Best setup to avoid European withholding tax? Anything better than Malta?
- Thread starter JustAnotherNomad
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That was the point of having the subsidiary. I didn't check France specifically, but in most high-tax Western countries, you would create a PE anyway by hiring locally, so you might as well set up a subsidiary and enjoy the better trust/reputation that comes from it.
Yes, exactly, hence my question how to avoid︀ the WHT. That's why I started this thread... Looking for other ideas.
Yes, exactly, hence my question how to avoid︀ the WHT. That's why I started this thread... Looking for other ideas.
The question is not "how to avoid WHT" because the answer is "setup a [treaty country] holding" and you are done.
The question is "how to avoid WHT while having all the options to live wherever i please without changing company structure" so it's a little more complicated BUT by setting up an Estonian holding:
1. Dividends distributed are tax exempt from CIT if these are paid out of dividends received from your CH company
2. Individuals are considered residents of Estonia if they have a permanent︀ residence in Estonia
This will allow you to nomad as long as you want and︁ receive dividends tax free from the EE holding.
Then, when you'll make up your mind︂ and decide where you want to settle, you'll see which options you have at your︃ disposal.
https://taxsummaries.pwc.com/netherlands/corporate/withholding-taxes
The Netherlands applies a conditional WHT on dividend, interest, and royalty payments (the Conditional Source Taxation︄ Act). This tax is only levied on interest, royalty, and dividend payments to affiliated companies︅ in designated low-tax jurisdictions and in certain (tax abuse) situations.
I wouldn't go with NL︆ unless you are a multinational like Uber, Booking and so on that could afford top︇ lawyers.
The question is "how to avoid WHT while having all the options to live wherever i please without changing company structure" so it's a little more complicated BUT by setting up an Estonian holding:
1. Dividends distributed are tax exempt from CIT if these are paid out of dividends received from your CH company
2. Individuals are considered residents of Estonia if they have a permanent︀ residence in Estonia
This will allow you to nomad as long as you want and︁ receive dividends tax free from the EE holding.
Then, when you'll make up your mind︂ and decide where you want to settle, you'll see which options you have at your︃ disposal.
https://taxsummaries.pwc.com/netherlands/corporate/withholding-taxes
The Netherlands applies a conditional WHT on dividend, interest, and royalty payments (the Conditional Source Taxation︄ Act). This tax is only levied on interest, royalty, and dividend payments to affiliated companies︅ in designated low-tax jurisdictions and in certain (tax abuse) situations.
I wouldn't go with NL︆ unless you are a multinational like Uber, Booking and so on that could afford top︇ lawyers.
As a tax resident of Estonia, there would be a PE risk in Estonia, but it might work.
But then there's the again the tax risk for the exit. I don't really see the benefit of Estonia over Cyprus or Malta for a holding company, except for better reputation?
Switzerland doesn't have any WHT with HK companies either btw...
But then there's the again the tax risk for the exit. I don't really see the benefit of Estonia over Cyprus or Malta for a holding company, except for better reputation?
Switzerland doesn't have any WHT with HK companies either btw...
Didn't we talk about hiring highly skilled shiny happy people in the countries where you'll form subsidiaries? No staff in EE = no PE risk
Better reputation, relatively close to CH, as a resident you'll be able to open physical bank for your holding, easier and cheaper to manage than CY, MT & HK.
So go for HK but︁ then be prepared to deal every year with HK to have your FSI exempt.
https://www.ird.gov.hk/eng/tax/bus_fsie.htm
Better reputation, relatively close to CH, as a resident you'll be able to open physical bank for your holding, easier and cheaper to manage than CY, MT & HK.
So go for HK but︁ then be prepared to deal every year with HK to have your FSI exempt.
https://www.ird.gov.hk/eng/tax/bus_fsie.htm
But you said I should move to EE (set up a permanent residence there). But yeah, if I only rent an apartment there, but never spend time there, maybe I could be tax resident, but still avoid the PE...
But Estonia has the big issue with capital gains being taxable as corporate income. Also probably less interesting for︀ hiring people. In MT/CY, you have good mix of nationalities to hire from. If I︁ want French-speaking customer service agents, I could probably find them in CY/MT, but not in︂ EE.
