Portugal Resident + Bulgaria Company and receive dividends

[EpicPortugal]

Hello, I born in France but Im living now in Portugal.
Here in Portugal I'm a RNH (Residente Nao Habitual) , its like a special tax advantages for foreigners that become residents in Portugal.
One of the advantages its a exempt taxation in dividends from foreign companies.

What is the problem? That Portugal government could try to say that you are managing the company from Portugal so you have to pay taxes to Portugal.

My situation and plan is this:
I have a digital business that makes 500K per year. This is 100% digital.
I have no office in Portugal, no clients in Portugal, no employees in Portugal.

I want create a Bulgarian Company, hire 2 real bulgarian employees (graphic designer and chat support), they will care the daily tasks of the company.

I will have to pay 10% corporate tax + 5% dividends tax in Bulgaria, then I will bring all the dividends to Portugal with the dividends tax exemption.

I will be paying a 15% effective taxes.

My question and big fear is:

If I have a company in Bulgaria, with employees in Bulgaria, I have no clients, office nor employees in Portugal...can the portuguese government try to make me pay extra taxes just because Im resident here?

PD: I also considered for this same scheme Estonia and Cyprus, but the problem its that dividends dont pay taxes there and Im afraid Portugal will want make me pay 28% dividends taxes.

Thanks for your help guys.

 

[user9823671]

did you find an answer to your questions in the end?

 

[jenhuang30]

Any updates on this? This is a really interesting topic!

 

[user9823671]

If I have a company in Bulgaria, with employees in Bulgaria, I have no clients, office nor employees in Portugal...can the portuguese government try to make me pay extra taxes just because Im resident here?

**From what I understand** from recent reading it depends on where are business decisions made. You have workers in Bulgaria, they are not making business decisions. Business decisions are made from where you are resident. For the company to be Bulagarian tax resident, you would need to be able to show the business is run from your BG office, so you would need a business type manager there and show you are not involved in running of the business, or at least minimally.

 

[jenhuang30]

**From what I understand** from recent reading it depends on where are business decisions made. You have workers in Bulgaria, they are not making business decisions. Business decisions are made from where you are resident. For the company to be Bulagarian tax resident, you would need to be able to show the business is run from your BG office, so you would need a business type manager there and show you are not involved in running of the business, or at least minimally.

I do not think Western EU countries will never believe this, especially if the Corp Tax Rate is 10%....

 

[user9823671]

That I cannot comment on. But if the business is actually run there and you are not actually involved in running the company and can actually show that, then it is feasible. Now trying to do that when you do run the company would be another thing.

 

[jenhuang30]

That I cannot comment on. But if the business is actually run there and you are not actually involved in running the company and can actually show that, then it is feasible. Now trying to do that when you do run the company would be another thing.

A lot of EU countries have anti avoidance clause, if the tax rate is less than 12.50%, they they automatically consider the company as in country company with higher tax rate

 

[ergit2019]

Hey EpicPortugal !

I am a French citizen and I have a very similar plan in mind (except I am considering a Romanian Micro Company instead of BG).


I have been doing a lot of research on this topic lately and even sought legal advice.
Turns out, with EU law you have "Freedom of establishment" anywhere in the EU. CFC rules apply for non EU companies.
However you must prove that you have settled your business in the country of your choosing for more than just tax purposes. And since you do have an office and employees you have "proof of substance".

Only Germany and Austria are having laws overriding EU laws and this could probably be contested in a court of law (but it's none of your concern anyway).

I would like to specify that this is my interpretation based on my research and I would be doing it this way when hopefully my online business performs as good as yours.
You should probabaly spend some time with a portuguese lawyer to iron out your case and make sure it is defensible in a case of a litigation with Portugal.

 

[jenhuang30]

Hey EpicPortugal !

I am a French citizen and I have a very similar plan in mind (except I am considering a Romanian Micro Company instead of BG).


I have been doing a lot of research on this topic lately and even sought legal advice.
Turns out, with EU law you have "Freedom of establishment" anywhere in the EU. CFC rules apply for non EU companies.
However you must prove that you have settled your business in the country of your choosing for more than just tax purposes. And since you do have an office and employees you have "proof of substance".

