e-resident Estonia VAT Audit oÜ / burden of proof for salary

[questioneer]

Hi,

this is about an Estonian OÜ via e-residency, as a non-resident, non-citizen of Estonia,‌ never set foot in there, no employees there, no office. Receiving salary. As part of‍ VAT tax audit the estonian tax office ask where the employment taxes are paid. As⁠ a pertual traveller this salary is non-taxable. The question now: Do I need to prove⁤ that I was not in Estonia. Or does the tax office need to proof that⁣ the income is taxable in Estonia. Can it just be declared in the audit answers⁢ that one has not been in Estonia, etc... Or do i need to provide receipts︀ where i was each month... I appreciate input from anyone with personal experience how this︁ is handled.

Thanks a lot!

 

[daniels27]

Have you read this?

and this

Are you the︀ director of your company?

 

[questioneer]

yes, thanks, but the employee is not employed in the territory of Estonia. There is‌ only 1 employer, no other person, living as perpetual travel outside of Estonia.

 

[daniels27]

What is the function of the employee in the company? Director?

 

[questioneer]

Management board member

 

[daniels27]

Yes but look at this:

 

[Houdini]

Sounds like you need some professional assistance should there come tax complications.

 

[questioneer]

yes it's true will get a professional for this. thanks everybody! appreciate it!

 

[JustAnotherNomad]

To the best of my knowledge:

1. A director's fee is always taxable in Estonia.‌ So you'll want to make sure that there is an employment contract that explains that‍ the salary isn't a director's fee, it's for actual work that you do for the⁠ company. Ideally you would have at least some kind of nominee director in Estonia to⁤ strengthen your case. There is a risk that they will say that at least part⁣ of your salary is really a director's fee, in that case there is no way⁢ around the Estonian tax, at least on that part of the salary.

2. If you︀ have no clear tax residency (or at least other residency), this is a bit of︁ a grey area. How long do you have to reply? I would try to give︂ them some sort of residency. They won't care if you pay taxes there or not,︃ but they probably won't have a box "the person is a full-time digital nomad without︄ any fixed home" to check on their form. So where do they place you? They'll︅ have to fill in a country. If you can't provide them with a residency country,︆ they'll probably have no other choice but to write "Estonia" there, and then there will︇ be tax by default. And then you can try to contest it and explain that︈ there is no basis for taxation in the Estonian tax code, yada yada yada, but︉ it'll be a PITA. Make it easy for yourself and get some kind of residency.︊ What address do you use for your banking? Can you use that?

But generally, yes,︋ you should work with a lawyer at this point, especially because of the director's fee︌ thing. But try to find a lawyer who is familiar with nomads.

 

[Don]

Correct - the management board member fee is always taxed‍ in Estonia, but if the company opens a branch abroad, the branch director's salary will⁠ not be taxed in Estonia but in the country where the branch is located.
It's not a bad idea; this would also help to solve the potential issues︃ with VAT.
It's easier to explain that your residence is‍ in, e.g., Dubai compared to saying that you change your location every month.

The question⁠ is, is the OP an EU citizen/resident?

Where is the entity actually based / have⁤ permanent establishment, if nothing is in Estonia?

 

[JustAnotherNomad]

There's no need to prove PE etc.
They will only need to know the tax‌ residency of the employee.
I'm not even sure if they'll want to see proof, but‍ you better be prepared regardless.

 

[Don]

Both residency of the employee⁠ and place and duration of work are important for tax purposes.
Best to have proper⁤ agreements in place for board member fee and employment contract or contract for services.

Shell companies with zero local substance commonly get VAT numbers revoked due to not being compliant.⁣ This might result in additional tax liabilities, e.g., you might not be able to claim⁢ input VAT, reverse charge mechanisms might not apply, suppliers might add tax, etc.

 

[questioneer]

I have two⁠ more weeks to reply. Yes, having a residency would make it easier, but I currently⁤ don't have one. My bank address is from the country where I was born and⁣ lived long time and paid taxes before (still have Tax Number there and pay for⁢ years prior), a central european country. But no more ties / business / substance /︀ rental / anything.

And yes, the salary is for actual work, provable legit work. Not︁ management. There isnt even anything to manage, a small outfit. And salary is a few︂ k euro.

Thanks for everyone contributing here with their perspectives, I really appreciate it!

 

[Konstanz]

There is no such thing as perpetual traveler these days. You have to have some‌ kind of official residence at some country if not , probably you are still tax‍ resident in your home country
If it was so "easy" , everybody would do that.⁠ Why then people do Dubai, Monaco etc?

 

[JustAnotherNomad]

The bank account could be a tie. Unlikely if you⁤ only use it for your salary, but it could be. Definitely speak to an Estonian⁣ tax lawyer who has experience with nomads at this point.

 

[JustAnotherNomad]

Please... Not this⁤ debate again.
You can absolutely be a PT. Dubai, Monaco etc. are for people who⁣ are not nomads/PTs.
PT works for example when you have a transparent entity like a⁢ US LLC, where it is clear that the money is not taxable in the US.︀ Then, since no other country can claim you as a tax resident, you are tax︁ free.
But in this case, Estonia wants to know where OP lives since if it︂ is a salary, social security, health insurance etc. may have to be paid, and it︃ must be clarified if tax should be paid in Estonia (if the work was performed︄ in Estonia) or in OP's residency country.
There is probably nothing in the Estonian tax︅ code that says they can tax the salary if OP is not tax resident in︆ Estonia and the money was not physically earned in Estonia.
But at the same time,︇ if OP cannot give them any clear residency, then what will they write into the︈ system to say the income is NOT taxable in Estonia?
Tax laws were not written︉ with PTs in mind.
This is very much a grey area in this case.
I would work with a lawyer to try and find a solution.
Maybe you can explain︊ to them that you live in e.g. Thailand, but on a tourist visa and that︋ you just travel around, that's why you just stay in hotels when you are in︌ Thailand.
But definitely work with a lawyer who has experience with how the Estonian tax︍ authority works.

 

[JustAnotherNomad]

Yes, I already wrote they should⁠ set up a proper employment contract.
But I meant you don't need a foreign branch⁤ etc. - the salary should be a deductible expense.

I guess︁ that's a risk, I didn't think about VAT before. Anyway, they have to work with︂ a lawyer at this point.

 

[churumbelo]

They might request it. I⁠ do not know if they do it often or they even do it, but according⁤ to the Estonian tax agency, they might request proof of it. Source: I asked them⁣ about it a couple of years ago and they told me so.
But I also⁢ know people in that situation for years and the Estonian tax agency never requested anything︀ like that from them.

By the way, they are nice and reply fast to the︁ emails if any questions.