Not sure if it's such︄ a good match, but there's also Luxembourg for example... it's just expensive. UK might also︅ work.
But then you may need substance in those countries, and they are not attractive︆ from a CIT perspective.
I'm still thinking Switzerland could be a good option if there︇ is a good way to avoid both WHT and CGT upon exit. Maybe a pure︈ holding company in CY could work? I'm thinking that CH would probably be OK with︉ this, but CY would obviously be a massive red flag for many countries. Maybe the︊ CH company could own the subsidiaries, so I wouldn't have to declare that the CH︋ company is owned by a CY holding company, only the UBO?
But Estonia has the big issue with capital gains being taxable as corporate income. Also probably less interesting for︀ hiring people. In MT/CY, you have good mix of nationalities to hire from. If I︁ want French-speaking customer service agents, I could probably find them in CY/MT, but not in︂ EE.
Not sure if it's such︄ a good match, but there's also Luxembourg for example... it's just expensive. UK might also︅ work.
But then you may need substance in those countries, and they are not attractive︆ from a CIT perspective.
I'm still thinking Switzerland could be a good option if there︇ is a good way to avoid both WHT and CGT upon exit. Maybe a pure︈ holding company in CY could work? I'm thinking that CH would probably be OK with︉ this, but CY would obviously be a massive red flag for many countries. Maybe the︊ CH company could own the subsidiaries, so I wouldn't have to declare that the CH︋ company is owned by a CY holding company, only the UBO?
Man i'm telling you this since the beginning.
Final holding (HK, EE, CY, MT) > Intermediate company (CH) > subisdiary1, subisdiary2, subisdiary3, subisdiary XYZ.
Another option would be to use the Spanish ETVE instead of CH
You could setup the ETVE as a pure holding company (if you will not sell to Spain) or relocate the ETVE in the Canary Islands and benefit from ZEC taxation (4% tax up to 2Mln if you invest at least 50K in fixed assets and hire 3 people > this is your substance).
If you don't want to invest in the ZEC then you could benefit from RIC that states that︀ up to 90% of company profits could be excluded from taxation if you invest in︁ fixed assets in the Canary Islands.
A friend of mine built a freaking real estate︂ empire in Gran Canaria by leveraging RIC.
The only thing is that you can't be︃ tax resident of any country classified as blacklist by Spain.
Final holding (HK, EE, CY, MT) > Intermediate company (CH) > subisdiary1, subisdiary2, subisdiary3, subisdiary XYZ.
Another option would be to use the Spanish ETVE instead of CH
You could setup the ETVE as a pure holding company (if you will not sell to Spain) or relocate the ETVE in the Canary Islands and benefit from ZEC taxation (4% tax up to 2Mln if you invest at least 50K in fixed assets and hire 3 people > this is your substance).
If you don't want to invest in the ZEC then you could benefit from RIC that states that︀ up to 90% of company profits could be excluded from taxation if you invest in︁ fixed assets in the Canary Islands.
A friend of mine built a freaking real estate︂ empire in Gran Canaria by leveraging RIC.
The only thing is that you can't be︃ tax resident of any country classified as blacklist by Spain.
Holding location:
EE = capital gains are taxed, you can only reinvest, not take out profits
CY, MT = ideal from tax perspective, but bad reputation
HK = difficult political situation, on some tax haven lists, bad reputation, non-EU, probably not a good fit
LU = expensive
ES = forget it, no way I'm touching that country
UK = actually very interesting... PSD, participation exemption, no WHT on dividends
I actually think we might have a winner with the UK here...
EE = capital gains are taxed, you can only reinvest, not take out profits
CY, MT = ideal from tax perspective, but bad reputation
HK = difficult political situation, on some tax haven lists, bad reputation, non-EU, probably not a good fit
LU = expensive
ES = forget it, no way I'm touching that country
UK = actually very interesting... PSD, participation exemption, no WHT on dividends
I actually think we might have a winner with the UK here...
you need to check domestic rates as well.. 5% might be the case based on a treaty, but if there is no WHT based on domestic law, there will be no WHT.
