Singapore and Estonia, a good or a bad mix, let's dive in.

[ActionMan]

Hello folks,

So I was thinking the other day about the possibility of combining a truly tax-free setup with both Singapore and Estonia.

1. Establishing an Estonian company first: Estonian law allows me to reinvest money into new businesses/startups.
2. Opening a Singapore company: By having the majority controls and key decisions outside Singapore and all directors (besides the nominee director) in Singapore, it's usually good enough to be granted a tax exemption. Auditing is required, but it typically costs around 1-2k SGD per report. According to the IRAS site (Tax Residency of a Company/ Certificate of Residence), there's no mention of restrictions on remitting money in and out of Singapore, so I don't think banking plays a big role here.

So, the plan would look like this:

1. Establish the Estonian company first.
2. Conduct business through this company initially.
3. When it's time to distribute profits, allocate about 30-40% to salaries, director fees (aka operational costs) Salaries will be paid to associates who will essentially pay back to me.
4. Keep about 10% to maintain the company or in the company bank account.
5. Reinvest the remaining 50%:
   • 20% will be invested in crypto (allowed as long as crypto investments are not the main business activity).
   • 30% will be reinvested into my other companies (in which I own no more than 20% in each).
6. Here's where Singapore kicks in: Invest some of the 30% funds into my Singapore company. If confirmed that banking won't be an issue, open a real retail bank account in Singapore with DBS (I already have a couple but not with this kind of setup).

This setup would provide the best rates for PSPs using my EU company, the best banking within Singapore, and an overall 0% tax rate. Plus, it offers a good reputation and the ability to purchase other assets tax-free with any of these companies.

Let me know your thoughts!

Last edited: May 22, 2024
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[ActionMan]

any thoughts?

@Marzio @Sols

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[Marzio]

ActionMan said:
When it's time to distribute profits, allocate about 30-40% to salaries, director fees (aka operational costs)
Click to expand...

Non resident salaries are tax free but Estonian rules provide that directors' fees paid by an Estonian company to a non-resident director are always subject to 20% personal income tax.

Also, non resident salaries has to be credible AKA at market rates, you can't pay yourself $500.000 salary.

ActionMan said:
Invest some of the 30% funds into my Singapore company
Click to expand...

You'll pay Estonian taxes on dividends distributed to the SG holding.

 

[ActionMan]

Marzio said:
Non resident salaries are tax free but Estonian rules provide that directors' fees paid by an Estonian company to a non-resident director are always subject to 20% personal income tax.

Also, non resident salaries has to be credible AKA at market rates, you can't pay yourself $500.000 salary.
Click to expand...

Kindly re-read. what I'm saying is for operational costs, paying 30-40 for salaries isn't that much of a stretch, the people employed however could be your associates or close family members, whom in turn, pay you back the amount paid to them!

and paying 200-400k for personal salary isn't that far of a stretch as well for a general manager of the company, doesn't have to be a director.

Marzio said:
You'll pay Estonian taxes on dividends distributed to the SG holding.
Click to expand...

I'm talking about taking money from the Estonian company to invest in a Singaporean company which I won't owe more than 20% in. Estonian law allows you to re-invest your company profits into other companies, they are quite flexible in that regard actually.

I don't think there is that much of drawbacks aside from the upfront cost to get this properly done. But I always like to plan ahead and think long-term.

But that's just me, I'm interested in what others has to say about this as well

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[daniels27]

I think it is probably possible. My questions would be:
1. How much is the annual cost for this setup?
2. How much is the saving on PSP in percent of turnover compared to a US LLC?
I estimate the gain to be in the order of 2% for EU consumer sales and about 0.5% for non-EU sales at a cost of about 10k. Hence, it would make sense from 500k EU turnover with the inconvenience of not being able to get all money out.

 

[Don]

What kind of business you conduct?

 

[daniels27]

Don said:
What kind of business you conduct?
Click to expand...

Consumer sales digital or physical in large amounts?

 

[uplana]

You have made a good plan that is missing some key information!

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[Marzio]

ActionMan said:
the people employed however could be your associates or close family members, whom in turn, pay you back the amount paid to them!
Click to expand...

People employed need to pay taxes where they are resident on the amounts earned plus you are running the risk of creating a PE in the country where they are tax resident.

It would be a better idea to hire them through a EOR like remote.com but still, they will have to pay taxes on the amount earned.

ActionMan said:
I'm talking about taking money from the Estonian company to invest in a Singaporean company which I won't owe more than 20% in. Estonian law allows you to re-invest your company profits into other companies
Click to expand...

