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Estonia as holding company

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John Andrews

John Andrews

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Apr 5, 2019
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Is anyone using Estonian OU as a holding company for other EU companies (w/ EU Parent-Subsidiary directive)?

This website claims the following: "If an Estonian company receives dividends from a foreign company, then as a rule the corporate income tax is taxed on the level of first appearance of profit. Once it is taxed there and documented proof given, this money will not be taxed when distributed from an Estonian company (documented proof is not required if dividends are received from an OECD country)."

Is this true? Does this mean that the dividends received by the Estonian HoldCo from its EU subsidiaries are not taxed when distributed to shareholders of the Estonian HoldCo?

Also - subsidiaries of the Estonian company would pay 12% corporate tax - does this make any difference? I hope they won't require me to pay the difference?
 
That's interrsting and I think makes legal sense.

Put the Estonia as holding and keep‌ paying you a low salary and deduct expenses without paying dividends
 
Well I can also use a UK Ltd for a simple holding, much cheaper‍ than Estonia/Cyprus. Right?
 
sorry you mean in practice are not taxed dividents ? By law you get‍ a 17 year exemption if acquire cyprus tax residency. Dividents for non resident are not⁠ taxed, but they are supposed to be taxed in country of tax residency. Now if⁤ Cyprus authorities , out of their good will report this is another matter but if⁣ specifically asked, they will DO.
 
ever seen‍ this practice? In the last 10 years I have not had any troubles like that.⁠
 
I very much like the island, the weather,‍ the food, the common folk but here we are talking about a special caste of⁠ people, accountants,lawyers and politicians , who have taken the path of evolution and accumulation of⁤ wealth in cyprus, by balancing between great powers. Servicing two masters is always hard and⁣ in the end , if it is to choose between the client and the authority⁢ of state , these people will always choose the authority and enthusiastically if asked, will︀ provide all details about the client's dealings even for things that they were not asked,︁ to demonstrate their obedience to their real Master(s) and continue milking the wealth.
 
Under EU Parent Subsidiary rule ANY EU company that is a⁠ parent of another EU company can receive dividends tax free from their subsidiary. You cannot⁤ be taxed twice under the rule. So even a high tax EU company can be⁣ used as a parent company and the dividends it receives will be tax free if⁢ the sending subsidiary income was already taxed. It is nothing unique to Estonia but available︀ to all EU companies.
 
I think there is a mispresentation Martin Everson, the⁢ profits after tax sent to the parent company are not taxed oncemore, the dividents distributed︀ to the shareholders of the parent company are taxed according to the tax law of︁ their tax residency country.
 
Who said they were?

I didn't talk about the holding company shareholder but⁤ you are 100% right I should have made that clear as that was what his⁣ question was specifically about after reading it again i.e the end shareholding person😕.

So the owner of the shares of the parent company maybe subject to tax would be⁢ correct way to put it. Not everyone lives in a country with personal income tax︀ or in fact lives in a country where offshore income is taxed 😉.
 
Okay good. So if an Estonian company is used for pure holding there is no‌ tax in Estonia (aka 20%), just on dividends paid from Estonia to me based on‍ my country of residence.
 
Yes as long as you fulfill⁠ the conditions of the EU Participation Exemption.

------

Participation exemption – Corporate income tax will⁤
not be charged on a redistribution of dividends if the
underlying dividends are received from⁣ a subsidiary that
is tax resident in a European Economic Area member
state or Switzerland⁢ and the Estonian parent holds at
least 10% of the shares or votes of the︀ payer company.
The participation exemption also applies to dividends
received from other countries if the︁ Estonian company
holds at least 10% of the shares or votes and income tax
has been paid on the underlying share of profit, or income
tax on the dividends has︂ been withheld in a foreign
jurisdiction.

-------
 
Every country that has a "holding company regime" will have the same rules, and thus‌ this non-taxation of dividends is more common than not. It is only because Estonia delays‍ corporate tax to the time of distribution that keeping track of which income was tax⁠ free in the beginning becomes important.

What can cause problems in the Estonian tax system⁤ is what tax you get on profits derived from investing those dividends. Estonian companies are⁣ often used by hodlers, so if you pay 20% on those profits, Estonia might not⁢ be such a great jurisdiction.

Compare that to a country where the holding regime exempts︀ capital gains and dividends. In such a jurisdiction you can get the dividends and keep︁ the profits on reinvested capital tax free as well.
 
