Question Online biz selling digital prints: Ireland, Netherlands, or UK?

[titusbiao]

Hello everyone,

I and my wife (citizens and now live in China) are going to setup a website (built with WooCommerce) that sells digital cross stitch design pattern. Customers can download the PDF files after payments completed and print at home by themselves. After doing some marketing research, we found that potential customers are mainly from the Europe, therefore, we need not only Stripe and Paypal, but also some other payments available, like iDeal, Klarna, giropay, AmazonPay, and SEPA transfer. It seems that to have an Europe company that can easily get IBAN and use more EMIs. Here comes 3 options, Ireland, Netherlands, and UK.

1. Ireland Ltd --- EU company (21% VAT). The 12.5% Corp Tax is a great advantage. However, the Sec 137 Non-EEA Resident Directors Bond for about €1,500 - €2,000 for 2 years is the main disadvantage.
2. Netherland BV --- EU company (21% VAT), great for no residency requirements for shareholders and directors. 25% Copr Tax is high but acceptable. The main disadvantage is that it seems to need local substance, and don't accept offshore or remote running. A specialist of KVK (the Chamber of Commerce in the Netherlands) replies my query saying: "(1)You have to have a physical address in the Netherlands. Only a P.O.box is not permitted. (2)You have to have economic activities in the Netherlands. This means, that personel has to be working for your company (purchase, sales, warehousing, etc.). Only working remotely from abroad is not permitted. Also having Dutch clients is not enough to subscribe a company."
3. UK Ltd -- 20% VAT and 19% Corp Tax. Great for offshore and remote running. Disadvantage: (1) offshore companies seem difficult to open merchant bank account. Transferwise or Revolut might be solutions but not sure. (2) After Brexit, not sure the policies about IBAN and SEPA. Some EMI like VivaWallet is still applying for EMI license in UK.

Some people also suggest Malta and Cyprus offshore companies, but it seems a little expensive for registration and running costs. Some stories even considered "High Risk Jurisdiction".

According to the Tax avoidance issued by European Commission in May 2021, all states in EU are going to fight shell entites, defined as "no – or only minimal – business presence and economic activity". They will surely pay much more attentions to the offshore companies.

So, back to my 100% online business selling digital printable design pattern, Ireland Ltd or Netherlands BV or UK Ltd?

Many thanks.

 

[fshore]

Ireland has withholding tax on dividends, unless you can use the tax treaty to avoid or reduce it.

The vat will probably be the same in all cases, as you'd charge customers country vat rate.

UK will stay within sepa. If stripe/wise/revolut will accept you or not will probably be the same whether you go for IE, UK or NL.

You might want to consider estonia as well, as it's fairly easy to set up and get started.

 

[uplana]

Disadvantage: (1) offshore companies seem difficult to open merchant bank account. Transferwise or Revolut might be solutions but not sure. (2) After Brexit, not sure the policies about IBAN and SEPA. Some EMI like VivaWallet is still applying for EMI

I would highly recommend you to contact their support, sometimes they can work with you even you are behind an offshore entity.

 

[tsu458]

You mention the VAT rates of the jurisdictions, but keep in mind, the buyer countrys VAT rate applies. So 19% VAT for a purchase from Germany, 25% VAT for a purchase from Hungary for example.

I think you don't need a EU company - local director, social contributions, overall compliance and the corp tax... I think you should go with a merchant-of-record, like paddle.com, gumroad.com, clickbank.com. They deliver the bought PDFs, got multiple payment methods and handle the sales tax / VAT and take a small fee.

Not sure if they would accept chinese companys, but maybe you could setup something in Singapore or so, which could be less complicated for you than EU. Then you receive weekly or monthly payments (it's a B2B transaction then, no sales tax).

 

[Gediminas]

Hello everyone,

I and my wife (citizens and now live in China) are going to setup a website (built with WooCommerce) that sells digital cross stitch design pattern. Customers can download the PDF files after payments completed and print at home by themselves. After doing some marketing research, we found that potential customers are mainly from the Europe, therefore, we need not only Stripe and Paypal, but also some other payments available, like iDeal, Klarna, giropay, AmazonPay, and SEPA transfer. It seems that to have an Europe company that can easily get IBAN and use more EMIs. Here comes 3 options, Ireland, Netherlands, and UK.