I must be missing something bcase AFAIK taking money out of the EE company is considered a dividend distribution subject to taxation.

 

[CyprusLawyer101]

The employees being paid and in turn give you the funds, this is tax fraud. I stopped reading there.

 

[Marzio]

CyprusLawyer101 said:
The employees being paid and in turn give you the funds, this is tax fraud
Click to expand...

I don't think it's tax fraud if employees live in a place where personal income taxes are tax exempt like UAE for example.

 

[CyprusLawyer101]

Marzio said:
I don't think it's tax fraud if employees live in a place where personal income taxes are tax exempt like UAE for example.
Click to expand...

If when you recieve the income from these employees you account for it as personal income, declare it and pay taxes due then its not tax fraud. If you gain a tax benefit from this i.e. resulting to better tax rate by interposing the employees , in the absence of commercial rationale behind this, it can be regarded as an artificial arrangement and a harmful tax practice which will fall within the ampit of tax avoidance which would generally be caught by a GAAR.

 

[ActionMan]

daniels27 said:
I think it is probably possible. My questions would be:
1. How much is the annual cost for this setup?
2. How much is the saving on PSP in percent of turnover compared to a US LLC?
I estimate the gain to be in the order of 2% for EU consumer sales and about 0.5% for non-EU sales at a cost of about 10k. Hence, it would make sense from 500k EU turnover with the inconvenience of not being able to get all money out.
Click to expand...

Not much probably, once everything is set up it should be around 5-10k.
Alot. we stroke a deal with Go cardless and Checkout.com on paying a flat 0.5% for ourselves and our customers.

Don said:
What kind of business you conduct?
Click to expand...

It's in my signature.

uplana said:
You have made a good plan that is missing some key information!
Click to expand...

like what exactly?

Marzio said:
People employed need to pay taxes where they are resident on the amounts earned plus you are running the risk of creating a PE in the country where they are tax resident.

It would be a better idea to hire them through a EOR like remote.com but still, they will have to pay taxes on the amount earned.



I must be missing something bcase AFAIK taking money out of the EE company is considered a dividend distribution subject to taxation.
Click to expand...

most of them are working for my UAE companies and third world countries where the concept of PE doesn't even exist.

Taking money for investment purposes will not be considered dividend distribution. See. the list of these investments are vast, and you are only limited by how creative your mind can be to utilize these investments.

I'm only interested in these from the list:

• Buy-sell cryptocurrencies for investment purposes only
• Invest in start-ups or other private companies registered in the EU or in the UK (from January 2021) (either a convertible loan or equity), receiving a minority stake and no controlling rights (less than 20%)
• Lending to/from start-ups or other private companies registered in the EU or in the UK (from January 2021) based on a loan agreement (incl. parties' details, loan amount, market interest rate, payment deadline)

the first one (crypto investments) is the most straightforward option, while the second one is more trickier, in the past they allowed investing in worldwide private companies as long as you don't own more than 20% on them. I see now things have changed! maybe putting a UK LLP or an Ontario LLP to the mix would help? I don't know, would need to ask some of my accountants to confirm whether this is doable or not!

CyprusLawyer101 said:
The employees being paid and in turn give you the funds, this is tax fraud. I stopped reading there.
Click to expand...

How is it tax fraud? the employees are doing actual verified work for ALL of my and my customers' companies, when it comes to salaries, would it really matter if I paid them from my UAE company or the Estonian one?

Marzio said:
I don't think it's tax fraud if employees live in a place where personal income taxes are tax exempt like UAE for example.
Click to expand...

Correct!

CyprusLawyer101 said:
If when you recieve the income from these employees you account for it as personal income, declare it and pay taxes due then its not tax fraud. If you gain a tax benefit from this i.e. resulting to better tax rate by interposing the employees , in the absence of commercial rationale behind this, it can be regarded as an artificial arrangement and a harmful tax practice which will fall within the ampit of tax avoidance which would generally be caught by a GAAR.
Click to expand...

I would gain a tax benefit, but they are doing work and instead of taking money from the Estonian company, I would take the same amount from the UAE company. plain and simple.

Last edited: May 24, 2024
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[Marzio]

ActionMan said:
when it comes to salaries, would it really matter if I paid them from my UAE company or the Estonian one?
Click to expand...

Well i think it matter because if you pay salaries from the UAE company you can't extract profits from your Estonian company.

To get profits out from the Estonian company it's the Estonian company that needs to pay salaries.