Just a few such countries: Belgium, Netherlands, Cyprus, Hong Kong, Ireland, Luxembourg, Malta, Sweden, Norway‌ (97% exempt), Denmark, Latvia, Bulgaria, UK, Andorra, Bahrain, Croatia, Egypt (90% exempt), France (95-99% exempt),‍ Georgia, Germany (95%), Ireland, Italy (95%), Kuwait, Lebanon, Liechteinstein, Lithuania (12 months holding), Luxembourg (12⁠ months), Portugal, Romania, Seychelles, Spain (12 months), Switzerland, UAE.
 
I’m digging up this old thread because I’m interested in cheap options for an EU‌ holding company. The most important criterion is that there is no withholding tax on dividends‍ paid to non-EU tax residents.

I’m thinking about using the holding company both for receiving⁠ dividends from an EU subsidiary and owning real estate companies (one Ltd. per property) to⁤ sell the Ltd. instead of the property itself to avoid stamp duty.
I guess both⁣ should be tax free under the parent-subsidiary directive?

Obviously Cyprus is great for holding companies,⁢ but they are probably a red flag to most tax authorities (subject to extra scrutiny︀ and potentially additional substance requirements) and they’re also more expensive than a holding company in︁ the UK or Estonia.
A big plus with Estonia is that you probably wouldn’t even︂ need an accountant. You can just get e-residency and file your annual tax returns online︃ in 5 minutes. Estonia doesn’t charge WHT on dividends either. But from what I’ve heard,︄ banking can be a pain. And then there’s the 20% CIT, so you can’t reinvest︅ the capital gains without paying tax on distributions. But how much of a deal is︆ that really when you can just reinvest the money into a new subsidiary tax free︇ and start over?
The UK looks good, but obviously there is a lot of uncertainty︈ now with Brexit.

Any other suggestions? What about a Dutch or Irish holding company? Seems︉ like the Netherlands is introducing new anti-avoidance rules which may lead to WHT being levied,︊ though only on interest/royalty payments? I would really prefer something simple. Cyprus is so tempting,︋ but I’d prefer something a little more innocent and cheaper. Maybe Estonia isn’t so bad︌ after all?
 
I don't understand how substance requirements can be high for a holding company. It doesn't‌ do anything. In the courtroom, what are the arguments form the tax office? "At least‍ 3 people should reasonably required to sit and do nothing. Owning a non-moving portolio containing⁠ 1 stock is a serious job!"?
 
lol....sometimes you just have to trust me when‍ I post. If not then just google before posting the above...lol. Have a read of⁠ the following for i.e Netherlands:

https://www.abilitiestrust.nl/Information-and-News/Tax-substance-requirements-Netherlands/
---- start quote

For actual presence (tax substance) in⁤ the Netherlands it is important that the directorship will be provided by Dutch residents. The⁣ Dutch minimum tax substance requirements for holding and financing companies read as follows:

> at least 50% of the members of the board of directors, with a right to make⁢ decisions, lives or is factually residing in the Netherlands;

> the directors residing in the︀ Netherlands have sufficient knowledge to perform their activities in their capacity as a director of︁ the Dutch company. The company has adequate personnel (either of its own or from third︂ parties) for the adequate execution and registration of the transactions;

> the (most important) board︃ decisions are made in the Netherlands;

> the (main) bank account of the Dutch company︄ is controlled from within the Netherlands;

> the bookkeeping of the Dutch company takes place︅ in the Netherlands;

> the Dutch company complies with all its tax obligations;

> the Dutch company has its registered address in the Netherlands, while the company is, according to︆ its best knowledge, not (also) a resident of another jurisdiction for tax purposes.

In case︇ any loans flow through the company there is an additional criterium:

> the Dutch company's︈ minimum equity is adequate in relation to the functions performed (taking into account the risks︉ assumed and assets used). It is advised to have an equity of at least 1%︊ of the loan amount with a maximum of EUR 2,000,000.

It is announced that two︋ additional requirements will be added to the above list:

> the Dutch company incurs minimal︌ wage costs related to holding activities in an amount of EUR 100,000;

> the Dutch︍ company has an equipped office to its disposal which is also actually used for holding/financing︎ purposes.

The date on which this amendment would apply is still unknown.

------- end quote️

I already explained a lot of this in a post at beginning of year below‌ 🙄

https://www.offshorecorptalk.com/threads/eu-asset-protection.27916/post-118141
You can search my post on substance requirements for Irish companies if you want‍ also.
 
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