Opening an LLC in either Estonia or Latvia and living there. Please help me decide.

[rust3964]

I am an EU citizen considering moving to either Estonia or Latvia, open a LLC (OU/SIA) as an investment vehicle, and live in the country full time. My sole source of income is trading publicly traded securities (not crypto). Given the 0% tax rate on profits and 25% on dividends, the compounding effects could be incredible. Latvia copied Estonia's tax system in 2008 but there do seem to be some differences, and I am trying to figure out what those are and how they may impact me.

The experience in this forum seems vast and I ask for your help in crowdsourcing which of the two (or neither) would be a better choice given my circumstances.

Estonia Positives:

• Less bureaucracy and everything can be done online.
• High level of English in people under 40.
• Lowest crime rate in the Baltics.
• No tax on real estate.

Estonia Negatives:

• Tallinn is the smallest of the Baltic capitals and some say it is boring.
• Some write you have to pay yourself a salary commensurate with the job you are performing. You cannot simply withdraw a dividend a few times a year to live on.
  • How much would you have to pay yourself as a trader?
  • How is this calculated?
  • Given the very high payroll and social taxes, the bigger this number is the less attractive 0-25% becomes.
  • I found in another source that there was a court case involving a 1-man LLC paying himself only dividends who was sued by the tax authority. He went to court and won. They ruled he didn't have to pay himself a salary. I need help to confirm, must you have to pay yourself or not, as it could become a dealbreaker.

Latvia Positives:

• Riga is bigger and more populous than Tallinn by 200K and seems more livable in that regard. Since I'll be living there full time, this is important to me.
• Riga has a lower cost of living. Real estate is less expensive by about 45% according to numbeo.
• No tax on shares if held for more than three years. I'm trying to figure out if this applies to publicly traded securities. I found conflicting answers.
• You do not have to pay yourself a salary as a 1-man LLC. Or maybe you do? I can't find any sources to confirm either.

Latvia Negatives:

• Considered the most corrupt of the three Baltic states.
• Many posts on this forum about Latvian banks closing accounts and confiscating money for their own benefit. Most of the occurrences seem to be around 2018-2020 but still worrying.
• Highest crime rate in the three Baltic states but compared to Stockholm, Paris and London, still very low.
• Not as e-friendly as Estonia. You can't do everything online. But maybe this has changed since they copied Estonia's tax structure?

Other questions regarding both Estonia and Latvia:

• Can taxes be done online and how easy is it to do? I always did my own once a year with the help of software, and hope to continue.
• Do you have to declare every trade? Or just your profit and loss at the end of the year?
• If after a few years I want to move, what are my options other than liquidating my LLC? Some write you can move to a country with a low PIT and pay yourself a salary instead of dividends.

Thanks in advance for your knowledge and advice.

 

[Sols]

Go spend time in both.

Estonia is far more well established and set up for foreigners than Latvia. E-government in Tallinn is miles ahead of Latvia.

You won't have to worry about not speaking Estonian in Estonia, which is different from Latvia where English will get you very far especially in Riga but it gets limited outside of the capital.

Tallinn may be smaller but if you value business connections and networking, Tallinn is by far the better of the two. Thanks to a strong crypto and tech startup scene, you will have more peers in Estonia in Latvia. Tenfolds more, probably.

Tallinn has good connections (air and sea) to Finland and Sweden, which helps make it feel less small.

I think Latvia works out to have a lower overall tax pressure, though, so if you really value saving every cent, that's something to consider. However, when all is said and done, I think you can capture more value out of living in Estonia than in Latvia.

 

[scooterguy]

I think Estonia doesn't make sense, but maybe someone can change my view. At the end of the day you'll be taxed at 20-40% when you pay yourself anyways.

Have you considered UAE?

 

[rust3964]

No one can beat UAE freezone as far as the effective rate.

In UAE you have 183 days of:

• Sharia law
• Extreme heat, pollution
• Very expensive
• No beautiful natural surroundings outside the city. Some might love desert, this is just my opinion.