1. Ireland Ltd --- EU company (21% VAT). The 12.5% Corp Tax is a great advantage. However, the Sec 137 Non-EEA Resident Directors Bond for about €1,500 - €2,000 for 2 years is the main disadvantage.
2. Netherland BV --- EU company (21% VAT), great for no residency requirements for shareholders and directors. 25% Copr Tax is high but acceptable. The main disadvantage is that it seems to need local substance, and don't accept offshore or remote running. A specialist of KVK (the Chamber of Commerce in the Netherlands) replies my query saying: "(1)You have to have a physical address in the Netherlands. Only a P.O.box is not permitted. (2)You have to have economic activities in the Netherlands. This means, that personel has to be working for your company (purchase, sales, warehousing, etc.). Only working remotely from abroad is not permitted. Also having Dutch clients is not enough to subscribe a company."
3. UK Ltd -- 20% VAT and 19% Corp Tax. Great for offshore and remote running. Disadvantage: (1) offshore companies seem difficult to open merchant bank account. Transferwise or Revolut might be solutions but not sure. (2) After Brexit, not sure the policies about IBAN and SEPA. Some EMI like VivaWallet is still applying for EMI license in UK.

Some people also suggest Malta and Cyprus offshore companies, but it seems a little expensive for registration and running costs. Some stories even considered "High Risk Jurisdiction".

According to the Tax avoidance issued by European Commission in May 2021, all states in EU are going to fight shell entites, defined as "no – or only minimal – business presence and economic activity". They will surely pay much more attentions to the offshore companies.

So, back to my 100% online business selling digital printable design pattern, Ireland Ltd or Netherlands BV or UK Ltd?

Many thanks.

Hey,

Basically, having local substance (office, employees, contractors, etc.) means better access to banking facilities. However, if Stripe, Paypal, and EMI accounts are enough, you can have a company in any of these countries without creating a real substance. What KvK expert is telling is that you need to have an office, however, such requirement is very easy to meet without creating some real business activities.

However, the tax aspect is not so simple. You are telling that 25% corporate income tax is acceptable, please have a look into withholding taxes as well. For example, if a Dutch entity distributes profit (dividends), it will apply dividends withholding tax as well. If the shareholder is another company, it might not be the case (depending on circumstances). The UK does not apply dividend withholding tax.

Honestly, having a company in a high tax country without substance normally allows withdrawing profits in form of expenses to another country where you can pay taxes on this income. According to OECD transfer pricing guidelines, such practice is allowed as long as real activities are not done in that country because corporate income tax should be paid where the main value is created. For example – you might set up Dutch B.V. for banking solutions, Dutch B.V. would not create any other value to the supply chain, so you might invoice this company from other companies (which create this value). In that case, Dutch tax consequences would be irrelevant, however, you still benefit from desired banking solutions.

I hope this helps.

G.

 

[titusbiao]

Ireland has withholding tax on dividends, unless you can use the tax treaty to avoid or reduce it.

The vat will probably be the same in all cases, as you'd charge customers country vat rate.

UK will stay within sepa. If stripe/wise/revolut will accept you or not will probably be the same whether you go for IE, UK or NL.

You might want to consider estonia as well, as it's fairly easy to set up and get started.

Thanks for the WHT (Withholding Tax) information, which I haven't heard before.
After Internet searching, I found the WHT on dividends of such countries:

Withholding Tax on Dividends - (Non-resident corporate / Resident Corporate)
Estonia: 0% / 0%
Ireland: 25% / 25%
Netherlands: 15% / 15%
UK: 0% / 0%

Thus, Estonia and UK seem good options. Perhaps I need to talk to a Tax expert before the decision.

 

[titusbiao]

I would highly recommend you to contact their support, sometimes they can work with you even you are behind an offshore entity.

Thanks for the recommendation. Just heard some stories on this forum that Transferwise denies to open account for UK / Estonia offshore entities, so that's my worried thing.

I will surely contact their support team, if I encounter any problems at opening account via TransferWise / Revolut or other EMI.

 

[titusbiao]

You mention the VAT rates of the jurisdictions, but keep in mind, the buyer countrys VAT rate applies. So 19% VAT for a purchase from Germany, 25% VAT for a purchase from Hungary for example.

