Has anyone done some research into EU partnerships?
US LLCs and UK LLPs seem quite popular, but what about options within the EU?
Ireland,
Estonia, maybe even traditional high-tax countries? The structures should be transparent, so there usually shouldn't be any tax if you don't have local operations in the country.
Obtaining a VAT ID (for those who work B2B) would probably be the biggest hurdle, but I'm sure even that could be overcome by simply selling B2C over the minimum threshold, as then you have to get a VAT ID...?
I could imagine that especially Estonia could be an interesting option, as even the "on shore" (local revenue) part of the partnership (if you have some substance in Estonia) would probably only be taxed if you distribute profits?
So in theory, you could simply add some substance (for banking, VAT registration, ...) and still not pay tax?
@Don ?
Estonia has indeed multiple partnership structures:
1) Transparent partnerships for tax purposes which are not considered natural nor legal entities, and not registered in the commercial register, but they can have their own tax number if there is a
tax liability in Estonia:
1.1 Partnership (like very popular but expensive xolo go)
1.2 Silent partnership - One of the purposes of the silent partnership is to hide the participants in the business. The enterprises leading figure is publicly registered, but its partner or partners are not.
2) legal entity partnerships:
2.1 General partnership (unlimited liability partners)
2.2 Limited partnership (dormant partner with limited liability + active partner with unlimited liability)
Both legal entities and natural persons can form such partnerships, but when there are only natural persons involved there is no requirement to submit publicly available annual reports. You can easily obtain VAT number. If you operate as a PE in foreign jurisdiction sometimes again you dont need to submit any financial statements. In some cases you can benefit from the reduced or exemption of withholding taxes.
3) commercial association - while not a partnership its worth mentioning it as its quite similar. This organization can be formed by legal and natural persons, with both limited and unlimited liability depending on if you pay in share capital of 2.5k.
Great benefit is that members are not publicly disclosed.
Every member is equal with 1 vote.
A commercial association (tulundusühistu) is a company aimed at supporting and advancing the economic interests of its members through collective business activity. Members take part in the association in the following role:
- as consumers or users of other benefits;
- as suppliers;
- by contributing labour;
- through using services;
- in some other similar manner.
As a company it can also distribute
dividends.
General partnership, limited partnership and commercial association are treated as separate legal entities and are tax residents in Estonia. They are only taxed in Estonia when distributing profits.
While its 20% tax on distribution only, there is no withholding tax, and already taxed profits arising from foreign PE-s are tax exempt, so its possible to structure the total tax rate paid on distributed profits as little as 0.1% depending on the jurisdictions and types of income involved. Non-resident salaries are also not taxed. Due to the nature of the tax system capital contributions can be very useful tool to benefit from effective zero tax, yet be able to withdraw funds from your business if need be.
Partnerships can also form different partnerships with themselves and other natural persons so it can get quite complex.
To conclude, with careful planning (due to GAAR) Estonia can be an useful tool for structuring
anonymity, non-disclosure of assets, zero or close to zero tax and
tax residency without actual physical stay, or legal residency without tax residence.
You can build a startup and exit it tax free and even real estate
investments can be structured tax free.
EU has its possibilities and limitations. Free movement of capital applies within the EU. Those intending to show a particular finger to EU might need a stepping stone, and Estonia can be quite decent choice.
In specific circumstances it can allow to win time and to benefit from a possible decrease in value of the hidden reserves between the moves. Also, in case of a request for administrative cooperation, Estonia as temporary jurisdiction may have limited interest to invest resources in order to collect taxes for the departure state if wealthy investors decide to move to this country.
At times partnerships can be useful for avoiding or limiting exit tax.It can be useful to put the shares into a foreign holding and to put this foreign holding into a local partnership before the exit. Generally spoken, it may be useful to establish rather complex international structures with several shareholders and units on different levels and contracts between them in order to have better arguments for the evaluation.
