Paying corporate income tax only, cashing out later

[JustAnotherNomad]

I have been wondering if it would be possible to live in a high-tax EU country of your choice (wouldn’t be my choice, but whatever) and pay yourself a very low salary, so that there would be almost no personal income tax. You would just keep the money in your company, or maybe send it to a holding company for better asset protection. You would effectively only pay corporate income tax, which is usually a flat tax. The highest rates are still only about 20%.

Then you move to Estonia or Cyprus for one year, where you cash out the dividends tax free. The following year, you can move back to your home country. You wouldn’t have to spend the whole year in Estonia/Cyprus obviously, you’d only need to make sure you’ve properly shifted your tax residency.

Usually saving taxes wouldn’t be possible due to exit tax, but exit tax cannot be levied when you move from one EU country to another. There also is no withholding tax within the EU, at least not if you use another EU holding company, for example in Estonia or Cyprus. But usually not even when dividends are paid to individuals.

I guess this could even work to avoid Switzerland’s 35% withholding tax since Switzerland has agreed on 0% withholding tax with some countries, and Estonia is among them. Switzerland also only charges exit tax on companies, not individuals - but I guess that could change, so Switzerland might be a slightly riskier choice.

Am I missing something?

 

[Marzio]

The highest rates are still only about 20%.

France, Germany, Italy, Belgium are all around 28-29%, that's f*****g criminal.

You could obviously pay less if you start a company in Hungary (9%) or even less Romania (1% with 1.000.000 turnover).

It all depends where you want to live in EU.

I'm not sure about the holding because it could be contested by tax authorities as an artificial way to avoid taxes.

 

[JustAnotherNomad]

France, Germany, Italy, Belgium are all around 28-29%, that's f*****g criminal.

Damn, you are right. I thought Sweden is a tax hell, but apparently other countries are much worse. Still there are many countries with corporate income tax rates of 15-23%. I think you mentioned you’re thinking about moving to Geneva - I believe Geneva has 14% or something. Pay a low salary, keep the money in the company, move to Estonia, cash out, move back. Rinse, repeat.

I'm not sure about the holding because it could be contested by tax authorities as an artificial way to avoid taxes.

That shouldn’t be an issue. The holding company would only receive dividends, for which the corporate income tax has been paid. So you wouldn’t save any taxes. But in case you get a liability claim against your operative business, your savings aren’t on the line. That’s a completely normal and legitimate use of a holding company.

 

[CaptK]

UK LTD is 19% tax if you continue to live a nomadic lifestyle then it's just a destination for your dividends as your not a UK resident.

If you look at Cyprus and Estonia for the final destination that can work.

As you know me a UAE is always my go to. A personal bank account can be your final destination but set up is about 10K and you would require a small fixed term deposit of about 20K.

Only advantage over opening a company is that 10K is only paid once and no annual maintenance.

 

[JustAnotherNomad]

@CaptK Come on, at least read the post before replying...

 

[Dandyline]

Yes, its a normal thing that many people do. Stack money in for example a Estonia company for years and then move to Estonia when you want to cash out.

As long as the money remains in the company, you dont pay any tax in your home country.

 

[CaptK]

On the assumption that you will live on your savings in the high tax country then it's feasible.

Tax is only due once it's paid to you. If you don't pay any then you will be ok. If you move those funds into a holding company then you will be fine.

That's what many mining companies registered in the UK do.

 

[JustAnotherNomad]

Yes, its a normal thing that many people do. Stack money in for example a Estonia company for years and then move to Estonia when you want to cash out.

That is not what I wrote.

As long as the money remains in the company, you dont pay any tax in your home country.

And that is not true for most people.

 

[JustAnotherNomad]

On the assumption that you will live on your savings in the high tax country then it's feasible.

You can pay out a small salary, the key thing would be to keep personal income tax low for a while.

Tax is only due once it's paid to you. If you don't pay any then you will be ok. If you move those funds into a holding company then you will be fine.

Tax can also be due without anything being paid out, for example due to CFC rules. But let’s forget about that for a moment. Obviously you don’t pay personal income tax when you keep money in a company and it’s not a CFC or something similar. I guess we can all agree on that.

Was my post really so poorly worded that nobody understood what I meant?
This was about cashing out without paying tax on the personal level, and while avoiding exit tax. In other words, it’s about avoiding the tax whose sole purpose it is to make this impossible.

 

[Dandyline]

You can pay out a small salary, the key thing would be to keep personal income tax low for a while.



Tax can also be due without anything being paid out, for example due to CFC rules. But let’s forget about that for a moment. Obviously you don’t pay personal income tax when you keep money in a company and it’s not a CFC or something similar. I guess we can all agree on that.

Was my post really so poorly worded that nobody understood what I meant?
This was about cashing out without paying tax on the personal level, and while avoiding exit tax. In other words, it’s about avoiding the tax whose sole purpose it is to make this impossible.

