a certain amount of income the company is considered a CFC. You need to examine the CFC rules of each country and take into consideration ATAD.

Except this has nothing whatsoever to do with CFCs, so your argument is besides the point.

So, one could actually imagine first moving to a country outside the EU, giving up one's fortune there, and betting on them not asking in Germany - and then moving to Italy and telling them that you come from a non-EU country, which might make them indifferent?

Even if it worked, what would this solve when it is Germany that is after you?

 

[JohnLocke]

Even if it worked, what would this solve when it is Germany that is after you?

Maybe he can avoid that the german's will figure it out. I know it is far from reality.

 

[Martin Everson]

So, one could actually imagine first moving to a country outside the EU, giving up one's fortune there, and betting on them not asking in Germany - and then moving to Italy and telling them that you come from a non-EU country, which might make them indifferent?

In theory you could do this. But you need to examine each countries laws you are moving to in Europe.

 

[Don]

This is not necessarily true as some countries have CFC thresholds where only over a certain amount of income the company is considered a CFC. You need to examine the CFC rules of each country and take into consideration ATAD.

Imagine if you are not running a corporation but an association. I haven't heard about the rules of controlled foreign associations.

Estonia e-residency is not residency. It's just digital signature. It does not give permission to live in Estonia or declare tax residence.
You have to have real place to live in Estonia and register. And if you are not EU citizen you will have to get EU visa.

Actually, with the HNWI residence scheme, you can get a residence permit without needing a place to live. This means you can also avoid tax residency but have legal residency in the EU/Schengen.

"The Estonian company has to pay tax where you live, like a local company."

No, the company pays taxes in Estonia. You as an individual are required to pay tax wherever you live, if you get a salary or dividends from the company. Otherwise there's no point of creating a company in Estonia under the e-residency program if the company needs to pay taxes wherever you live. It defeats purpose.

"In Italy, it will be the same situation. So you're planning to just move to Italy and keep committing a crime?"

Quite harsh to put it that way, no? I'm happy to pay all tax that's due.

Substance over form. In some cases the Estonian company might pay all taxes abroad and zero to Estonia.

 

[JustAnotherNomad]

No, the company pays taxes in Estonia. You as an individual are required to pay tax wherever you live, if you get a salary or dividends from the company. Otherwise there's no point of creating a company in Estonia under the e-residency program if the company needs to pay taxes wherever you live. It defeats purpose.

Damn, you are too smart for the German tax authority with your IQ of 1000. You are the only person who ever thought of this, nobody in the German administration ever could imagine such a smart move, so they are completely powerless and they certainly don't have any laws in place to thwart your plans.

Hint: Yes, you are right, there is no point in creating a company in Estonia. This was the first correct thing you have written in this thread.

Quite harsh to put it that way, no? I'm happy to pay all tax that's due.

You have an obligation to report to the German tax authority that you have incorporated a company in Estonia, which you are managing from Germany.
Have you done that? If not, you have most likely already committed tax evasion (depending on how long you have had the company and how much taxes you have evaded).

Please also tell them that you don't intend to pay corporate and trade tax for the company in Germany (Germany - Corporate - Taxes on corporate income ), since you're an IQ 1000 e-resident who keeps all the profits in the Estonian company. Please post their reply here.

When you move out of Germany, you also have to disclose the value of your Estonian company, are you going to do this? If not, that will be tax evasion as well.

Dude, in all seriousness, talk to a tax lawyer. You might be better off reporting yourself before they catch you and make your life hell. Hopefully it will be a lesson to you to not f**k around with stuff like this.

 

[Martin Everson]

Imagine if you are not running a corporation but an association. I haven't heard about the rules of controlled foreign associations.

What has that got to do with the topic?

 

[Don]

What has that got to do with the topic?

I am just highlighting the fact that CFC rules are quite often irrelevant, and people tend to overestimate their impact at times.
More important are the domestic tax laws for determining the corporate tax residence and the concept of permanent establishment.
The end result is largely the same though, so there is little point to nitpick about it.