Unshell & long-term solution (Cyprus vs Estonia)

[Puzel12]

I am living in Thailand and a tax resident here. Origianlly polish citizen, and own shares in 3 Polish companies (I want to put them under company to remove more ties with my home country)
I am thinking about setting up a company in either Cyprus or Estonia. My business is service based 100% online. 100K - 200K $ profit yearly.
I got info from an international tax advisor that it would be better to go with Cyprus, so just want to know what you guys think.

His points were:

• Cyprus company can have nominee local director while in Estonia it's not regulated so If I am director of Estonian company I will create PE anywhere I move
• Cyprus company allows you to account more for costs
• Cyprus is more stable and offers more privacy
• It's easier to get tax residnecy certificate in Cyprus ( I need it to be able to invoice 2 of the companies that are based in Poland and don't pay WTH tax there )

The maintance cost for Cyprus is about 6000/year + I can pay additional 300/m for dedicated office and 400/m for legitimate parttime employee to create more substance. I'd rather go with Estonia as I am not planning to withdraw more than 80% of funds from the company, but not having local director makes me worried. I may consider moving to Taiwan in the future, so I want to make sure I have enough substance in country where I register the company and that I will not create PE. With unshell ATAD3 coming it makes even more sense to consider where I can create the substance.

Ah the remaining profits will be invested in real estates in Europe + Stocks in the US, but mostly RE. First one on the list is Cyprus property. Considering if it makes more sense to buy under me and lease to the company or buy under company to create even more substance.

Would you bet on Estonia or Cyprus in that case and why?

 

[Don]

• Cyprus company can have nominee local director while in Estonia it's not regulated so If I am director of Estonian company I will create PE anywhere I move

It will not help you from a tax perspective if you appoint a Cypriot professional nominee director who is often a director at 500 companies at the time.
It will also hinder the ability to open bank accounts.
It would be best if you could hire a real part-time director.

• Cyprus company allows you to account more for costs

In Estonia, all business-related costs can be accounted for as deductible.

• Cyprus is more stable and offers more privacy

Both are EU members so they are quite similar, but I wouldn't call Cyprus exactly a standard of stability:

• Not longer than ten years ago some Cyprus banks were on the verge of collapsing and were bailed out by the EU. Banks had to seize deposits from savers in a bid to stay afloat.
• Half of the island is occupied/disputed territory.
• If you look at ratings such as Moodys, they are not in Cyprus's favour when you compare them to Estonia.

From a privacy perspective, it's again important to note that both are EU jurisdictions and follow the same directives.
Cyprus is generally more opaque regarding public registers, and you can legally appoint nominee shareholders/directors.
In cases where the shareholding structure of a Cyprus company leads to trust as a beneficial owner, the information must be submitted in the BO Register.
While Estonia doesn't offer trusts, it provides multiple legal arrangements similar to trusts that are out of the scope of any reporting, which actually provides more anonymity.

• It's easier to get tax residnecy certificate in Cyprus ( I need it to be able to invoice 2 of the companies that are based in Poland and don't pay WTH tax there )

In Estonia, you get a tax residency certificate automatically online. I don't think it can get any easier.

Would you bet on Estonia or Cyprus in that case and why?

Both have their own benefits.

The substance and services are indeed cheaper in Estonia.

If you are investing, be careful with the 30% SDC in Cyprus, which could apply to passive interest and to dividends if they are earned from foreign investments if an effective tax rate is less than 6.25%.

You may also consider a cross-border structure to reap the tax benefits of both jurisdictions, e.g., an Estonian company with a PE in Cyprus.

 

[Puzel12]

It will not help you from a tax perspective if you appoint a Cypriot professional nominee director who is often a director at 500 companies at the time.
It will also hinder the ability to open bank accounts.
It would be best if you could hire a real part-time director.


In Estonia, all business-related costs can be accounted for as deductible.


Both are EU members so they are quite similar, but I wouldn't call Cyprus exactly a standard of stability:

• Not longer than ten years ago some Cyprus banks were on the verge of collapsing and were bailed out by the EU. Banks had to seize deposits from savers in a bid to stay afloat.
• Half of the island is occupied/disputed territory.
• If you look at ratings such as Moodys, they are not in Cyprus's favour when you compare them to Estonia.