UK also does not have WHT on dividends (if dividends are paid the other way around)
Afaik, CFC rules do apply if the CIT is less than 75% of UK tax which was recently increased to 25%.
What if you combine them?
EE company with a PE in CY,︄ MT? (overcome the CGT issue, and help alleviate the reputation
also UK company treaty tax︅ resident in CY or MT with a PE in Estonia
For residency:
UK - high︆ tax on personal level
MT - you are limited in terms of how much money︇ you can remit to MT tax-free
EE - more flexible for tax residency compared to︈ others, may require complex structuring
CY - 60 day rule
Or some kind of (cross-border)︉ partnership structure could be used for owning the holding company to benefit from the exemptions.︊
UK also does not have WHT on dividends (if dividends are paid the other way around)
Afaik, CFC rules do apply if the CIT is less than 75% of UK tax which was recently increased to 25%.
What if you combine them?
EE company with a PE in CY,︄ MT? (overcome the CGT issue, and help alleviate the reputation
also UK company treaty tax︅ resident in CY or MT with a PE in Estonia
For residency:
UK - high︆ tax on personal level
MT - you are limited in terms of how much money︇ you can remit to MT tax-free
EE - more flexible for tax residency compared to︈ others, may require complex structuring
CY - 60 day rule
Or some kind of (cross-border)︉ partnership structure could be used for owning the holding company to benefit from the exemptions.︊
The UK has a huge treaty network. Just because they left the EU doesn't mean all the treaties have suddenly become invalid. It may no longer be called "PSD", but the WHT is still 0%.
Switzerland isn't even an EU member, why would they care about whether the UK is in the EU?
The bigger issue is that then you would need some substance in the UK and it's another entity in the mix. In my example above, only two companies would be needed (e.g., FR+MT), both would have substance anyway.
Also, the Swiss CIT rate is still around︀ 10% or so. Twice as much as MT...
Hmmm, not sure how I follow. Wouldn't the CGT always︄ be due where the company is tax resident, which would usually be Estonia?
Or do︅ you mean an EE company resident in MT?
Why would that help with the reputation?︆ If sending dividends from e.g. a French subsidiary to the parent company, surely I'd have︇ to declare that the parent company is tax resident in MT?
Same with the UK?︈
And how would a PE in Estonia help? You mean to use a UK company,︉ but make it tax resident in CY/MT, and then claim that operations are done from︊ EE, so that operations would not be taxed? How would that help, then the profits︋ would still be "stuck" in Estonia?
Also, I'd like to keep things simple... It must︌ be possible to explain the structure in a simple way and give other reasons then︍ tax if someone asks questions...
Switzerland isn't even an EU member, why would they care about whether the UK is in the EU?
The bigger issue is that then you would need some substance in the UK and it's another entity in the mix. In my example above, only two companies would be needed (e.g., FR+MT), both would have substance anyway.
Also, the Swiss CIT rate is still around︀ 10% or so. Twice as much as MT...
Hmmm, not sure how I follow. Wouldn't the CGT always︄ be due where the company is tax resident, which would usually be Estonia?
Or do︅ you mean an EE company resident in MT?
Why would that help with the reputation?︆ If sending dividends from e.g. a French subsidiary to the parent company, surely I'd have︇ to declare that the parent company is tax resident in MT?
Same with the UK?︈
And how would a PE in Estonia help? You mean to use a UK company,︉ but make it tax resident in CY/MT, and then claim that operations are done from︊ EE, so that operations would not be taxed? How would that help, then the profits︋ would still be "stuck" in Estonia?
Also, I'd like to keep things simple... It must︌ be possible to explain the structure in a simple way and give other reasons then︍ tax if someone asks questions...
Maybe the mighty HU will do?
PSD, participation exemption, no WHT ....
.... and according to Deloitte "capital gains realized by a non-resident shareholder from the sales of shares in a HU company generally are not taxable"
You're right, Estonia and Latvia don't have WHT based on domestic law but all the others i mentioned have.
UK renegotiated all EU treaties︁ and for some countries the treaty is 0% while for others is 5% as i︂ mentioned.
