Estonia e-residency + Portugal NHR

[Nikola]

I recently moved to Portugal and I am eligible for the NHR tax system which exempts me from paying taxes on foreign income. I am considering opening a company in Estonia while my residency will be in Portugal. Does anyone have experience with this arrangement and what will be the total taxes I can expect in this case?
Thanks a lot!

 

[Marzio]

At the very least you will pay 20% tax on divididends distribution from your OU.‌

I don't even start the conversation of managing your OU company from PT that could‍ trigger a permanent establishement there.

 

[Nikola]

I was under the impression that due to the double taxation agreement between Portugal and‌ Estonia, I would be able to pay taxes in the residency country (Portugal in my‍ case). Since I qualify for the NHR in Portugal, one of the benefits is tax⁠ exemption on foreign income, including dividends from companies registered abroad. I was wondering if by⁤ combining these two elements I can actually pay 0% tax on the dividends from my⁣ Estonian company.

I didn't understand what you meant by managing my company from Portugal.

 

[Marzio]

Not really since‍ 20% it's a corporate tax that's deferred upon dividends distribution

When you distribute dividends you'll⁠ pay 20% tax or 14% for regular distributions (maybe you'll avoid the 7% WHT but⁤ i'm not sure)

I presume that as e-resident you intend to operate the⁢ OU from where you are resident, in this case Portugal.

By doing that you are︀ creating a permanent establishment in Portugal so your profits could be taxed both by Estonia︁ and Portugal (if they will find out).

https://www.riigiteataja.ee/akt/770696

 

[Nikola]

It doesn't seem like a great fit. What would you recommend for tax optimization under‌ NHR in Portugal? I heard people saying Cyprus is a good option?

 

[Marzio]

If you don't live for 183 days in PT then you could pair your‍ NHR with a US LLC.

You only need to rent an apartment in PT t⁠ be considered tax reisdent there so If you don't stay long enough in PT to⁤ trigger a permanent establishent then it could work but you have to double chck with⁣ a Portuguese lawyer.

In theory it works.

 

[JC1984]

My Portugal accountant believes Estonia + NHR works, though he suggests Malta instead. Further, in‌ his long experience he's never seen the Portugal tax office come after NHR people using‍ the permanent establishment criteria. That's not saying they won't in the future but generally he⁠ believes if you are a small fish you have little to worry about. I am⁤ already set up in Bulgaria but I find the costs too expensive. I will set⁣ up another company for my girlfriend in Estonia and see how it goes.

The tax⁢ treaty seems to suggests a reduction in taxes from the 20% of distributed dividends, to︀ 10%. But I may be misreading that.

 

[AndyAresa]

hello, JC1984, thanks for this insight re Portugal. Can you give more details why‌ you think Bulgaria is too expensive? head to head tax rate comparison with Estonia is‍ 10+5% for Bulgaria and 20% for Estonia. Is it the company administration in Bulgaria that⁠ you find expensive?

 

[JC1984]

Yes, I'm probably paying too much for admin. Let me break the cost down for‌ you in USD. Bulgarian manager/director: $635.34/month; Bulgarian accounting + tax filing: $264.25/month; Employment taxes for‍ myself and the director ($72.76/month); Health insurance contributions for myself and the director ($99.15/month); Pensions⁠ contributions for myself and the director: $61.96/month; Social security for myself and the director ($224.77/month).⁤ Total = $1355/month or $16,260/year. Note that my Portugal accountant and Bulgarian manager agree it⁣ is wise for me to pay socials in Bulgaria so I do.

 

[Marzio]

That's good to know.‍

 

[Nikola]

My Portuguese Tax︁ Lawyer also recommended Estonia or Malta! Why have you decided on Estonia? What do you︂ expect the cost will be there?
I heard the process is super simple and everything︃ is online, which is a big benefit for me.

 

[JC1984]

I like the idea of using the Estonia corp to defer taxation until dividend distribution.‌ I can compound my wealth faster that way.

 

[Nikola]

That's what‍ I was looking to do as well 🙂 Thought you had some additional insights on why⁠ you decided to go with Estonia over Malta...
I am only now starting to research⁤ these options so I can report back when I have more information. I am looking⁣ into Estonia, Malta, and Cyprus. The goal is to see which one of these countries⁢ is the best fit when combined with a residency in Portugal under NHR.

 

[JC1984]

I'll be interested to see what you find. I have a Malta contact and will‌ calculate their costs and put them here. However, I have an impression that the costs‍ are more than many service providers initially say.

 

[JimBeam]

Have you tried optimising your current Bulgaria setup by first like getting a cheaper director‌ and cheaper accountant as that's where the most of the money is going?

Opening a‍ company in Estonia is one thing but running it is a different one (and banking⁠ will be an issue).
Also, these 16k is how much in comparison to your annual⁤ income?

 

[JC1984]

Good point. I have not tried optimizing. I know there are cheaper options. It's something‌ to look into for sure.
It's about a 10th of the annual income in a‍ bad year.

I've heard the banking issue about Estonia. I also heard the same about⁠ Bulgaria but when I went there it was simple enough. I will experiment with Estonia⁤ and see if it's possible.

 

[Nikola]

I came across this company Xolo. It seems like they cover everything we would‌ need in order to run an Estonian company from abroad. Any experiences with them?

 

[JimBeam]

If you could lower your expenses a bit it might be easier than to setup‌ a new company.

Yes, Xolo Go was my next question as it takes 5.9% (previously‍ 5%) so might be even cheaper than current Bulgaria setup (if you can make it⁠ work). It's a company-as-service approach.

 

[JC1984]

Only from this video:




One issue: I'm not sure you can get a nominee director‌ on your corporate paperwork.

 

[Nikola]

They have a Xolo LEAP⁤ plan as well, where they help you set up your own company. You pay the⁣ startup fees (around 400e, depending on what bank you use) and then a monthly subscription⁢ to Xolo. The cheapest plan is 89e a month. Most expensive 200e.
Their FAQ pag︀e is really good, they have a ton of info on starting a company in︁ Estonia in general.
From what I gathered you can become an e-resident in Estonia online︂ and open a company there online.

• Your company is a tax resident in Estonia, you︃ are not.
  
• You can be the sole shareholder and director, and pay yourself a salary.︄
  
• You don't pay tax on your salary in Estonia, you pay it in the country︅ where you are a tax resident.
  
• You don't pay taxes on your profit as long︆ as you keep it in the company in Estonia.
  
• If you want to take out︇ dividends (or essentially take out money any other way), you pay a 20% tax in︈ Estonia (and maybe something in the country where you are a tax resident, needs checking).︉ For Portugal under NHR seems to be 0% on dividends so far.
  
  It's probably not︊ the most tax-efficient solution but seems to play nice with NHR, and everything is online,︋ in English, and simple.
  
  This is all just based on my research online, haven't validated︌ this with a tax consultant yet. Always do your own due diligence 🙂