How to get paid a Tax Free Salary from your own company?

[GPT]

There's a lot of thinking and feeling in your comments. I can tell you it's not an issue. No EU country cares about this if you can explain to them that you are not an EU resident.
It's just a PITA if you live in another EU country, then you have to show coverage with form A1.

Your employer has to do a lot more than providing you with the A1. Effectively they end up paying SI for you in the country you live. Unless they can proof that you are a posted employee that works in 2 or more EU memberstates.

 

[JustAnotherNomad]

The A1 isn't provided by the employer. It's issued by the social security provider.
For EU companies, if the employee lives in a non-EU country, there is no such obligation in the EU. There may be an obligation to pay social security contributions in the country where the employee resides, but that's kind of a given. And the whole point of this thread is being able to pay a salary without any tax, so the employee would be resident in a country without such obligations. For example, if the employee lives in the UAE, there is no social security to be paid and there is no need to prove to the EU country that there is no social security in the UAE. It's really, really simple. More facts, less thoughts and feelings.

 

[GPT]

The A1 isn't provided by the employer. It's issued by the social security provider.
For EU companies, if the employee lives in a non-EU country, there is no such obligation in the EU. There may be an obligation to pay social security contributions in the country where the employee resides, but that's kind of a given. And the whole point of this thread is being able to pay a salary without any tax, so the employee would be resident in a country without such obligations. For example, if the employee lives in the UAE, there is no social security to be paid and there is no need to prove to the EU country that there is no social security in the UAE. It's really, really simple. More facts, less thoughts and feelings.

You are right that the employer does not issue the A1, I phrased that wrong because of how much more the employer became responsible for getting the E101/A1 issued (I have won multiple cases in court about this topic as companies were held hostage between employees and foreign governments).

About not paying any socials I already said before that he would have to live in a country that doesn't have them.

With tax free you also mean free of social contributions? For that matter you need to live in a country which doesn’t have social contributions.

Your employer is obliged to pay where you reside except for the EU when you work in 2 or more member states. Look up the E101 (old) / A1 (new) laws. Based on that your EU employer can pay socials in land where they are incorporated/ headquartered.

Mind you, in some cases your EU employer also ends up paying socials when you do not reside in the EU. Philippines is one such example. The employer pays a gross amount to (call it) an agent who takes care of socials in the Philippines and pays the net salary to the employee.

 

[JustAnotherNomad]

Mind you, in some cases your EU employer also ends up paying socials when you do not reside in the EU. Philippines is one such example. The employer pays a gross amount to (call it) an agent who takes care of socials in the Philippines and pays the net salary to the employee.

Yes, of course, but that would be a matter of the Philippines enforcing it - the EU country where the company is based wouldn't be chasing this proactively. You could also end up having a PE in the other country, which would mean the company would have to pay tax in that other country. But I don't think this is relevant for this thread, as one would obviously be residing in a country that doesn't have such things/wouldn't be chasing foreign companies about this.

The claim here was that the company would always have to pay tax and/or social security contributions in the country where it is incorporated, which simply isn't true, except for some countries and typically only on director's fees, not salaries.

 

[GPT]

Yes, of course, but that would be a matter of the Philippines enforcing it - the EU country where the company is based wouldn't be chasing this proactively. You could also end up having a PE in the other country, which would mean the company would have to pay tax in that other country. But I don't think this is relevant for this thread, as one would obviously be residing in a country that doesn't have such things/wouldn't be chasing foreign companies about this.

The claim here was that the company would always have to pay tax and/or social security contributions in the country where it is incorporated, which simply isn't true, except for some countries and typically only on director's fees, not salaries.

The claim would be closer to the truth when it would say "the company pays where the employee is residing for more than 6 months per year".

Many larger companies struggle nowadays with this because of their remote work force. One of the reasons to ask employees to come back to the office for 1 day per week is because of tax exposure. Slowly solutions start to emerge. Especially the EU is terrible in that sense and unfortunately paving the way for other countries that just copy paste the example.

 

[Xshore]

You pay NIC only if you are a company director. If you're an employee and nonresident, you don't pay.

If You are a non UK resident then you don't pay NIC on directors salaries. This has been confirmed by accountants and HMRC.

BUT the Estonian tax agency can request you proofs that you are paying the tax and SS in the country where you are a resident. If you are required to pay those in that country.

I don't think this is the case if you are clearly a non estonian resident. Maybe if you're estonian citizen and/or been estonian resident then they would require this to let you go. But the tax code says that income earned in Estonia is taxable while earned overseas isn't. If you don't pay tax in another country that isn't their problem and they can't tax you just because of that.

 

[churumbelo]

If You are a non UK resident then you don't pay NIC on directors salaries. This has been confirmed by accountants and HMRC.


