Permanent Establishment / CFC laws

latinwish

New member
So I'm a resident of Japan and hold a company in Estonia providing IT services globally (hosting, etc.). Now the company is starting to make some profit, after paying a salary to me (which is taxed in Japan under normal income tax).
  1. Would my company be seen as a Permanent Establishment (so subject to Japanese corporate tax)? There's no Japanese office nor Japanese employees (except myself) and the company does not conduct business in Japan.
  2. CFC Rules, exist in Japan and the company tax rate is 20% which is the larger as the trigger value for CFC taxation. Only the 'Paper Company' requirement might be a problem. It requires a 'to maintain an office or other fixed place of business necessary to conduct its main business'. I do have an office in Estonia with a rental contract. But I'm not sure if that is enough.
Problem is that I'm conducting a service-based business 'in the cloud' from my laptop so all the rules for PE are pretty vague.
I got no intentions to dodge tax or anything like that, Estonia is just easy to manage the company and I can basically deduct any expenses I wish. Japan is just difficult to find a bank, a payment processor, etc that wants to work with my business.

Does any country actually enforce these rules for small companies? After all, I can just maximize my salary to be equal to the profit so the company does not make any profit on paper and I'm taxed on the salary. Japanese income tax is pretty good.
 

Gediminas

Offshore Tax Advisory
Mentor Group Gold
Commercial Service
Business Angel
Hi,

You could trigger permanent establishment critereas, since your Estonian company is controlled in Japan (by you). You should analyse double taxation agreement between Estonia and Japan.
 
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