From a privacy perspective, it's again important to note that both are EU jurisdictions and follow the same directives.
Cyprus is generally more opaque regarding public registers, and you can legally appoint nominee shareholders/directors.
In cases where the shareholding structure of a Cyprus company leads to trust as a beneficial owner, the information must be submitted in the BO Register.
While Estonia doesn't offer trusts, it provides multiple legal arrangements similar to trusts that are out of the scope of any reporting, which actually provides more anonymity.


In Estonia, you get a tax residency certificate automatically online. I don't think it can get any easier.


Both have their own benefits.

The substance and services are indeed cheaper in Estonia.

If you are investing, be careful with the 30% SDC in Cyprus, which could apply to passive interest and to dividends if they are earned from foreign investments if an effective tax rate is less than 6.25%.

You may also consider a cross-border structure to reap the tax benefits of both jurisdictions, e.g., an Estonian company with a PE in Cyprus.

Is local director needed in Estonia to get tax residency certificate? or what are the requirements and what substance will I need in Estonia?
Also I heared you need to hire someone in the Estonian company while it's not required in Cyprus, is it true?

How do you hire real part-time director? What's the difference with him vs nominee? You pay for both of them and nominee act in Cyprus based on your decisions.

What worries me the most is PE. How do I fix it with Estonian structure where I can't appoint nominee director?

 

[Don]

Is local director needed in Estonia to get tax residency certificate? or what are the requirements and what substance will I need in Estonia?
Also I heared you need to hire someone in the Estonian company while it's not required in Cyprus, is it true?

How do you hire real part-time director? What's the difference with him vs nominee? You pay for both of them and nominee act in Cyprus based on your decisions.

What worries me the most is PE. How do I fix it with Estonian structure where I can't appoint nominee director?

No. Both jurisdictions will issue a tax residency certificate for the company by default (in Cyprus this is the case since 2023 only).

It's not mandatory to hire anyone for the company in Estonia.
Having the local director registered for social tax so that the company has local employer status adds substance (which you wouldn't have with a bare nominee in Cyprus).

Specialized companies provide fractional directors as a professional service. Using such a director can be an economical option. They can offer substance by conducting board meetings, signing local agreements and compulsory legal documentation, tax returns and financial statements, operating local bank accounts, and participating in transaction meetings.

In summary, the human aspect is the key when it comes to substance, e.g., having in place:

• Qualified and knowledgeable directors and managers who are located and employed locally
• Employer status of the company and registration for Social Insurance where directors and/or other staff are employed (not only nominated);
• Involvement of local staff in the operations of the entity;

It's also great to have:

• Your own (rented or owned) office space/premises/physical address;
• Relevant assets present in the office (equipment and all other necessities which are normally required for doing business);
• Accounting records are maintained locally, and the accounting work is performed by local accountants;
• Operative local bank accounts with local resident signatories/counter-signatories;
• An independent local email address;
• An independent local domain/website;
• An independent telephone

 

[Puzel12]

No. Both jurisdictions will issue a tax residency certificate for the company by default (in Cyprus this is the case since 2023 only).

It's not mandatory to hire anyone for the company in Estonia.
Having the local director registered for social tax so that the company has local employer status adds substance (which you wouldn't have with a bare nominee in Cyprus).

Specialized companies provide fractional directors as a professional service. Using such a director can be an economical option. They can offer substance by conducting board meetings, signing local agreements and compulsory legal documentation, tax returns and financial statements, operating local bank accounts, and participating in transaction meetings.

In summary, the human aspect is the key when it comes to substance, e.g., having in place:

• Qualified and knowledgeable directors and managers who are located and employed locally
• Employer status of the company and registration for Social Insurance where directors and/or other staff are employed (not only nominated);
• Involvement of local staff in the operations of the entity;

It's also great to have:

• Your own (rented or owned) office space/premises/physical address;
• Relevant assets present in the office (equipment and all other necessities which are normally required for doing business);
• Accounting records are maintained locally, and the accounting work is performed by local accountants;
• Operative local bank accounts with local resident signatories/counter-signatories;
• An independent local email address;
• An independent local domain/website;
• An independent telephone

Do you offer services like this? How much it cost to have fractional directors?

 

[Don]

Not actively advertising at the moment due to limited capacity, but can help in both Cyprus and Estonia.

It depends on the level of involvement of the director, but the cost is a fraction of what you would pay a real director.

 

[myhand]

Well, you can get real directors for an acceptable amount if needed.