Got the Estonian e-residency approved

[isaiah122]

@katehuston55 Yeah Croatia is very expensive. Bulgaria /Macedonia /Albania seem better in that regard.

 

[jchalisque]

@isaiah122 Why not just start a bulgarian company, as a EU citizen you can start one there without needing Bulgarian citizenship or residency.

 

[rae29]

@isaiah122 I’m from Brazil , you just pay no taxes if you declare yourself as non resident .For example I live in Ireland and to avoid paying taxes in Brazil I signed a paper saying I was leaving Brazil and that means I can’t have current accounts or invest. I only pay my taxes in Ireland.

 

[bburns4667]

@isaiah122 You need to look for countries with a territorial tax system. Such as Dominican Republic. Switzerland has 10% tax. But it’s pretty expensive.

 

[jesusisaliveforever]

@isaiah122 As you mentioned, you should contact a legal advisor about it, not some randoms on Reddit. I am sure you won’t be able to avoid taxes this way if you still live in Spain. That is too easy.

 

[isaiah122]

@jesusisaliveforever I definitely will hire a legal advisor. Also I never said I want to avoid taxes, and I'm not gonna live in Spain anymore. I don't think you got the general idea correctly (maybe my fault for explaining myself badly).

 

[oceanbreeze4evr]

@isaiah122 Estonia has a flat tax rate on dividends. You don’t pay any corporate taxes until you withdraw the money. https://www.emta.ee/en/business-client/taxes-and-payment/income-and-social-taxes/taxation-dividends

 

[matheww1]

@oceanbreeze4evr But then you will be paying the withdrawing tax + personal tax in your tax residency country. Isn't the only benefit that you can withhold the money in the company without being taxed until you decide to withdraw some of it?

 

[isaiah122]

@oceanbreeze4evr So if I don't pay dividends and pay the profits as salary to myself, I wouldn't pay any corporate tax, right? That's what the people at xolo.io told me at least.

 

[oceanbreeze4evr]

@isaiah122 I mean, you pay 20% (14% if you pay the same amount every year) income tax on dividends (if you take them out).

If you pay a salary to yourself, you pay pension fund (2%?) contributions, income tax (20%) and the company has to pay social contribution tax (33%).

So if you own the company you pay about 53% (+/- 3-5%) in taxes.

 

[isaiah122]

@oceanbreeze4evr Wait, but why 20% income tax? Isn't that the Estonian rate? I won't be living in Estonia, i will pay income tax wherever I'm a tax resident right?

 

[oceanbreeze4evr]

@isaiah122 If Estonia has an international treaty with them, then yes. But I am guessing you can just use the money to invest in your other company.

 

[isaiah122]

@oceanbreeze4evr Sorry, what other company are you talking about?

 

[isaiah122]

@oceanbreeze4evr "Depending on how you choose to pay yourself from your Estonian e-resident business, you may not have any personal tax liability at all in Estonia.

This is because, while directors fees are taxable in Estonia, employees salaries are not. And yes, it is possible for a director or sole trader to be an employee as well, paying themselves a salary, and zero directors fees, especially if the business is highly digital and straightforward, and if you don’t have any employees to manage and direct."

This is what I would like to do. If I don't have to pay any taxes in Estonia that would live the 10% income tax I'd pay in Bulgaria if I choose to stay there right?

 

[hoorayitsme]

@isaiah122 Yet another Spanish fell in the Estonian marketing trap. There's a massive target on Spain coming from these services tbh.

 

[isaiah122]

@hoorayitsme Care to explain further?

 

[hoorayitsme]

@isaiah122 Just that. I'm Spanish too, and when looking into creating my company I considered Estonia.

After lots of research and paid consulting sessions, I opted for the UK after finding out that Estonia wasn't as utopic as the marketing it has.

Specifically, one of the major e-residency promoters is a company created by a Spanish guy. They do a lot of marketing to promote Estonia, and obviously they mostly target Spanish people because they know the market and their pain points. They have done such an enormous marketing strategy that whatever you can search online to find "countries to create my company and pay less taxes" will point you towards Estonia. And coincidentally, they make it so easy for Spanish people that it's hard to pass.

They also have lots of blog posts and documentation, making you feel they're super experts. But some of them are written in a way it's hiding the real intricacies of companies and taxes overseas. They want to make it seem easy, but it's never the case. Others in the thread have told you things you've missed or should consider.

Don't take my word for it though. I'm not saying Estonia is a terrible place. All I'm saying is that everything is more complex than it sounds. Every case is unique. Don't let marketing fool you or you'll find the issues affecting you later on when it's harder to pull back.

 

[isaiah122]

@hoorayitsme "Depending on how you choose to pay yourself from your Estonian e-resident business, you may not have any personal tax liability at all in Estonia.

This is because, while directors fees are taxable in Estonia, employees salaries are not. And yes, it is possible for a director or sole trader to be an employee as well, paying themselves a salary, and zero directors fees, especially if the business is highly digital and straightforward, and if you don’t have any employees to manage and direct. "

This is what I'm aiming to do. My business is basically just me writing code so I don't need any employees or shareholders. I just need to pay myself a salary to avoid paying corporate tax in Estonia and then pay income tax wherever I'm a tax resident. Do you see any possible pitfalls with this plan?

 

[hoorayitsme]

@isaiah122 Disclaimer: I'm not a tax adviser in any way. What I say is just based on what I remember from when I did my investigation.

You are going to be resident somewhere. If you pay yourself as salary 100%, that salary will be taxed in the country you're resident into (nothing to do with Estonia). And some countries will even force your company to register in this country as a branch so that it pays company social security too, since it is employing people in their country.

If you pay yourself as director or dividends, then it's taxed in Estonia 20%, doesn't matter where you're resident.

If you make yourself freelance and invoice your company, basically you pay taxes and social security as freelance in the country you are registered into.

On top of this, any accounting advisor will tell you you shouldn't pay you 100% salary if you're the only employee. They will usually recommend a 80/20 split.

Plus, another thing they won't probably tell you. If your company is in Estonia, it's mandatory your accounting team is a company Estonia. Guess where they make their money. Now you're paying for accounting in Estonia AND where you're resident into.

Those are some key bits I can remember. Might have forgotten or mixed some stuff.

 

[isaiah122]

@hoorayitsme Very useful info regardless if you're not a tax advisor. I appreciate you sharing your experiences and knowledge.