Estonia and Latvia are way more livable. Yes, you give up 25% on dividends but if your life expenses are low compared to your profits, the compounding power is phenomenal. If you make 300K and pay yourself 60K in dividends, the effective rate is only 5%. As your assets compound, the rate becomes more and more favorable.

The big question is, do they force one man OUs to pay a salary and how big? I can't find a clear answer to this. Given the low level of corruption in Estonia, I am surprised how ambiguous the tax law is in this one area.

 

[scooterguy]

Fair enough. Now, let me go for another shot.

What about Bulgaria? Very livable, cheap, flat tax of 10% (this is also the capital gains tax), social security is 32% but capped at ~500 EUR. And dividends are taxed at only 5%.

You could give yourself a low salary, and extract dividends at 5% when needed. But even with a relatively high salary (like 60K a year), you'd be paying roughly 10-15% in personal income tax + social security.

Bonus country: Romania is also a good option, with their micro-company regime, although dividends trigger an 8% tax.

 

[uplana]

You could give yourself a low salary, and extract dividends at 5% when needed. But even with a relatively high salary (like 60K a year), you'd be paying roughly 10-15% in personal income tax + social security.

that would work well. Go there for vacation, look for you self if it is a country you want to live in.

 

[newguyhere]

• 
  Not as e-friendly as Estonia. You can't do everything online. But maybe this has changed since they copied Estonia's tax structure

Other questions regarding both Estonia and Latvia:

• Can taxes be done online and how easy is it to do? I always did my own once a year with the help of software, and hope to continue.
• Do you have to declare every trade? Or just your profit and loss at the end of the year?
• If after a few years I want to move, what are my options other than liquidating my LLC? Some write you can move to a country with a low PIT and pay yourself a salary instead of dividends.

Thanks in advance for your knowledge and advice.

Everything can be done online in Latvia since for many years already. Literally from company registration, to document submitting, you can even purchase real estate without meeting anyone in person (you do need to use webcam with the notary office). Any document can be signed electronically and it is universally accepted.

I have never dealt with trading, I feel you would only need to keep books of your trades, but no reports on individual trades. For this question you should consult with a tax expert.

I would only recommend Latvia if your sources of wealth are clear to understand as the local banks are incredibly strict.

Once you are a resident and get your ID card, incorporating a company can be done in 3 days and costs around 100 EUR. Maybe even 30 EUR, but who cares. You do need an address, you can rent a virtual address for 30 EUR/month. It all can be done from your couch. You also need an accountant to do your books.

It is cheap & easy. Your only considerations would be taxation. You only pay CIT when distributing, it is 20% (not 25%). If you earn 100k, you can pay yourself 80k in dividends. If you don't pay dividends, you can compound your earnings tax free. You do need at least one person working for a minimum wage (620 EUR) in your company. You can use calculators to figure out how much that costs.

 

[Don]

No one can beat UAE freezone as far as the effective rate.

In UAE you have 183 days of:

• Sharia law
• Extreme heat, pollution
• Very expensive
• No beautiful natural surroundings outside the city. Some might love desert, this is just my opinion.

Estonia and Latvia are way more livable. Yes, you give up 25% on dividends but if your life expenses are low compared to your profits, the compounding power is phenomenal. If you make 300K and pay yourself 60K in dividends, the effective rate is only 5%. As your assets compound, the rate becomes more and more favorable.

The big question is, do they force one man OUs to pay a salary and how big? I can't find a clear answer to this. Given the low level of corruption in Estonia, I am surprised how ambiguous the tax law is in this one area.

if you live off dividends, Estonia is often a better choice as the US withholding tax can be credited against the tax liability in Estonia resulting in 20% total tax while in UAE you would pay 30%.

 

[zaybxc]

How would a ltd in Cyprus compare with a OU in Estonia for crypto swapping?