I don't think this is the case if you are clearly a non estonian resident. Maybe if you're estonian citizen and/or been estonian resident then they would require this to let you go. But the tax code says that income earned in Estonia is taxable while earned overseas isn't. If you don't pay tax in another country that isn't their problem and they can't tax you just because of that.

I read this online in a couple of sources (I think that one was Xolo) so I reached out to the Estonian tax agency via email and they confirmed what I say.

 

[JustAnotherNomad]

If You are a non UK resident then you don't pay NIC on directors salaries. This has been confirmed by accountants and HMRC.

So it confirms what I've been saying all along.

I don't think this is the case if you are clearly a non estonian resident.

Exactly. I have never EVER in my life heard of any EU country demanding proof of SS regulations for non-EU residents. It does NOT make any sense whatsoever.
Which authority would that be? Social security isn't tax, so the (for example) Estonian tax authority wouldn't care. But the Estonian social security authority isn't responsible for what happens in some far away non-EU country. It really simply doesn't make sense.
Only intra-EU it's different because the EU countries work closely together since it would be illegal for an EU resident to be uninsured.

Yngmind is simply making up stuff.

I reached out to the Estonian tax agency via email and they confirmed what I say.

They confirmed what? That they can ask for information that you're paying something elsewhere? So?
I'm sure they can ask for whatever they like, but the claim in this thread was that you have to pay in the country where the employer is located, and that's simply not true.
You will not be paying social security in Estonia as a non-EU resident.

 

[Xshore]

I think the confusion with Estonia comes from if the salary is a directors salary, as this is taxable in Estonia. And since its taxable there the source is there (like if you worked there in person) and they might also charge social security on it unless you live in a country that has a social security agreement with Estonia.

 

[JustAnotherNomad]

Yes, but it's not a salary, it's a director's fee. It's different from a regular salary.
You can be a director and receive both a director's fee and a salary, and only the director's fee would be taxable in Estonia.

 

[Don]

Yes, but it's not a salary, it's a director's fee. It's different from a regular salary.
You can be a director and receive both a director's fee and a salary, and only the director's fee would be taxable in Estonia.

Likewise you can live in Estonia (or some other country) and pay yourself a directors fee from UAE company which will not be taxed in UAE or Estonia, provided certain conditions are met.

Employment income is treated differently, which is clearly shown by tax treaties. One should account for his tax residency and time spent in the respective jurisdiction, and existence of PE-s.
E.g., Netherlands resident might spend 183 days in UAE and receive salary from an Estonian company which will not be taxed in Estonia or UAE or Netherlands

Yes, but it's not a salary, it's a director's fee. It's different from a regular salary.
You can be a director and receive both a director's fee and a salary, and only the director's fee would be taxable in Estonia.

Treaties normally give right to tax director fee in the country of incorporation/residency of the corporation.

Example:

Article 14
INCOME FROM EMPLOYMENT​

1. Subject to the provisions of Articles 15, 17 and 18, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that Contracting State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other Contracting State.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned Contracting State if all the following conditions are met:

a) the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned,

b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other Contracting State, and

c) the remuneration is not borne by a permanent establishment which the employer has in the other Contracting State.

3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State, shall be taxable only in that Contracting State.

4. An individual who is both a national of a Contracting State and an employee of an enterprise of that Contracting State the principal business of which consists of the operation of aircraft in international traffic and who derives remuneration in respect of duties performed in the other Contracting State shall be taxable only in that Contracting State on remuneration derived from his employment with that enterprise.

Article 15
DIRECTORS’ FEES​

Directors' fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors or any other similar organ of a company, which is a resident of the other Contracting State, may be taxed in that other Contracting State.

Article 20
STUDENTS AND APPRENTICES​

1. Payments which a student or business apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned Contracting State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that Contracting State, provided that such payments arise from sources outside that Contracting State.

2. In respect of grants, scholarships and remuneration from employment not covered by paragraph 1, a student or business apprentice described in paragraph 1 shall, in addition, be entitled during such education or training to the same exemptions, relief's or reductions in respect of taxes available to residents of the Contracting State which he is visiting.

 

[Xshore]

Article 15
DIRECTORS’ FEES​

Directors' fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors or any other similar organ of a company, which is a resident of the other Contracting State, may be taxed in that other Contracting State.

Yes the treaties say that, but that doesn't meant that the countries will tax directors fees paid to non residents. For example the UK doesn't tax directors fees paid to non residents even thought the treaties say that they have the right to tax this income.

 

[Don]

Yes the treaties say that, but that doesn't meant that the countries will tax directors fees paid to non residents. For example the UK doesn't tax directors fees paid to non residents even thought the treaties say that they have the right to tax this income.

Yes, treaties can only limit taxes, and not impose them.