Thats exactly what i wrote above. Store money in a company abroad and then move to that country when you want to pay out money.

Yes thats possible. Since you mentioned Sweden, you can have a holding company in Cyprus, pay out dividents to the holding company from the Swedish company after paying corporate tax and then store money in the holding company. Then you can move to for instance Cyprus and cash out when you want.

Sweden has no exit taxes. And since all money remains in the Cyprus company, CFC rules doesn't matter since its nothing to tax.

 

[kkein]

Imo it might work but it's risky, plus you might always incur in the tax authority claiming you did this to avoid paying taxes, and then they ask you back taxes, and you get screwed.
In any case i think one year is typically not enough. Not to get tax certificate, not to get canceled from the tax registry. Like @xzar would put it, it's like cheating with your neighbor.. Might work but easy to find out too.

 

[JustAnotherNomad]

Thats exactly what i wrote above. Store money in a company abroad and then move to that country when you want to pay out money.

It’s not what I wrote, though. I wrote about local, operative businesses. You can’t live in Sweden and run an Estonian company (your example) from there without paying corporate income tax in Sweden. As a purely passive investor, with no work or management being done in Sweden, and with proper substance in Estonia, yes. But that’s not what this thread was about, that would be something completely different.

Since you mentioned Sweden, you can have a holding company in Cyprus, pay out dividents to the holding company from the Swedish company after paying corporate tax and then store money in the holding company.

Now we’re talking about the same thing, an operative business in Sweden.
The holding company in Cyprus would require substance in Cyprus, probably quite a lot, for the Swedish authorities to accept is eligible for a withholding tax exemption. Otherwise there may be 30% withholding tax or it would simply be considered tax resident in Sweden, which means it would be treated like a Swedish holding company. Which is what this thread was about.

The holding company isn’t necessary for this example at all. If a country has exit tax, the holding company will be covered by the exit tax, even if it’s in another country and has proper substance.

Then you can move to for instance Cyprus and cash out when you want.

No, you can’t, not without paying Swedish taxes, unfortunately.

Sweden has no exit taxes.

Seems like you’re right. I thought all EU countries had implemented exit tax under ATAD, but apparently Sweden doesn’t. Instead, they have other anti-avoidance rules:

Sweden Scraps Exit Tax Proposal

Tax-News.com delivers news headlines and features on international tax, law, politics, economics and trade.

www.tax-news.com

So it wouldn’t work with Sweden and I kind of answered my own question :

Moving from Sweden

Information about moving from Sweden

www.skatteverket.se

You would have to be gone for a longer time. I think it might still work with most other countries though, provided they have implemented an exit tax, instead of such a broad rule.
I simply chose Sweden as an example because it’s a known tax hell and corporate income tax rates are still sort of ok, not 30%. Unlike Sweden, Denmark does have exit tax, so I guess it might work with Denmark for example. I didn’t find any information on other Danish anti-avoidance rules though.

Even when you look at the French exit tax rules, it seems like this might work:

Do I have to pay an "Exit Tax" ?

Conditions of taxation If you transfer your residence for tax purposes outside France, you are, under certain conditions, liable for income tax and social levies connected with unrealised capital gains, receivables originating from an earn-out clause, and capital gains realised on the disposal...

www.impots.gouv.fr

But I just checked and France might be able to claim you as a tax resident when most of your assets are in France. So it’s probably more difficult to get rid of the tax residency, but not impossible.

 

[JustAnotherNomad]

Imo it might work but it's risky, plus you might always incur in the tax authority claiming you did this to avoid paying taxes, and then they ask you back taxes, and you get screwed.

Obviously you’d always plan something like this in good time with the help of good lawyers. I hope nobody jumps to any conclusions based on what they read on the internet, lol.

This was just a thought experiment. And you could see that Sweden for example has put some rules in place to avoid this. But even in the case of Sweden I’m wondering whether it might not work after all, as long as you don’t leave the EU. Since EU law prohibits a lot of tax-motivated discrimination.

In any case i think one year is typically not enough. Not to get tax certificate, not to get canceled from the tax registry.

Oh, you can absolutely get a tax residency certificate. Except a tax residency certificate doesn’t mean much.
And yes, one year can absolutely be enough, it depends on the country. As you could see above, in the case of Sweden, it wouldn’t be enough, but other countries don’t use such rules, but are strict on exit tax instead, for example.

Like @xzar would put it, it's like cheating with your neighbor.. Might work but easy to find out too.

I think he’s changed his name to @Tax Cow.

 

[Dandyline]

It’s not what I wrote, though. I wrote about local, operative businesses. You can’t live in Sweden and run an Estonian company (your example) from there without paying corporate income tax in Sweden. As a purely passive investor, with no work or management being done in Sweden, and with proper substance in Estonia, yes. But that’s not what this thread was about, that would be something completely different.