If you don't care about selling in those countries or don't care about paying︃ 5% WHT on dividends then UK could be a winner.
PSD, participation exemption, no WHT ....
.... and according to Deloitte "capital gains realized by a non-resident shareholder from the sales of shares in a HU company generally are not taxable"
You're right, Estonia and Latvia don't have WHT based on domestic law but all the others i mentioned have.
UK renegotiated all EU treaties︁ and for some countries the treaty is 0% while for others is 5% as i︂ mentioned.
If you don't care about selling in those countries or don't care about paying︃ 5% WHT on dividends then UK could be a winner.
Seems like this shouldn't be a problem if there aren't any key people in the UK and the subsidiary has proper substance (active trading income). But good point to check.
Difficult political situation.
Didn't you say the CH company︀ should own all the subsidiaries? CH still has 0%.
Difficult political situation.
Didn't you say the CH company︀ should own all the subsidiaries? CH still has 0%.
Oh so you are talking about UK as the final holding.
I got confused when i wrote about the ETVE that was meant to replace the CH company.
Then i read about UK and thought about replacing CH with UK.
Nevertheless I would advise you to reconsider HU instead of CH as the subsidiaries cash collector because CH will give hard time asking you proof that whichever final holding you'll decide to use, it has substance.
By using a UK LTD treaty not resident in︀ HU you would appear like a UK company but with the benefit of having access︁ to the PSD and most importantly there aren't WHT so no need for a final︂ holding which means less overhead.
If i remember correctly HU companies don't have CFC rules︃ but even if i'm wrong to be considered a CFC should be taxed less than︄ 4.5% so no worries about that point either.
If i were in you i would︅ go with HU.
If political situation will worse you simply move the UK LTD to︆ another treaty location.
I got confused when i wrote about the ETVE that was meant to replace the CH company.
Then i read about UK and thought about replacing CH with UK.
Nevertheless I would advise you to reconsider HU instead of CH as the subsidiaries cash collector because CH will give hard time asking you proof that whichever final holding you'll decide to use, it has substance.
By using a UK LTD treaty not resident in︀ HU you would appear like a UK company but with the benefit of having access︁ to the PSD and most importantly there aren't WHT so no need for a final︂ holding which means less overhead.
If i remember correctly HU companies don't have CFC rules︃ but even if i'm wrong to be considered a CFC should be taxed less than︄ 4.5% so no worries about that point either.
If i were in you i would︅ go with HU.
If political situation will worse you simply move the UK LTD to︆ another treaty location.
No, ES is tax hell. CH is a compromise because they care about business and taxes are reasonably low and they have good talent (even if expensive).
But CH is still double the tax rate of MT...
Yes, exactly, that's why I'm not necessarily a fan of going with too complicated structures.
What about just going with a UK LTD treaty resident in MT then?
That's pretty︂ much what you suggested in the beginning, even though I still don't believe it works︃ the way you think. 😉
UK Ltd resident, not domiciled in MT
|
CH company
|
+ subsidiary 1
+ subsidiary 2
+ subsidiary 3
So that would make it even︄ harder to see that it's actually a MT company (fewer red flags) and CH has︅ no WHT on outgoing dividends to neither MT nor UK.
Could be a good solution?︆
But CH is still double the tax rate of MT...
Yes, exactly, that's why I'm not necessarily a fan of going with too complicated structures.
What about just going with a UK LTD treaty resident in MT then?
That's pretty︂ much what you suggested in the beginning, even though I still don't believe it works︃ the way you think. 😉
UK Ltd resident, not domiciled in MT
|
CH company
|
+ subsidiary 1
+ subsidiary 2
+ subsidiary 3
So that would make it even︄ harder to see that it's actually a MT company (fewer red flags) and CH has︅ no WHT on outgoing dividends to neither MT nor UK.
Could be a good solution?︆
It could but be aware that 5% will probably not last.
https://www.vacancycentre.com/blog/2024/04/corporate-tax-system-in-malta
https://www.vacancycentre.com/blog/2024/04/corporate-tax-system-in-malta
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