Only Germany and Austria are having laws overriding EU laws and this could probably be contested in a court of law (but it's none of your concern anyway).

I would like to specify that this is my interpretation based on my research and I would be doing it this way when hopefully my online business performs as good as yours.
You should probabaly spend some time with a portuguese lawyer to iron out your case and make sure it is defensible in a case of a litigation with Portugal.

The point is that by incorporating i Romania you can save around 20% taxes, however, even with a substance, countries like Germany and Austria but also other Western EU countries have strict regulations about substance, where the decisions are takes, etc etc. In they believe it is a structure only to avoid taxes, they will consider your Romanian entity as national and pay taxes. So you will have a loss of all expenses associated with the incorporation abroad (20000-30000 year).

To be hoonest, I think there is still a possibility to do this if you make at least $150K in saving from taxes per year, 2 years equal to $300K, 3 years equal to $450K etc.
If your saving is limited, I would never suggest o embark in a counrtry like Romania or Bulgaria.

 

[JP2020]

Anyone know the list of 58 countries they considers outside of its risk tolerance level?

 

[Marc M]

You need 2 REAL directors+office in BG in order to prove substance in BG. The combination Portugal/Romania is cheaper. 1%+5%=6%.

 

[anotherone]

You need 2 REAL directors+office in BG in order to prove substance in BG. The combination Portugal/Romania is cheaper. 1%+5%=6%.

It would be great if you could give more details about the tax setup: Romanian company / portugal residency

 

[anotherone]

@EpicPortugal What is your actual situation?
I have contacted a Portuguese lawayer who told me that now foreigners with NHR status have to pay a 20% income tax on their revenue from foreign source

 

[Marc M]

It would be great if you could give more details about the tax setup: Romanian company / portugal residency

A Romanian Microcompany (Micro SRL) with turnover below 1 Mio. € and 1 Manager (can be you) is taxed with 1% on TURNOVER (not profit)+5% dividend tax =6%.
The combination with PT has to be checked as PT changes the NHR program continiously. I can support the RO setup. I was there and in BG the last 2 weeks to connect with partners (lawyers, tax advisors, accountants). If interested, just send PM.

 

[KJK]

@EpicPortugal What is your actual situation?
I have contacted a Portuguese lawayer who told me that now foreigners with NHR status have to pay a 20% income tax on their revenue from foreign source

Is this a recent change? Does it apply only to funds brought into the country? How will they know?

I think Portugal should be very happy if some British/French/EU expats want to come and be "RNH". If they hit you with 20% without offering much in return, the country isn't very attactive - at least I'm pretty sure there will be some more attractive ones..

 

[anotherone]

Is this a recent change? Does it apply only to funds brought into the country? How will they know?

I think Portugal should be very happy if some British/French/EU expats want to come and be "RNH". If they hit you with 20% without offering much in return, the country isn't very attactive - at least I'm pretty sure there will be some more attractive ones..

retirees:10% but for other people it is more complicated

I created a thread about the NHR status

The portuguese NHR status to live tax free in Portugal. Is it a scam?

Hi, I have contacted a Portuguese man on Fiverr (so, he could understand the documents of the Non-Habitual Resident in Portugal)) to ask him if non-portuguese citizens who live in Portugal under the NHR rule can be tax exempt if they get their income from a foreign source. I have understood that...

www.offshorecorptalk.com

 

[sdreaver]

I'm not sure if there are answers here, since it's been some time. There seems to be confusion around CFC laws and such. If you live in Portugal and have your company in a country that is Whitelisted, it is not about "what they believe" or "would let you pay less tax". If the system is there, it's legal. Portugal does not have the same policy as Germany does here.
If you have a company in Bulgaria, an office address, with a phone number and employee, Portugal will not come and claim that company due to effective management.