From what I read on this forum Estonia is easy for bureaucracy, faster and cheaper to set up and easier to maintain; in Cyprus taxes are lower.

I'm mostly interested in swapping cryptos on DEXes like Uniswap and grow the crypto capital - no fiat involved until I decide to cash out some money (it might take also a couple of years); in such a case the 2 countries look similar: in Estonia you pay taxes when distributing profits; in Cyprus when converting crypto to fiat.

What are your opinions?

 

[BarleyMalt]

- Estonia is quite boring, local language is very hard to learn, locals are generally unwilling to help you.
- Tallinn is quite expensive. The most annoying thing is that even if you're ready to pay, it's hard to get a good service. With the arrival of Ukrainians, the rental market has got quite tight.
- You will need a car in Estonia.
- e-companies are easy to set up. You'll need to pay yourself a salary around the median wage to avoid raising suspicions.
- Estonia taxes crypto-to-crypto transactions.

- Don't even try to open an account with Latvian banks. They have the worse banking in Europe. Fees are high, they ask you to pay hefty fees just for you to apply, and will strip you down before they tell you in a broken English that they refuse to open an account for you. Getting your account frozen because someone from outside Latvia sent you 20€ is a common story among the locals.
- Latvian company requires a bit more maintenance, as you need an accountant.
- Locals are usually more welcoming.
- In Latvia, you are taxed when you swap crypto to fiat.

Crime is very low in the Baltics, nowhere near what you see in Western Europe. Be prepared for long winters, where you can't get out for many subsequent the week ends because there are snow storms outside. Also, the current situation in Ukraine means that the local life is a bit tense, given that around 1/4 of the population speaks Russian.

In general I'd recommend to discuss with a local lawyer. The Baltics are quite secretive countries and you will need an insider's help to set yourself up properly.

 

[pfser]

I am an EU citizen considering moving to either Estonia or Latvia, open a LLC (OU/SIA) as an investment vehicle, and live in the country full time. My sole source of income is trading publicly traded securities (not crypto). Given the 0% tax rate on profits and 25% on dividends, the compounding effects could be incredible. Latvia copied Estonia's tax system in 2008 but there do seem to be some differences, and I am trying to figure out what those are and how they may impact me.

The experience in this forum seems vast and I ask for your help in crowdsourcing which of the two (or neither) would be a better choice given my circumstances.

Estonia Positives:

• Less bureaucracy and everything can be done online.
• High level of English in people under 40.
• Lowest crime rate in the Baltics.
• No tax on real estate.

Estonia Negatives:

• Tallinn is the smallest of the Baltic capitals and some say it is boring.
• Some write you have to pay yourself a salary commensurate with the job you are performing. You cannot simply withdraw a dividend a few times a year to live on.
  • How much would you have to pay yourself as a trader?
  • How is this calculated?
  • Given the very high payroll and social taxes, the bigger this number is the less attractive 0-25% becomes.
  • I found in another source that there was a court case involving a 1-man LLC paying himself only dividends who was sued by the tax authority. He went to court and won. They ruled he didn't have to pay himself a salary. I need help to confirm, must you have to pay yourself or not, as it could become a dealbreaker.

Latvia Positives:

• Riga is bigger and more populous than Tallinn by 200K and seems more livable in that regard. Since I'll be living there full time, this is important to me.
• Riga has a lower cost of living. Real estate is less expensive by about 45% according to numbeo.
• No tax on shares if held for more than three years. I'm trying to figure out if this applies to publicly traded securities. I found conflicting answers.
• You do not have to pay yourself a salary as a 1-man LLC. Or maybe you do? I can't find any sources to confirm either.

Latvia Negatives:

• Considered the most corrupt of the three Baltic states.
• Many posts on this forum about Latvian banks closing accounts and confiscating money for their own benefit. Most of the occurrences seem to be around 2018-2020 but still worrying.
• Highest crime rate in the three Baltic states but compared to Stockholm, Paris and London, still very low.
• Not as e-friendly as Estonia. You can't do everything online. But maybe this has changed since they copied Estonia's tax structure?

