I just came up with an interesting EU setup for crypto trading

[flyingadventures662]

I need to discuss with lawyers now, just sharing. But from what I read, I see it solid, and even a not-gray area:

1) Open an offshore company in a jurisdiction with 0% tax. No need for a Nominee Director, it could be yourself.
2) Go to Estonia, rent an apartment, live there, trade from there from the company.
3) Officially register the company with the Estonian authorities for forming a Permanent Establishment (you trade from your home office), submit asset sheets, tax returns, whatever they request.
4) You pay 20% on the dividend you distribute (monthly expenses). All the corporate profit is untaxed.
5) When you want to make (hopefully) the huge cash out: leave Estonia, announce the tax authorities that you leave, they officially remove your tax residency from there.
6) Distribute the dividend in your country.

Money paid: 20% on monthly expenses while living in Estonia + 0% on the whole rest of the profit + Dividend on what you distribute to yourself (varies by country, 5% in Bulgaria, in many countries foreign dividends are tax-exempt, and this case it should remain foreign one as there is no business activity happening anywhere anymore). In the extreme event you are concerned to distribute the dividend yourself, hire a Nominee Director just for one signature and that's it. But even if at this point you distribute it as a director, and they say you are managing the company from your country and it forms a tax residency there, there is no profit to be taxed - all the real profit had happened while you were in Estonia.

Interestingly, same tax applies for Estonian company. But the difference I guess is that at some point you need to distribute everything from it and pay the 20% on the whole profit. Which, in this case, is omitted.

 

[Sols]

1) Open an offshore company in a jurisdiction with 0% tax. No need for a Nominee Director, it could be yourself.
2) Go to Estonia, rent an apartment, live there, trade from there from the company.
3) Officially register the company with the Estonian authorities for forming a Permanent Establishment (you trade from your home office), submit asset sheets, tax returns, whatever they request.
4) You pay 20% on the dividend you distribute (monthly expenses). All the corporate profit is untaxed.

Due to the 20/80 rule, the company ends up paying an effective rate of 25%. You also have to pay personal income tax on it, at a rate of 20% (no 20/80 rule). There is also a 14% tax rate you may qualify for instead (14/86 rule, so the effective rate is around 16%), which has a 7% WHT.

5) When you want to make (hopefully) the huge cash out: leave Estonia, announce the tax authorities that you leave, they officially remove your tax residency from there.
6) Distribute the dividend in your country.

This is less clear cut. Your reasoning is quite sound but I could see Estonian authorities claim that the distribution is taxable in Estonia by virtue of having been accrued there and try to throw some anti-avoidance regulations at you. Not sure it'd stick, though, and that's even if the Estonians go after you, which is probably unlikely.

I'd just be careful to make sure you don't just end tax residency, take up tax residence somewhere else, and then immediately cash out. Establish bona fide economic substance in your new home. If it looks temporary and done avoidance purposes, that's something the Estonian authorities could use against you in the unlikely case they come after you.

Run it by an Estonian lawyer and see what they say. Could be an interesting solution for those who don't mind waiting for the big cash out and are comfortable with 25% + 20% tax on distributions in the meantime.

 

[flyingadventures662]

Due to the 20/80 rule, the company ends up paying an effective rate of 25%. You also have to pay personal income tax on it, at a rate of 20% (no 20/80 rule). There is also a 14% tax rate you may qualify for instead.

Oh so it's 45% in total? I thought if 20% applies on the WTH then it's tax free...

This is less clear cut. Your reasoning is quite sound but I could see Estonian authorities claim that the distribution is taxable in Estonia by virtue of having been accrued there and try to throw some anti-avoidance regulations at you. Not sure it'd stick, though, and that's even if the Estonians go after you, which is probably unlikely.

I'd just be careful to make sure you don't just end tax residency, take up tax residence somewhere else, and then immediately cash out. Establish bona fide economic substance in your new home. If it looks temporary and done avoidance purposes, that's something the Estonian authorities could use against you in the unlikely case they come after you.

I am baresly starting to research Estonia but from the small things I see I am deeply impressed by how clear and precise written in English are all rules on the official website. I have seen such clean rules probably only in the UK and Ireland's websites. It does not seem to me there are any gray areas, everything is black and white. When it comes to ending residency, they go that far that they claim you submit it online and by the end it's accepted you are no longer a resident on the very next day. Residency also, from that I understand, is even not bound to a fiscal year, but to fixed presence day there, up to the precise day. And if I am not wrong I think I also even saw a function on the website where you insert your e-card and you can check your residency status. I have never seen another country to announce and denounce official residency as a simple status (instead of semi-objectively interpreting it freely at any time). From what I read I don't feel Estonian authorities would try to play dirty games like Spanish ones (from what I have heard about Spain), rather keep things "yes/no".

Having this in mind, this is what I saw on their website about PE of foreign companies (they are non-resident as due to Estonian law even if the director is there they are non-resident, as per PWS, resident companies should be just Estonian ones). As you see from the text, the rules are quite defined and it's written in bold that they tax only distributed dividends. And that taxable profits must be the ones only done via the PE - while operating in Estonia.

To be 100% clean though, 1 month or so before leaving Estonia you can get a solid Director from BVI, to be prepared once you leave, the company to have a BVI residency - as you suggest. Then, after the dividend distribution by him I simply can't see what can be claimed.

Run it by an Estonian lawyer and see what they say. Could be an interesting solution for those who don't mind waiting for the big cash out and are comfortable with 25% + 20% tax on distributions in the meantime.

Of course! Absolutely will be checked with a lawyer. But I was a bit disappointed the total is 45%.... But still, for monthly expenses could be fine I guess.

 

[Sols]

Oh so it's 45% in total? I thought if 20% applies on the WTH then it's tax free...

I'm not sure if the recent setups I've seen would be applicable in your case, so take that with a grain of salt. I think you may qualify for the the lower tax system of 14% (14/86) + 7% WHT, which was designed for companies that frequently pay out dividends.

I am baresly starting to research Estonia but from the small things I see I am deeply impressed by how clear and precise written in English are all rules on the official website. I have seen such clean rules probably only in the UK and Ireland's websites. It does not seem to me there are any gray areas, everything is black and white. When it comes to ending residency, they go that far that they claim you submit it online and by the end it's accepted you are no longer a resident on the very next day. Residency also, from that I understand, is even not bound to a fiscal year, but to fixed presence day there, up to the precise day. And if I am not wrong I think I also even saw a function on the website where you insert your e-card and you can check your residency status. I have never seen another country to announce and denounce official residency as a simple status (instead of semi-objectively interpreting it freely at any time). From what I read I don't feel Estonian authorities would try to play dirty games like Spanish ones (from what I have heard about Spain), rather keep things "yes/no".

That's a fair assessment. And that's why I think it's unlikely Estonia would come after you (whereas, as you say, for example the Spanish authority might try something sneaky). Follow their checklists for residence and non-residence, and your plan may very well work.

Of course! Absolutely will be checked with a lawyer. But I was a bit disappointed the total is 45%.... But still, for monthly expenses could be fine I guess.

Don't get too hung up on the 45% thing. I've reread some of my notes and it may not be applicable here.