I think you don't need a EU company - local director, social contributions, overall compliance and the corp tax... I think you should go with a merchant-of-record, like paddle.com, gumroad.com, clickbank.com. They deliver the bought PDFs, got multiple payment methods and handle the sales tax / VAT and take a small fee.

Not sure if they would accept chinese companys, but maybe you could setup something in Singapore or so, which could be less complicated for you than EU. Then you receive weekly or monthly payments (it's a B2B transaction then, no sales tax).

Thanks for the ideas.

1. So it means that paying VAT is just for customers, not companies? Such as, if I have the UK company, a Hungary customer bought the items, that he / she needs to pay 25% Hungary VAT, not 20% of UK?

2. Yes, marketplace platforms are good, but we cannot put all eggs into them. Two of our close friends (both HK residents) opened shops on Etsy.com (Etsy officially supports HK) for about 3 months, however one day Etsy shutted down thier shops without any reasons. Appealling is no-use, the blocking is permantly. We even heard (via Google and Youtube) many many stories that Etsy suddenly shuts down your shops without notice, even you are a US residents, even you live in New York - the same city where Etsy headquatered. So besides selling on marketplace platforms, we need our standalone websites. To integrate payment gateways, it would be better to have a company, since Anti-Money-Laundering rules make many payment gateways afraid of person-to-person transactions.

3. We've found that so many EU local payment providers do not welcome companies in Asia Paciffic, no matter HK Ltd or Singapore Ltd or NewZealand Ltd, or will charge a very high transfer cost. So that's why we are thinking to use offshore companies in EU or UK.

 

[titusbiao]

Hey,

Basically, having local substance (office, employees, contractors, etc.) means better access to banking facilities. However, if Stripe, Paypal, and EMI accounts are enough, you can have a company in any of these countries without creating a real substance. What KvK expert is telling is that you need to have an office, however, such requirement is very easy to meet without creating some real business activities.

However, the tax aspect is not so simple. You are telling that 25% corporate income tax is acceptable, please have a look into withholding taxes as well. For example, if a Dutch entity distributes profit (dividends), it will apply dividends withholding tax as well. If the shareholder is another company, it might not be the case (depending on circumstances). The UK does not apply dividend withholding tax.

Honestly, having a company in a high tax country without substance normally allows withdrawing profits in form of expenses to another country where you can pay taxes on this income. According to OECD transfer pricing guidelines, such practice is allowed as long as real activities are not done in that country because corporate income tax should be paid where the main value is created. For example – you might set up Dutch B.V. for banking solutions, Dutch B.V. would not create any other value to the supply chain, so you might invoice this company from other companies (which create this value). In that case, Dutch tax consequences would be irrelevant, however, you still benefit from desired banking solutions.

I hope this helps.

G.

Great thanks to the Tax suggestions, especially the Withholding Tax on Dividends, which we haven't noticed before.

After searching, I found a comparing Tax table provided by PwC ( PricewaterhouseCoopers). I've just put the elements of Estonia, Ireland, Netherlands, and the UK here.

We'll think more about the Withholding Tax before decisions. About Corp Income Tax, perhaps we need to talk to a Tax Expert for advice.

Many thanks again.

 

[JustAnotherNomad]

1. So it means that paying VAT is just for customers, not companies? Such as, if I have the UK company, a Hungary customer bought the items, that he / she needs to pay 25% Hungary VAT, not 20% of UK?

Yes. But check out MOSS (VAT Mini One Stop Shop), that should possibly make things a bit easier if you only deal with digital products. I have no personal experience with that, however.

As @Gediminas mentioned, you might be able to invoice your EU company from your Chinese company. That way, there would be very little profit in the EU company, so it wouldn't really matter how much tax is paid in the EU. But I don't know how companies are taxed in China.
Some countries like Singapore don't tax dividend income from foreign companies. So it could also be better to pay the corporate tax in Europe (for example 20% in Estonia or 19% in the UK or 5%/15% in Lithuania) + possible withholding tax, if that means there is less/no tax in China.
You should talk to a Chinese tax advisor first to decide what's the best way to go.

You could also register a branch of your Chinese company, but that's probably not a good idea as that could create a liability risk for the Chinese company.

 

[uplana]

Are we getting off topic right now?