Other questions regarding both Estonia and Latvia:

• Can taxes be done online and how easy is it to do? I always did my own once a year with the help of software, and hope to continue.
• Do you have to declare every trade? Or just your profit and loss at the end of the year?
• If after a few years I want to move, what are my options other than liquidating my LLC? Some write you can move to a country with a low PIT and pay yourself a salary instead of dividends.

Thanks in advance for your knowledge and advice.

For the last five years, I have noticed that many entrepreneurs from Latvia choose to permanently move to Estonia, but I have observed far fewer instances of entrepreneurs moving from Estonia to Latvia.
Btw here's a calculator to estimate your spend on salary in Estonia (Not an ad) Salary/Wage and Tax Calculator - Estonia, Latvia

Regarding downsides of Estonia:
1. Definitely climate. Long, cold, and dark winters.... During the winter months, days are with only a few hours of daylight. However, this climate pattern can also have some advantages))) Bad weather conditions can motivate people to stay indoors and be productive, leading to increased work efficiency and the ability to work 24/7)))
2. Flights. It's a challenge to schedule trips. Finnish and Latvian airports have many more direct flights.

• • I found in another source that there was a court case involving a 1-man LLC paying himself only dividends who was sued by the tax authority. He went to court and won. They ruled he didn't have to pay himself a salary. I need help to confirm, must you have to pay yourself or not, as it could become a dealbreaker.

You have an absolute right not to pay a salary as long as you are a board member of the company. However, if you gonna pay dividends on a regular (e.g. monthly, bi-monthly) basis it might be considered as a salary, and corresponding taxes applied.

 

[rust3964]

Thank you newguyhere, BarleyMalt and pfser. You both gave me some very good insights.

"it might be considered as a salary"

The law is very vague and that is disappointing. I would expect this in Bulgaria but not Estonia. I have a feeling when I begin to consult tax lawyers, three will tell me three different opinions on the salary question.

Pfser, what is your opinion on the propensity of Latvian banks to freeze accounts? As far as I understand, I would have to open a Latvian corporate bank account under my SIA name, wire my trading capital to there, then fund my brokerage account from the corporate account. If they decide to freeze my account for months I would be really screwed. I found stories of bank accounts being frozen when people transferred money to buy a car or apartment. Also, accounts being frozen when transferring money from the corporate account to a personal account for life expenses. They essentially tell the customer "Prove its not money laundering". This is really shocking if true and never heard of such practices in my home country or neighbors. How does Estonia compare to Latvia in this regard?

 

[BarleyMalt]

Thank you newguyhere, BarleyMalt and pfser. You both gave me some very good insights.

"it might be considered as a salary"

The law is very vague and that is disappointing. I would expect this in Bulgaria but not Estonia. I have a feeling when I begin to consult tax lawyers, three will tell me three different opinions on the salary question.

Pfser, what is your opinion on the propensity of Latvian banks to freeze accounts? As far as I understand, I would have to open a Latvian corporate bank account under my SIA name, wire my trading capital to there, then fund my brokerage account from the corporate account. If they decide to freeze my account for months I would be really screwed. I found stories of bank accounts being frozen when people transferred money to buy a car or apartment. Also, accounts being frozen when transferring money from the corporate account to a personal account for life expenses. They essentially tell the customer "Prove its not money laundering". This is really shocking if true and never heard of such practices in my home country or neighbors. How does Estonia compare to Latvia in this regard?

You don't need a Latvian bank account, you however need a bank that can provide you with a share capital certificate when you incorporate. This can be done with Wise, or a local bank, if you prefer. If it has to be in Latvian, I think you can get a certified translation quite easily, as it's a very simple document.

Then you can open an account with any other bank and conduct business without friction.