And NHR is 20% on foreign income, but 0% on foreign-sourced royalties or dividends, which is where having an offshore holding company comes into play. Cyprus does not have a clear status, malta is also 'grey-listed', so be wary. Portugal will NOT tax you on your Estonian income, even if there is no corporate tax. It's not that you had 'no-tax'. The fact was that you filed taxes in Estonia, they have the right to tax, and it was 0%. But Estonia is not free, because you have to get your money out somehow. This is where Estonia taxes you (20% on disbursing dividends as of right now). Portugal will not double tax you as receiving foreign-sourced dividends are taxed at 0%.

I'm not sure what is meant by "not offering much in return". It's one of the top 5 safest countries in the world and its government and economy work much better and are trending much better than other popular western EU countries. They invest a lot in tech and their people. Spain and Italy are often compared at the same time, and they have the brand name cities, but that's it. The governments and everything are worse off and don't work as well. If this doesn't bother you, go to Southern Italy and take the 90% tax exemption. It's dead simple and the easiest way to get your taxes down to around 5% effectively.

Probably not the most lucid rant here, but there are a lot of comments here about "i don't think" and "i feel like.." that just aren't facts. Find a lawyer or consultant who actually specializes in NHR and saving money through NHR taxation. I guarantee you will find someone who's helped clients with off-shore holdings. Of course, some depends on your citizenship, where you used to live, and how much you want to stay in one place.

 

[Ssrn]

A Romanian Microcompany (Micro SRL) with turnover below 1 Mio. € and 1 Manager (can be you) is taxed with 1% on TURNOVER (not profit)+5% dividend tax =6%.
The combination with PT has to be checked as PT changes the NHR program continiously. I can support the RO setup. I was there and in BG the last 2 weeks to connect with partners (lawyers, tax advisors, accountants). If interested, just send PM.

So after a lot a lot of research, what I see as two opposing opinions is: Does there place of effective Mgmt matter or is it enough to have some kind of substance in Romania.

 

[Ssrn]

I'm not sure if there are answers here, since it's been some time. There seems to be confusion around CFC laws and such. If you live in Portugal and have your company in a country that is Whitelisted, it is not about "what they believe" or "would let you pay less tax". If the system is there, it's legal. Portugal does not have the same policy as Germany does here.
If you have a company in Bulgaria, an office address, with a phone number and employee, Portugal will not come and claim that company due to effective management.

And NHR is 20% on foreign income, but 0% on foreign-sourced royalties or dividends, which is where having an offshore holding company comes into play. Cyprus does not have a clear status, malta is also 'grey-listed', so be wary. Portugal will NOT tax you on your Estonian income, even if there is no corporate tax. It's not that you had 'no-tax'. The fact was that you filed taxes in Estonia, they have the right to tax, and it was 0%. But Estonia is not free, because you have to get your money out somehow. This is where Estonia taxes you (20% on disbursing dividends as of right now). Portugal will not double tax you as receiving foreign-sourced dividends are taxed at 0%.

I'm not sure what is meant by "not offering much in return". It's one of the top 5 safest countries in the world and its government and economy work much better and are trending much better than other popular western EU countries. They invest a lot in tech and their people. Spain and Italy are often compared at the same time, and they have the brand name cities, but that's it. The governments and everything are worse off and don't work as well. If this doesn't bother you, go to Southern Italy and take the 90% tax exemption. It's dead simple and the easiest way to get your taxes down to around 5% effectively.

Probably not the most lucid rant here, but there are a lot of comments here about "i don't think" and "i feel like.." that just aren't facts. Find a lawyer or consultant who actually specializes in NHR and saving money through NHR taxation. I guarantee you will find someone who's helped clients with off-shore holdings. Of course, some depends on your citizenship, where you used to live, and how much you want to stay in one place.

Do you have any further reading about the fact that pt doesn't check the effective management of a Romanian company or is this based on experience/ professional advice?

 

[sdreaver]

For what it's worth, consultants in Malta have told me appointing director there and having the 'office' is enough. They wouldn't even really know how much of the work you did in Portugal. And since it's dividends, you aren't being paid for completing any work.
I'm looking to verify with a pro on the Portuguese end before going forward. But Lisbob seems to think this works fine too.

Edit: the effective corporate tax rate is 35% with 30% rebate. So 5%. No dividend witholding tax.