You can pay salaries with the UAE company but UAE workforce need to be hired by the UAE company first to get the working permit and then the UAE company will invoice the Estonian company for the work done in UAE but this income could be taxed in UAE at the company level (if you are over the AED 375,000 threshold)

To make it work the UAE worker need to be hired both by the Estonian company (to get salary) and the UAE company (to get the working permit).

The UAE company will invoice the Estonian company just below the relief threshold so that everything will be tax free in UAE.

ActionMan said:
Taking money for investment purposes will not be considered dividend distribution.
Click to expand...

Yes, i knew that but i understood that you wanted to invest through the SG company so what is not clear is how do you plan to move company profits tax free from the EE company to SG company if only investments in UE/UK companies are permitted.

 

[ActionMan]

Marzio said:
To make it work the UAE worker need to be hired both by the Estonian company (to get salary) and the UAE company (to get the working permit).
Click to expand...

That's exactly what I was saying, they are hired by all of my companies, they get paid from the Estonian company, and I keep the money from the UAE company, invoicing can be from the

Marzio said:
You can pay salaries with the UAE company but UAE workforce need to be hired by the UAE company first to get the working permit and then the UAE company will invoice the Estonian company for the work done in UAE but this income could be taxed in UAE at the company level (if you are over the AED 375,000 threshold)
Click to expand...

Small business relief would be around 800k I think, So I think the invoicing will be below that by a mile, but it's just a piece of the puzzle.

Marzio said:
The UAE company will invoice the Estonian company just below the relief threshold so that everything will be tax free in UAE.
Click to expand...

Yes.

Marzio said:
Yes, i knew that but i understood that you wanted to invest through the SG company so what is not clear is how do you plan to move company profits tax free from the EE company to SG company if only investments in UE/UK companies are permitted.
Click to expand...

by investing into a UK LLP? then the funds are transferred to the partners of the LLP. The SG Company could be one of the partners.

It's a headache I know, but it's worth it in my opinion in the long run. something stable and you can have the prestige and low costs of both the EU and the stability of the SG financial system.

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[daniels27]

ActionMan said:
Alot. we stroke a deal with Go cardless and Checkout.com on paying a flat 0.5% for ourselves and our customers.
Click to expand...

For all countries? On what turnover? Sounds like a good plan for manufactured spending with US credit cards.

 

[Marzio]

ActionMan said:
by investing into a UK LLP?
Click to expand...

Most likely not because Estonia will not see a UK LLP as a UK tax resident entity but i could be wrong.

Speak with @Don about this piece because you could leverage an Estonian limited partnership.

The Estonian company could be the general partner of the partnership that will invest in the parthership and the SG company will be the limited partner.

 

[ActionMan]

Marzio said:
Most likely not because Estonia will not see a UK LLP as a UK tax resident entity but i could be wrong.
Click to expand...

Could be.

Marzio said:
Speak with @Don about this piece because you could leverage an Estonian limited partnership.

The Estonian company could be the general partner of the partnership that will invest in the parthership and the SG company will be the limited partner.
Click to expand...

I'm in talks with him already, seems like a level headed guy, I will see how it goes with him.

daniels27 said:
For all countries? On what turnover? Sounds like a good plan for manufactured spending with US credit cards.
Click to expand...

send me a PM.

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[DeepDrilling]

Marzio said:
Most likely not because Estonia will not see a UK LLP as a UK tax resident entity but i could be wrong.

Speak with @Don about this piece because you could leverage an Estonian limited partnership.

The Estonian company could be the general partner of the partnership that will invest in the parthership and the SG company will be the limited partner.
Click to expand...

So you suggest an Estonia company and not a UK LLP ?

 

[Don]

Marzio said:
Most likely not because Estonia will not see a UK LLP as a UK tax resident entity but i could be wrong.

Speak with @Don about this piece because you could leverage an Estonian limited partnership.

The Estonian company could be the general partner of the partnership that will invest in the parthership and the SG company will be the limited partner.
Click to expand...

In Estonia you have multiple type of partnerships:
1) Transparent partnerships which are unincorporated and can be anonymous as well.
Such entities are treated as tax transparent.
In case you set up such a partnership that is managed by an Estonian company, then this Estonian company pays tax only when it distributes dividends (and not when it receives profits from partnership). The other partner can be a person or entity not exposed to tax, potentially limiting its (and overall) tax exposure to zero.
2) Limited and general partnership companies. These are companies similar to private limited companies and taxed like them as well, however they are less regulated compared to private limited companies providing additional opportunities for tax planning.
Importantly they are companies, not like in many other jurisdictions where these entity types might share the same name but might not even be considered legal entities, and are thus very different.