As for Estonia, it's mainly the same banks. Latvian ones have tightened the screws after being put on the grey list by the USA. They were casually used to launder Russian money out of the country. Estonians did the same, but it was a bit less wild there, so they got the pass. The fact that the Latvian central banker was casually having hunting parties with Russian oligarchs and blackmailing local banks probably didn't help Latvia's case:
https://archive.is/YakYR

 

[pfser]

Thank you newguyhere, BarleyMalt and pfser. You both gave me some very good insights.

"it might be considered as a salary"

The law is very vague and that is disappointing. I would expect this in Bulgaria but not Estonia. I have a feeling when I begin to consult tax lawyers, three will tell me three different opinions on the salary question.

Pfser, what is your opinion on the propensity of Latvian banks to freeze accounts? As far as I understand, I would have to open a Latvian corporate bank account under my SIA name, wire my trading capital to there, then fund my brokerage account from the corporate account. If they decide to freeze my account for months I would be really screwed. I found stories of bank accounts being frozen when people transferred money to buy a car or apartment. Also, accounts being frozen when transferring money from the corporate account to a personal account for life expenses. They essentially tell the customer "Prove its not money laundering". This is really shocking if true and never heard of such practices in my home country or neighbors. How does Estonia compare to Latvia in this regard?

I suggest avoiding Latvian banks due to their stringent compliance requirements, and most of the stories about frozen accounts in Latvia are real. However, if you become a resident of Estonia, I recommend opening an account with LHV, as it is known to be the most user-friendly option. Nevertheless, if you prefer more flexible and hassle-free banking services, Wise or Revolut are excellent alternatives to traditional banks.

 

[Revoltec]

@rust3964 Did you end up making a move on this one? Estonia is raising income tax to 24% from next year.

 

[EliasIT]

@rust3964 Did you end up making a move on this one? Estonia is raising income tax to 24% from next year.

Is that corporate tax ? if so, it's lean to most countries in rest of EU.

 

[Revoltec]

Is that corporate tax ? if so, it's lean to most countries in rest of EU.

Yes, corporate.

- In Latvia, you are taxed when you swap crypto to fiat.

Is this true for corporations as well or only individuals?

 

[Don]

Yes, corporate.

Is this true for corporations as well or only individuals?

Corporations get taxed when they distribute profits.

If you have crypto and are moving to Estonia, you can inject crypto as capital to the company. When you do that, you evaluate how much the crypto is worth.
Say its worth 1m. Then you can later withdraw the same amount from company tax free, while at the corporate level when the crypto is sold its not taxed either as the tax is generally paid only on distribution of dividends, and not on payback of contributed capital.

 

[Revoltec]

Corporations get taxed when they distribute profits.

If you have crypto and are moving to Estonia, you can inject crypto as capital to the company. When you do that, you evaluate how much the crypto is worth.
Say its worth 1m. Then you can later withdraw the same amount from company tax free, while at the corporate level when the crypto is sold its not taxed either as the tax is generally paid only on distribution of dividends, and not on payback of contributed capital.

Yes, I see.

But for Latvia, I was wondering if crypto to crypto transactions were tax free only for individuals or for corporations as well.

Even if it is not, obviously crypto is gonna rise faster than shares. So it would be a tactical move to hold crypto as an individual and trade with stable coins. Later, when this portion gets bigger, you can push crypto gains into the corporation.

For someone that is more exposed to crypto than shares, this would halv the tax burden.

 

[Don]

Yes, I see.

But for Latvia, I was wondering if crypto to crypto transactions were tax free only for individuals or for corporations as well.

Even if it is not, obviously crypto is gonna rise faster than shares. So it would be a tactical move to hold crypto as an individual and trade with stable coins. Later, when this portion gets bigger, you can push crypto gains into the corporation.

For someone that is more exposed to crypto than shares, this would halv the tax burden.

Latvia and Estonia tax system is very similar. The corporations can trade crypto as much as they want without tax. There is no capital gains tax for corporations, as they basically only pay tax when they distribute dividends.