Now we’re talking about the same thing, an operative business in Sweden.
The holding company in Cyprus would require substance in Cyprus, probably quite a lot, for the Swedish authorities to accept is eligible for a withholding tax exemption. Otherwise there may be 30% withholding tax or it would simply be considered tax resident in Sweden, which means it would be treated like a Swedish holding company. Which is what this thread was about.

The holding company isn’t necessary for this example at all. If a country has exit tax, the holding company will be covered by the exit tax, even if it’s in another country and has proper substance.



No, you can’t, not without paying Swedish taxes, unfortunately.



Seems like you’re right. I thought all EU countries had implemented exit tax under ATAD, but apparently Sweden doesn’t. Instead, they have other anti-avoidance rules:

Sweden Scraps Exit Tax Proposal

Tax-News.com delivers news headlines and features on international tax, law, politics, economics and trade.

www.tax-news.com

So it wouldn’t work with Sweden and I kind of answered my own question :

Moving from Sweden

Information about moving from Sweden

www.skatteverket.se

You would have to be gone for a longer time. I think it might still work with most other countries though, provided they have implemented an exit tax, instead of such a broad rule.
I simply chose Sweden as an example because it’s a known tax hell and corporate income tax rates are still sort of ok, not 30%. Unlike Sweden, Denmark does have exit tax, so I guess it might work with Denmark for example. I didn’t find any information on other Danish anti-avoidance rules though.

Even when you look at the French exit tax rules, it seems like this might work:

Do I have to pay an "Exit Tax" ?

Conditions of taxation If you transfer your residence for tax purposes outside France, you are, under certain conditions, liable for income tax and social levies connected with unrealised capital gains, receivables originating from an earn-out clause, and capital gains realised on the disposal...

www.impots.gouv.fr

But I just checked and France might be able to claim you as a tax resident when most of your assets are in France. So it’s probably more difficult to get rid of the tax residency, but not impossible.

Sure you can. Most people who are selling a business in Sweden doesn't pay any taxes due to a holding company owning the shares. You need to move from Sweden for real though and cut all ties.

 

[JustAnotherNomad]

I figure Sweden was a bad example since they indeed don’t have exit tax.
I’m still wondering what the purpose of that “10-year rule” or “5-year rule” is though, if you can simply avoid it by moving to a country that’s covered by a tax treaty.

 

[Dandyline]

I figure Sweden was a bad example since they indeed don’t have exit tax.
I’m still wondering what the purpose of that “10-year rule” or “5-year rule” is though, if you can simply avoid it by moving to a country that’s covered by a tax treaty.

5-year rule means that that during the first 5 years its up to you to prove that you aren't liable to pay taxes, after 5 years its up to them to prove it.

 

[kkein]

The way it works usually is that if you move to another country, and you can provide a tax residency certificate (that you usually get after the first tax return) then they will accept it and cancel you from their black book.
Until then you need to file tax returns and if youre lucky to be under DTA and prove youve been living in the other country without ties, then you won't pay taxes in sweden

Edit: dandyline explained it better

 

[JustAnotherNomad]

Thanks. So it works even in Sweden.

Why isn’t everybody doing this then? Keep the money in a company/holding, move abroad , come back after a year or two. Assuming you want to stay in that country.
Exit tax is what should make this impossible and under ATAD, all EU countries should implement exit tax, as far as I know. But even exit tax isn’t charged, as long as you stay in the EU.
Sure, you’d have to cut your ties, but as long as there is a tax treaty and you can show that your ties were closer to the other country during that year, it should work? Spend 200 days in Cyprus one year and only 20 days in Sweden or wherever you’re from, travel the rest of the year. If there is a DTA, I can’t see how they could claim you should be tax resident anywhere else than Cyprus.

 

[Dandyline]

Thanks. So it works even in Sweden.

Why isn’t everybody doing this then? Keep the money in a company/holding, move abroad , come back after a year or two. Assuming you want to stay in that country.
Exit tax is what should make this impossible and under ATAD, all EU countries should implement exit tax, as far as I know. But even exit tax isn’t charged, as long as you stay in the EU.
Sure, you’d have to cut your ties, but as long as there is a tax treaty and you can show that your ties were closer to the other country during that year, it should work? Spend 200 days in Cyprus one year and only 20 days in Sweden or wherever you’re from, travel the rest of the year. If there is a DTA, I can’t see how they could claim you should be tax resident anywhere else than Cyprus.

Im sure a lot of people are doing just that. But since you cant use the money, its not an ideal situation.

Instead, you could just move, cut all ties and live abroad and do whatever you want with your money.

 

[JustAnotherNomad]

Why wouldn’t you be able to use the money?