UK LTD or Estonian OU in light of ATAD 3

[offshoregringo]

Which of those 2 would you recommend for someone looking to set up an offshore company structure (territorial country tax resident here so don't have to worry about european PE rules that make an offshore structure impossible) when it comes to ease of conducting business? Obviously 0% corporate tax in Estonia (before distribution) is tempting however they do not seem to be particularly inviting for someone looking to lower their taxes while residing abroad (not allowing nominee directors unlike the UK, despite the whole "e-residency marketing scheme" authorities making it difficult to open bank account there etc.).

There's also ATAD 3 which enters into life in 2024, so the UK not being in the EU is actually a positive for me. Also not looking to expand my business in the EU (I do e-commerce and digital services) and actually want to focus on the UK & USA markets but still have clients in the EU so for example a US LLC is not an option right now. Essentially the only reason I'm considering Estonia is the 0% corporate tax as the operating costs in both cases are low and I don't mind paying 25% tax (at least at the moment) if it means that I will have a legit structure in a jurisdiction that won't be giving me headaches.

Taking the above into consideration, for someone thinking of setting up either Estonian OU or UK LTD what would you go with? Not looking at any other options, so please don't recommend Cyprus

 

[Don]

Who would have imagined that a tiny baltoid could be a better place for doing business compared to a successor of the world biggest Empire in human history?

Civil law jurisdictions (e.g., Estonia) don't have nominee services, but as an alternative specialized corporate service providers provide part-time local directors and officers, as an alternative option for running an "offshore company" noting that in UK average salaries are about ~100% higher.

Don't think you can open and run a transactional bank account with a high-street bank in UK with zero substance in 2023. Same principle applies more or less everywhere these days. Its very easy to open EMI accounts with both EE/UK companies though. I would say, build ~6 months of transaction history with an EMI, have some substance and you have no problems opening up real bank accounts.

For ATAD you need to worry when your companies income is mainly of passive nature. On the other hand UK is implementing all the same stuff like other OECD/EU countries just under a different name, e.g., instead of DAC6 they have MDR. Nominee relationships are disclosed, etc.

Talking about the headaches, UK is a tax hell, with one of the most powerful and aggressive tax authorities.

How To Get Out Of Tax Hell - Tax Hell

For the last ten years we've been helping peple like you end their nightmare tax investigations with Her Majesty's Revenue & Customs (HMRC).

taxhell.co.uk

The tax code is about 12.5 times the number of words in the Bible, whereas Estonian tax system has been rated the best in OECD for last 9 years - you have all the laws available in English and can possibly finish reading them all in about 1 hour.
UK has however far more developed, but also more regulated financial services market. Estonian offshore industry has been growing very fast. The country has 1.3m population and 100k+ e-residents.

Estonian Tax planning opportunities are unmatched. There are multiple loopholes which allow running the company at effectively 0% tax - intentionally designed by this baltoid to lure in foreign businesses. On top the system that doesn't tax income before distributions.

Depending on specific cases, UK could be a better choice. Even when you decide to run your company from Estonia you might want to consider other options than OÜ or run a foreign company (e.g. UK) PE/branch from Estonia.

E.g., treaty non resident UK company resident in Malta with a PE in Estonia gets access to some of the benefits of Estonian tax system (no tax before income distribution), while Malta would only tax the income remitted to Malta.
It should be possible to structure UK company as tax resident in Georgia (and non tax resident in UK) to access similar tax system as Estonia.

For digital services company I would 100% go with Estonia.
For e-commerce it depends on the business model, what you are selling, markets (consumers often prefer local companies).

 

[offshoregringo]

Who would have imagined that a tiny baltoid could be a better place for doing business compared to a successor of the world biggest Empire in human history?

Civil law jurisdictions (e.g., Estonia) don't have nominee services, but as an alternative specialized corporate service providers provide part-time local directors and officers, as an alternative option for running an "offshore company" noting that in UK average salaries are about ~100% higher.

Don't think you can open and run a transactional bank account with a high-street bank in UK with zero substance in 2023. Same principle applies more or less everywhere these days. Its very easy to open EMI accounts with both EE/UK companies though. I would say, build ~6 months of transaction history with an EMI, have some substance and you have no problems opening up real bank accounts.

For ATAD you need to worry when your companies income is mainly of passive nature. On the other hand UK is implementing all the same stuff like other OECD/EU countries just under a different name, e.g., instead of DAC6 they have MDR. Nominee relationships are disclosed, etc.

Talking about the headaches, UK is a tax hell, with one of the most powerful and aggressive tax authorities.

How To Get Out Of Tax Hell - Tax Hell

For the last ten years we've been helping peple like you end their nightmare tax investigations with Her Majesty's Revenue & Customs (HMRC).

taxhell.co.uk

The tax code is about 12.5 times the number of words in the Bible, whereas Estonian tax system has been rated the best in OECD for last 9 years - you have all the laws available in English and can possibly finish reading them all in about 1 hour.
UK has however far more developed, but also more regulated financial services market. Estonian offshore industry has been growing very fast. The country has 1.3m population and 100k+ e-residents.

Estonian Tax planning opportunities are unmatched. There are multiple loopholes which allow running the company at effectively 0% tax - intentionally designed by this baltoid to lure in foreign businesses. On top the system that doesn't tax income before distributions.

Depending on specific cases, UK could be a better choice. Even when you decide to run your company from Estonia you might want to consider other options than OÜ or run a foreign company (e.g. UK) PE/branch from Estonia.

E.g., treaty non resident UK company resident in Malta with a PE in Estonia gets access to some of the benefits of Estonian tax system (no tax before income distribution), while Malta would only tax the income remitted to Malta.
It should be possible to structure UK company as tax resident in Georgia (and non tax resident in UK) to access similar tax system as Estonia.

For digital services company I would 100% go with Estonia.
For e-commerce it depends on the business model, what you are selling, markets (consumers often prefer local companies).

Hi Don! Thanks for your feedback, it's worth its weight in gold. My thinking was to dodge all of the laws being implemented in the EU such as ATAD by setting up a company in the UK but I should have known better that they are probably going to follow suit with something similar. I doubt that the UK is a bigger tax hell than Spain though, having been tax resident there for the past couple of years (thankfully not a national).

 

[Martin Everson]

I doubt that the UK is a bigger tax hell than Spain though, having been tax resident there for the past couple of years (thankfully not a national).

It's heading there with its fiscal issues. There is very good reason the UK raised corporate taxes

However @Don made excellent points and pretty much covered it all